Watching Headline News today and CNBC on Friday has really depressed me. The talking heads just do not understand what is going on with OWS. Especially after finding so much to cheer about with the teabaggers.
I’ve been a utility executive and adjunct college professor for the past 25 years I find it disappointing that the young students and adults who are returning to school don’t understand the major changes that are occurring in our world economy. They do not understand the role that government, both federal and local, plays in creating the infrastructure and conditions necessary for capitalism to exist.
These young adults have grown up at a time when the media claims that the federal deficit is the “most important issue of our time” with no explanation of why or countering arguments. They listen to CNN make false arguments about the need for spending cuts or caps at the federal and state level without discussing the implications of increasing wealth disparity in America. Fox “news,” ABC, CNN and CNBC are on their never-ending quest to promote corporate interests over income equality and economic growth. They hear the leading republican presidential candidates dismiss evolution in favor of creationism and scorn science as overrated. They don’t understand the effects of financial instruments, such as Exchange Traded Funds (ETFs) on commodity prices or the way corporate and Wall Street interests have changed the rules of finance in their favor at the expense of small investors. Many of them who have never invested think that they can beat the market with their retirement savings and don’t need social security.
They listen to Michelle Bachmann dismiss the need for vaccines and rely on discredited research by a anti-vaccine zealot; Perry and Romney dismiss the science supporting global warming. They hear Dick Armey argue against any type of environmental regulations or worse, argue that “we do not have to worry about climate change because God promised in the Bible not to destroy the world again after Noah’s flood.
Is it any wonder that young adults don’t have ability to separate fact from fiction?
American’s today do not understand the different arguments about restoring the economy to full employment. The past five years have been scary for the American worker and corporations and big business has spent five years trying to shift the blame from their actions to government. And they have largely succeeded, at least in the mind of the average American.
My students are no different than many adults in our country. They don’t understand the implications of an economy in transition from a manufacturing economy to a service based economy. A service based economy that requires fewer but better trained workers each year. An economy that does not offer any way for the majority of people to improve their income status but does offer numerous ways to fall to the bottom of the financial ladder.
Americans do not recognize that they, and their children, are more likely to fall into the under-class in the next ten years rather than move into the over-class or even stay in the economic class they currently are in. Most of them are optimistic about their future even as they recognize the challenges facing the country. A recent poll showed almost twenty percent of American’s expected to be millionaires in the next ten years, even as statistics show most people dropping down the income scale.
My belief of the future lies more along the lines of William Gibson or Phillip Dick’s, a future where corporations are more important than government or the corporations are the government. There is nothing new about what I see as the likely dark future of America. The question has always been about how quickly corporations gain dominance, not whether or not corporations will eclipse government as the important factor in people’s lives. With the tea party’s discovery of Ayn Rand and republicans’ willingness to destroy the economy in order to lower taxes, the road to the future madness has been discovered.
Listen to Mitt Romney talk about how “corporations are people” and the Supreme Courts rationale for the Citizens United decision and one would conclude that the Republican Party has been agitating for the rights of some disadvantaged ethnic group rather than fighting to expand the economic and political power of corporations. Listen to the rhetoric from the right wing about “job-killing regulations” that were implemented to protect people from corporation’s behavior to shift costs from themselves to others.
The media does not point out the inherent contradiction between the push to stop unions from spending funds on political campaigns at the same time businesses have seen their limits on contributions eliminated under Citizen’s United. Why should business have the right to continue to buy their local politician while workers are prohibited from spending money on elections? Maybe business doesn’t like the competition that drives the price of owning a politician up.
War is being waged against the American middle-class and most Americans don’t even realize that they are in a battle.
If ongoing economic trends are not reversed, the current “Great Recession” will just be seen as a defining event in the continuation of the long-term elimination of the middle class. Within the next twenty years, we are likely to see the US population divided into two primary groups, a small super-wealthy over-class that receives most of its income from capital and a working under-class that depends upon short-term employment to meet basic living needs.
Today we see apologists like Michael Mandel, formerly the chief economist for Business Week, argue how people will be better off if they just get used to working shorter hours, but at a higher pay level, than wasting their time going to an office for 5 days a week. The reality is that people who work fewer hours generally work for less, not more.
We already see the effects of the changing economy on American’s standard of living. Over 15 percent of American’s live in poverty and more than 1 in 4 children. It is much more likely that a person today will fall down the economic scale rather than move upwards.
