Tag: trickle-down economics

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Capitalism

According to the Utne Reader, the 500 richest people in the world control more wealth than the 3 billion poorest. Think about that. We’re all born with nothing. We live on this big blue ball. We have to find some way of living our lives out with whatever resources we have available. This goes on for about 10 million years. We end up with 500 people owning half the planet. If you believe the ideological priests of capitalism, this is great. Those 500 people worked so hard and were so smart that they deserve half of all the wealth on the planet.

Capitalism isn’t a bad system. Communism sounds great in the abstract, but nobody’s succeeded in making it work in practice. There are two big things wrong with it. First of all, it requires a high degree of government control over everybody’s lives. Secondly, it reduces the incentives for people to work hard and produce things of value. It’s unfortunate, but human beings don’t have a great deal of self-discipline. Without a good reason to work hard, we won’t.

Now, all government control is not bad, and people shouldn’t live their lives just to work hard, but I like life in the wealthy west, and I wish more people in the world would have access to good health care, adequate food and shelter, and decent clothing like we do. But it is a myth to believe that capitalism provided these things. Capitalism provided an engine of economic growth, but the widespread distribution of wealth among large numbers of peoples was caused by political and social action, not by economic forces. Governments created minimum wages, social security, unemployment insurance, and pension plans. If it had been up to the fathers of capitalism, most of us would be making 50 cents a day, living in dirty hovels in dark, unlit streets, and working twelve hours a day. The funny thing is, the fathers of capitalism wouldn’t have been so rich either.

Why did governments interfere with the economy? Because socialists and communists convinced many people that workers were also entitled to some of the benefits of economic growth. Because workers joined unions to fight for a share of the pie. Because social activists created organizations and movements determined to make improvements in the lives of the working poor.

Ironically, these improvements in the living conditions of the average worker benefited the very rich as well: without a large market of affluent middle class citizens, where would corporations that sell expensive cars, gadgets, clothing, and furniture, get their customers?

For a short period of time—about the end of the Depression to the 1980’s—the life of the average worker improved steadily. He got better wages, better health care, better social benefits. Then, with the triumph of Reaganomics and the conservative backlash against the sixties, the rich started to take it all back. It started with tax cuts—which primarily benefit the rich—and with the deficits that seemed to justify massive cuts in social spending (but never, of course, in military spending). Since then, there has been a steady erosion of government programs that benefit the poor and the middle class, and a steady increase in the proportion of wealth in this country that is held by a small percentage of the very rich. Maybe you used to make $34 thousand a year. Now you make $36 and a half. A top executive at a large corporation used to make $250,000.00. Now he makes $100 million. I am not exaggerating. Lawyers win huge settlements and take in millions for themselves. Athletes have steadily increased their income by 10% or more every year since 1972. It seems very odd that the president of the United States still makes a paltry $250,000. Why? Because voters believe it would be outrageous to pay the leader of the most powerful nation on the planet more than Albert Belle?

It’s time for the pendulum to swing back towards the middle. Increase the minimum wage, strengthen the unions, cut military spending, put more money into the schools, reduce tuition costs for colleges and universities, and put some money into redevelopment of inner city cores, state and provincial high ways, and urban greenbelts.

 

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Born on Third Base

I was a little flabbergasted to discover that the reason the Government of Canada was finally able to balance their books this year was not because of all the slashing and burning over the last five years that have left Canada’s social and health care programs in a tattered wreckage. No, that’s not it, and the next time you see Prime Minister Jean Chretien beaming with self-satisfaction at a press conference, please throw a pie in his face.

No, the real reason the deficit has come down is simpler than that. It is because interest rates have come down, and because the economy is in the middle of the longest continuous growth spurt since the early 1960’s. Anyone who has renegotiated a mortgage from 10 3/4% down to 7 1/4% knows what effect interest rates have on a large amount of money. All of those budget cuts? They might have accounted for only 1/3 of the necessary savings.

There are some people out there who believe that the entire budget deficit was just a plot by the very rich to create a huge financial crisis to convince the general public that taxes are bad and that the government can’t be trusted with the management of public resources. The way the plot worked was this:

  • the government used taxes to address the massive imbalance of wealth between the rich and the poor
  • the people supported this activity
  • the government raised taxes, primarily on the well-to-do, to subsidize social programs that help everyone or just the poor.
  • the rich realized that if this system prevailed, they would only own five homes, not ten, and eleven Bentleys, not eighteen, and decided something must be done.
  • the rich, who control the stock market, the bond market, and the Federal Reserve, caused interest rates to go up, to “cure” inflation, at the cost of higher unemployment, which, of course, does not affect the rich.
  • Ronald Reagan, the tool of the rich, reduced taxes on the rich, while actually increasing government spending, especially on the military, which, combined with the interest rate hikes, thereby created a massive government deficit. The media, another tool of the rich, hammered home the idea that inflation was evil and must be fought at all costs, even to the extent of increasing unemployment and government debt.
  • the general public, not aware of the real cause of the budget deficit, became appalled at the size of the budget deficit and demand leaders who would reduce it, without raising taxes.

Here the plan goes astray: Bob Dole, Preston Manning, and John Major were supposed to be the beneficiaries of this strategy. In each case, the public, far more rational than the media give them credit for, elected relatively moderate, compassionate leaders.

Bill Clinton and Jean Chretien and now Tony Blair oblige the ill-informed public by slashing social programs, while maintaining the rhetoric of tolerant, compassionate liberals. Largely, this translates into same sex health benefits, a harmless frill, while diverting billions of dollars in wealth back into the hands of the rich.

The net result: a massive shift of wealth from the laborer to the investor. Read the newspaper, watch tv: how does the media interpret the state of health of the economy? In jobs? In pay for the average dude? In health care or social programs? No! In the value of the stock market, and in the returns on investment for the average stock-holder. When Chain-Saw Al Dunlap takes over a company and promises to slash tens of thousands of jobs, the value of the stocks of this company go up. Great news! You’re out of work! Your family can go to hell, we don’t care– as long as the stock market continues to rise! (One interesting irony: so-called pro-family politicians and religious leaders don’t seem to be “pro” your family, when your job is lost: they support the “lean and mean” economy, lower minimum wages, and anti-union measures. As far as they are concerned, you can go work at McDonalds.)

Here again, the plan has gone somewhat astray, in that growing numbers of middle-class wage-earners are investing in mutual funds, causing an unprecedented string of growth years for the markets. I don’t think anybody really knows what this means just yet.