It was a manufacturing economy that allowed many Americans the opportunity to move up the income ladder. The industrial age began in the textile industry where it eliminated the livelihood of families that had for generations weaved textiles. But with the development of steel plows, reapers, tractors and other farm equipment following the Civil War, along with the railroad to take produce even further from the point of production, farms had to become bigger to earn enough to support the farmers. America began leaving farms and moving to the cities where they could work in the factories.
Factories offered a form of upward mobility that farm workers did not have. A person could start as a laborer and then move up to supervisor or foreman and then into management. With the immigrant waves in the 1850’s and post-World War 1, the factories were a place for work, integration into American society and, eventually upward income mobility.
But factories were a dangerous and low paying place for most workers. While the typical person might be able to live as well as they could farming, for many workers and children the factories were almost equivalent to indentured servitude.
By 1900, the abuses had gotten so bad and widespread that government was finally forced to step in and establish a variety of laws to curb business abuses, especially in food safety, child labor and curbing monopoly power. Today, business is again attempting to dominate the political and economic systems at the expense of the individual. It took the muckrakers like Sinclair and Norton to wake American’s to businesses abuse in 1900. Today, with the concentration of the news industry, there is no one to point out what is happening to the average American.
America is seeing a repeat of what happened at the end of the 19th century. At the beginning of the twentieth century government stepped in to stop the abuse of the population by business. Following the Civil War, businesses were happy to exploit workers and use monopoly power to set prices paid to suppliers at below the cost of production.
Unlike the tea party’s idea of 19th century America as a bastion of ethics and hard work and gentlemen farmers, it really was a miserable place for most people. Most workers living in cities lived in stages of poverty. People living in the Midwest and south in agrarian economies depended upon weather to survive from year to year. Factory towns and monopsony’s and railroads preyed upon the small farmer.
Even after the initial burst of government activism against corporations in the 1900-1915 period, government went back to sleep during the 1920’s. President Coolidge made his innocuous statement that “the business of America is business” and businessmen like Carnegie and Mellon and Rockefeller were deified as they built their empires even as they fought against unions and regulations easing the plight of their workers.
The economic expansion of the 1910-1925 was partially due to the increased demand for war materials prior to WWI and then the emergence of the auto industry and the beginning of a transformation to a automobile based economy.
The US economy actually began dipping into recession in the mid-1920’s when the Midwest entered a long-term drought. By the early 1930’s almost 10 percent of farmers from Oklahoma had begun a migration away from Oklahoma, primarily to Arizona, California and Oregon.
Demand from Europe helped hide the decline in domestic demand in the late 1920’s. But as Europe continued rebuilding its industrial capacity following WWI, demand for imported US goods began falling.
But when the banks collapsed in 1929, the rest of the US economy fell into recession.
It’s important to realize that much of the financial sector collapse was due to fraud. Banks would take depositors funds and invest them in the stock market using margin. When the stock market declined, losses were magnified and the banks collapsed, wiping out the savings of individuals who trusted the financial sector.
One of the first things Roosevelt did when becoming president was implementing a series of banking reforms including the famous Glass – Steagall laws that significantly reduced the ability of banks to do anything except take deposits from customers and make specific types of loans.
It wasn’t until the mid-1930’s in the midst of the Great Depression that government began acting for the benefit of its citizens, rather than maintaining the laissez faire philosophy that dominated economic policy up to the 1930 period.
Government didn’t know how to respond to the shrinking economy. It took an English economist, John Maynard Keynes, to propose government deficit spending as a way to bring the economy out of a demand deficit economy. Keynes’ ideas convinced Roosevelt to start government programs aimed at creating employment and building infrastructure, whether it was the Hoover Dam or Mt. Rushmore.
Even then, the conservatives fought the expansion of government. Prior to Roosevelt the role of government can be summarized as defense and protection of private property. Roosevelt expanded the role of government to mean economic security. Conservatives fought Roosevelt then using many of the same arguments Republicans are using today.
Conservatives in the 1930’s argued that the government had to get smaller and people had to save more to get the economy back on track. Today, we hear the same argument. Get government out of the way of business and the economy will grow. Listen to CNBC each morning and this theme is hammered over and over with no factual basis. But it doesn’t matter so long as the argument is made.
Demanding austerity from government in the late 1920’s helped worsen the initial stages of the Great Depression. Demanding austerity from government in 2011 is worsening the Great Recession today.
Roosevelt guided the nation through the Great Depression. But it took World War II to bring the nation out of the demand deficit that led to the Great Depression. Roosevelt was determined that the nation’s economy would not revert back to the recession once war demand ended. In 1944 Roosevelt presented his Economic Bill of Rights that helped define the role of government for the next 40 years. Roosevelt’s Economic Bill of Rights stated that people had a right to:
• A useful and remunerative job in the industries or shops or farms or mines of the nation;
• To earn enough to provide adequate food and clothing and recreation;
• Every farmer to raise and sell his products at a return which will give him and his family a decent living;
• Every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad;
• Every family to a decent home;
• Adequate medical care and the opportunity to achieve and enjoy good health;
• Adequate protection from the economic fears of old age, sickness, accident, and unemployment;
• A good education.
While Roosevelt and liberals believed in the Economic Bill of Rights, it was derided as a socialist ploy and with Roosevelt’s death, treated as no more than any other plank in a party platform.
With the economic expansion following WWII, Roosevelt’s goals were quickly forgotten.
But the wealth created by public programs during the Great Depression stayed with the nation. Consider the national park system or the water projects like Hoover Dam, the Tennessee Valley Authority or Bonneville Power Administration. Water projects that stopped periodic flooding created a stable source of water and power for the regions they served. Projects that are derided by Republicans today serve as tremendous sources of wealth and jobs for the current population.
The pent-up demand of the 1930’s and 1940’s keep America from falling back into depression in the post-war era. But there was something else that helped shape America’s future.
Communism was making inroads throughout Eastern Europe, Africa and Asia. American leaders were afraid of an increased communist movement in the US. In the early 1930’s, veterans of WWI had organized marches against government. People argued for food programs. Roosevelt and the rest of the federal government were not going to let the nation fall into depression and send all the returning veterans to the streets. It is one thing to have an untrained population demonstrating. It is another thing entirely to have well trained combat tested veterans rioting against the government.
The GI bill paid for returning veterans to go to college (among other things. Veterans could also demand 40 acres of farmland if they wanted to return to agriculture). As a result of the influx of returning veterans going to school, there was a massive increase in building and staffing new colleges and universities in the late 1940’s and early 1950’s.
It was when the veterans began graduating that the true impact on the US economy was felt. The US had the best trained scientific workforce in the world that was able to expand the US’s advantage in aerospace, telecommunications and computers.
It was no accident that the US technology advantage surged in the 1950’s and 60’s. The impact of government education programs in the 1940’s created the human capital that would jump start the American economy and give the US a ten-year technological advantage over the rest of the world.
When one examines the growth of the US economy since WWII, you can identify major technological trends that drove the economy. In the 1950’s and 60’s it was infrastructure construction (the interstate highway construction program) aerospace and communications (and Vietnam). In the 1970’s and 80’s it was computers. In the 1990’s it was software and information technology. The 2000’s have been characterized by biotechnology and telecommunications.
I have glossed over the impact of construction in the 1990’s and early 2000’s as a driving force for growth and the dead weight on the economy since 2007. Construction has a significant impact on the type of jobs created by the economy. Construction employment impacts the low and semi-skilled worker and has a larger impact on the economy than high tech, high technology jobs that draws from a much smaller, better educated labor force than construction. The collapse of the construction sector is one of the reasons that the recession that began in 2007 has had such an impact on the economy. Low income, semi-skilled workers have little alternatives when construction slows down or stops. Better educated workers can work at jobs that they wouldn’t consider during good times, but lower skilled workers have nowhere to go.
One can go back through the growth of the US economy for the past 70 years and a single salient fact thing stands out. Government has been the major driver of economic growth. Government spending and government priorities have directed technological and construction activity and then business takes over and commercializes and capitalizes on government spending. A person would be hard pressed to find any major technological advancement that did not grow out of government investment in defense, aerospace, communication or infrastructure.
There are two issues that are seldom discussed by the media today primarily due to the difficulty in explaining them and because they run counter to the current talking points. First, the transition of the US economy from a manufacturing economy to a services/information economy means that fewer workers are necessary, especially lower educated and unprepared workers.. The transition of our economy guarantees a permanent underclass is being created.
The second is even more difficult to explain to a non-economist person in a thirty second time slot. Essentially, it boils down to “markets don’t work when the economy is dominated by a few big firms.” Americans have been told to trust the market. But this argument depends upon a competitive economy with lots of firms unable to influence price. When you have a market dominated by a few big firms, markets don’t work. There is no guarantee that even if demand increases, increased employment or wage growth will occur. Look at what has happened the last two years in the employment market even as corporations recorded record profits. Employment dropped. Why should firms increase hiring if they can meet the demand for their products and services with a smaller work force. Why should they increase wages and salaries if there are unemployed workers ready to replace existing workers at a lower salary?
Markets also don’t work when the financial sector interferes in physical markets. One of the worst things that has happened to commodity prices, such as gasoline, natural gas, gold and silver, has been the creation of Exchange Trade Funds (ETFs) that allows financial traders to invest in commodities. ETFs allow equity investors to manipulate the price of commodities outside typical supply/demand considerations. Since the creation of ETFs the volatility of commodities has increased prices have moved up. There is not a single commodity that is traded as an ETF that has declined in price since ETFs were introduced beginning around 2002.
The last half of 2011 and 2012 are going to show the beginning of a national economic race to the bottom. Here is what is going to happen. Job growth will be anemic or flip into employment contraction as we enter a period of slow or no growth. Because large corporations now has effective control of the Republican Party, or at least a veto power, Keynesian stimulus of the economy will not be allowed, in spite of President Obama’s recent half-hearted attempts. With fiscal stimulus options blocked, Obama and the democrats are going to start slashing environmental and consumer protection regulations, government anti-poverty programs, reducing taxes, especially corporate taxes in an attempt to create jobs and cater to right wing talking points.
Most state and local governments will have to follow the federal government in cutting spending. Without federal government assistance they won’t have a choice. Social programs, education and income security programs will be cut. Private schools for the wealthy will pop up to replace public schools in wealthy enclaves. Private security firms will replace or supplement the police.
Spending cuts will grow to encompass both future and existing guaranteed pension expenditures. Any type of employment security will be a thing of the past. Jobs will continue to be temporized as businesses continue to cut labor costs to compete with foreign businesses. Any type of labor movement, retirement benefits or a right to medical benefits will be slashed.
But even this won’t be enough for the new corporate aristocracy. There is already tremendous public support for cutting future defined benefit pensions of existing retirees, especially government retirees. There is also a growing movement to cut existing benefits of current retirees either through corporate or municipal bankruptcy proceedings. Once a legal justification that stands up in court is identified, current benefits will be reduced. Large government pension funds like CALPERS are already reviewing the benefits of existing retirees to see if they can be reduced and past benefits recovered by changing the rules governing payouts.
Republicans have bought into the idea that business is more trust-worthy than government. But ask a question – if you have a billing issue with Bank of America or your local government, which is likely to be more responsive. Which due to oversight and access to decision-makers, is likely to resolve your problem. Business today has a simple solution – report you to a credit union and let you fight it out with them.
Government also has a different time frame than business. Big business and corporations are looking only a few years into the future, if that long. You would be challenged to find a corporation that is making decisions today for 5 or 10 years out, unless it is in partnership with government. Government however, regularly plans five, ten or twenty years into the future. Government policy is dedicated to the preservation of society, not short-term returns to a few.
The rightwing is continuing its fifty year old campaign to eliminate all poverty programs regardless of the impact on the poor, disabled and elderly. There is nothing wrong with children and the dying elderly on the streets to the Republican Party today. It just shows that the free market is working. Never before has a US government been so taken over by selfish, morally bankrupt individuals as the republican leadership today with Cantor, Ryan and Paul who try to justify taking wealth from the poor and giving it to the rich. Even the political rhetoric of defining the wealthy has changed. Now they are called the job creators (a la Ayn Rand), rather than the wealthy. The poor are drug abusers and those too lazy to work.
Republicans and the right also don’t understand externalities. Listening to anti-regulation fanatics like Rick Scott, one would think that the only reason for regulations is to penalize business for producing. Never is the argument made that business needs regulation so that it doesn’t harm society in the pursuit of profit.
Consider a simple case of food safety. Anti-regulation zealots argue that a company that distributed tainted food would be shunned by consumers and go out of business. In reality, even with food safety laws, firms routinely ship tainted food throughout the country in the hope that the few people that get sick (or die) can never identify the source of the contamination.
A few years ago, a meat company announced that it would test all its products for safety. The firm was sued by the Bush Administration (which ultimately won) to prevent it from using its testing as a marketing point. So much for free enterprise.
Republicans attack environmental and safety regulations as barriers to job growth. Recognize that most regulations are attempts to force businesses to pay their full share of their impact on the environment and local government infrastructure. Reducing regulations is nothing more than a further subsidy to business from the household sector.
Look at the effects of reducing regulations. Ask the (dead) coal miners of Massey Coal if ignoring regulations to improve Massey’s profits were worthwhile.
Cutting government spending and deregulating business will not spur job creation in the face of declining demand. If anything, business will accelerate its investment in China and India where the large, poor populations, provide some level of increased aggregate demand. There is no evidence reducing taxes creates private sector jobs
An aggressive conservative republican and tea party fringe are determined to reduce the size of government exactly at a time when government spending should be increasing and taxes on the over-class increased to redistribute wealth. To the right wing, there is nothing wrong with the poor dead littering the streets and security firms driving SUVs packed with private security forces through downtown streets protecting a wealthy businessman from the annoying masses.
In the end the US is going to face years of low economic growth, no employment growth and the decimation of the middle class. The tea party and corporate interests will ultimately win. Wealth will be increasingly concentrated and job opportunities will disappear.
Today’s economic events are following the pattern of what happened in the 1920’s and led to the great depression. Roosevelt was able to stand up to the over-class at that time. President Obama has not shown that he is able to resist the pressure from the rightwing. He hasn’t shown any inclination to fight the corporate interests yet, apparently preferring to try to find the middle grounds for compromise with a political party that will not compromise.
Consider the tax code that has grown into a monstrosity of injustice. Everyone agrees that it is unfair. But beyond that, people can’t agree why it is anti-growth. Even though the largest corporations have an effective tax rate of zero (or even a negative tax rate), Republicans are arguing that the corporate rate is too high and needs to be reduced. Even though dividends are no longer taxed if they are paid from after-tax profits, the Republicans want capital gains and dividends to be taxed at an even lower rate to encourage capital formation even though the world is currently drowning in liquidity and there is no immediate need for capital.
Republicans want to raise taxes on the middle-class and poor to avoid taxing the wealthy their fair share. Over and over we hear the argument that there just aren’t enough wealthy to pay the taxes. But over 90 percent of the wealth is owned by the wealthiest 1 percent of Americans. If they would pay the same share of income tax (or better yet, a wealth tax) then there would not be a budget deficit and America could have good schools, roads and a modicum of income equality.
Instead, we are hearing the need to raise taxes on those with little income who spend everything they earn which would just result in lowering demand and reducing the need for increased employment.
Even worse, we are hearing calls for a value-added tax (VAT) or a federal sales tax which again increases the tax rate on low-income individuals and lowers it on high-income individuals.
Most people who read Atlas Shrugged learn enough in high school to treat it as a ridiculous parable by a deranged individual. Unfortunately, Republicans are treating it as a real alternative in today’s world. Republican tax policy is no more serious than a princess learning how to spin gold out of straw. Right wing tax proposals should be treated no more seriously than the fairy tale.
If American wants to return to global economic dominance and grow our national economy, then it must quickly change the direction of our economic policy.
Our college system is broken. Rather than increasing the cost of education and shifting costs to our young students, college costs should be reduced.
American citizens need to be protected from runaway health care costs. While there might be some legitimacy to the need for tort reform, more importantly is the need for a single-payer insurance system. Obamacare is a start, but it does not go far enough in protecting American’s from a health care system that seems as dedicated to protecting your health as making sure you become poor.
American infrastructure is adding significant costs to both business and consumers. President Obama’s plan to add jobs by rebuilding the nation’s roads, bridges, dams and airports needs to be implemented.
The return to capital is too high and return to labor to low. It is time to recognize that the high return to capital is leading to the disparity in income equality. Rather than reduce taxes on capital, it is time to increase them with investment in job producing (not job reducing) alternatives resulting in tax credits.
Moving jobs overseas and increasing imports to the US is a major reason firms look to the Far East as an attractive place to invest. Tariffs should be increased on imports from countries that have low wages relative to the rest of the world.
The ability of banks to take unnecessary risks with other people’s money needs to be restricted. Banks should be regulated like a utility with a maximum return on investment. If entities want to invest in risky alternatives, they need to put their money in uninsured risk pools or hedge funds that is responsible for profit and the principals take responsibility for bad investments.
The joke that corporations are people has to be changed. No longer can corporations be allowed to make political donations or spend money lobbying. Corporations should be restricted to essentially being a way to hold and manage assets without fear of death impacting the operations of the corporation.
The rate of pay to corporate executives needs to be reduced. Horrendous returns for failure need to be eliminated. Corporate Board of Directors who should be responsible for the oversight of executive salaries has to be reformed with more independent directors on every board. This includes a maximum number of Boards that an individual can sit on.
These necessary reforms will at least stop the corporate takeover of America but by themselves are probably not enough. But until big business is forced to relinquish its control over congress,
America’s economy is a mess. Republicans seem to think that we can have a stable economy with 25 to 50 percent of people living in poverty and divorced from our economy system. Maybe Cantor, Ryan and Rand think people are going to act like Eddie in Atlas Shrugged and just accept that there is an American aristocracy but I don’t think so. Corporations may ultimately dominate our economy if things don’t change but corporations and business leaders are going to have to devote tremendous resources to protecting their property and safety.