But before we start into what's going on and who's got a better idea, here’s a couple basic facts and a brief lesson of the American economy to qualify all the talk about
finance and the solutions which lie therein:
- America shows every symptom of a nation in decline. Like Spain in the 1600’s, the Dutch in the 1700’s, and the Brits in the late 18/early 1900’s (that’s right, our three colonial founders), our rising comfort levels, augmented by emerging explosions of technology, have led to societal economic downfall. In Kevin Phillips’ brilliant study of the birth and growth of the American economy and its role in our country's history, WEALTH AND DEMOCRACY, he points to the overwhelming evidence that “great individual wealth-holdings, a troubling mix of national fortunes and misfortunes, and widening internal gaps between the rich and poor often reflect a point well past the zenith.” Plus usually a bloat of military spending puts the final nail in the coffin (whether the 30 Years War for Spain or WWI for Britain). But mostly it's the fact that when push comes to shove, a trader or advisor can live anywhere, especially today. So if your country's industry is mostly based in international commerce and finance, said white collar "markets" industry can move to the new country with all the money and the thing that can't be moved easily - that is, physical factories and a massive workforce.
- BUZZWORD: "Supply side economics." Everybody has a solution. This idea is that the ramping up of production and supplies via encouragement of business owners will trickle down to the workers who will then turn around and spend more money, thus forming a beautiful symbiosis of both raised consumerism and raised profits. It should be noted that an early form of to supply-side economics was one of a few causes of the original Great Depression, where rampant speculation and easy debt led to an explosion of goods and keeping up with the joneses (people who bought Ford cars on credit but didn't yet have electricity) which ended up exhausting and bankrupting both workers and the marketplace. Also, growing profits at corporate HQ’s usually led to greater investment in machinery which put average people out of work and then, most recently, took their jobs away completely and sent them to another country. On the other side, it’s a simple equation that without new companies, and certainly without new industry, our country’s trajectory is decidedly downward (look at point 1). It should be noted that the 80’s were marked by national economic crises chalked up to stagflation (a phenomenon of rising inflation and unemployment) and the failure of Reagan’s supply-side economics (Reaganomics)
- Taxes. This is a thorny one, with one side saying they should be lowered while the other saying they need to be raised for the top earners. And there are debates about entitlements and so on which bring into question whether we should be on the hook for people who don’t pull their own financial share such as welfare recipients, though the biggest and most worrisome chunk of the money is going to the retiring baby boomers who paid into a program bankrupted by poor investments, crooked money managers, a corresponding national recession, and a dropping pool of people paying into these funds on the eve of their retirements. But there’s a simple fact one needs look at to get some perspective. For all intents and purposes the American high water mark was the 50’s. Wages were at an all-time high, for the first time MIDDLE CLASS wives could stay at home while the husband made enough to buy 2 cars and make the mortgage. Blacks and whites. Raise Bobby and Susie right. White picket fences. The American dream in action. There are a bunch of other factors at play here, from the decimation of the rest of the Western World to an explosion of new industry and tech bankrolled by the war. But also
a.
Median Taxes in 1955: 9.06%. Top 1% effective
tax rate: 85.5%.
b.
Median Taxes in 1965: 16.06%. Top 1% effective
tax rate: 66.9%
c.
Median Taxes in 1980: 23.68%. Top 1% effective
tax rate: 31.7%
(statistics are per Alan Lerman of the U.S. Dept. of the Treasury
Office of Tax Analysis)
So what this shows is that during our era of greatest comfort and idyll enjoyed by the greatest amount of Americans, the top 1% were paying between 67 and 85 per cent. These high rates first appeared during wartime, when citizens were ready to sacrifice for their nation. Those taxes were used by the government to pay for manufacturing for the war effort, which then ramped up American industry. Once the rest of the Western world was decimated, our heavy industry established the American Dream. A similar period of comfort and increased industrialization leading to better times for the nation occurred in the wake of the Civil War, with southern reparations used to augment Yankee industrialization. So by "nation" I'm referring to the North, which was strengthened on the backs of Southern former wealth.
See, post Civil War, basically the south paid for the first real American industrialization which led to good things happening (in the North) which led to comfort which led to speculation on railroads which bankrupted a lot of people but especially the British who were heavily investing in American railroads because they were the top world economic power and as such no longer had much of their own industry so had to invest in some other country's. This, combined with WWI, ruined Britain. America rested on its laurels, then tried out the first experiment with something like supply-side economics, wound up with too much stuff and not enough people to buy it, which led to a drop of purchases to failed companies to a drop of jobs as well as an over-farmed farmland and thereby the Great Depression and Dust Bowl. Banking regulations and regulators began to appear to make sure that such rampant, debilitating and at times deceptive manipulations and speculations could not happen again, especially via something known as the Glass-Steagall in 1933, which specifically addressed banks and associated financial vehicles, and the formation of the SEC to regulate speculation and securitization. That, combined with the war effort, made us financially and infrastructurally great thanks to the taxes-as-seed-money from the top 1% (I'm not even going to bring in the New Deal et al for the controversial over what exactly got us out of the Depression besides a world war).
But as tends to happen, people get comfortable, become proud of themselves, forget that this big boom came because of heavy wartime tax-funded government spending to build up factories and the decimation of all competitors, and decide to start reversing laws. Cutting down taxes on the wealthy because no doubt 85.5% is a bit too high for anybody and raising them for everybody else because 9% is certainly too little. The thing is, the dropping taxes were reflected on balance sheets as people having more money, the country doing better, and as such investment in stock came from the top % which began the growth of the stock market. The government in turn invested in the newest "railroads", namely computers and biotech and the Internet which not only gave Wall Street something exciting to sell and buy but also revolutionized how Wall Street did business. These also allowed companies to automate jobs, thereby cutting workers which made profits grow along with unemployment; that, combined with moving jobs overseas in greater numbers began America's modern polarization, with an investor class and then everybody else. The government bailed out banks and implemented laws that benefited (as well as cut those who held back) those who were getting richer via the stock market as they in turn would turn around and make sure to fund those campaigns. While 85% against 9% is absurdly too wide a difference, the paradigm of taxes being about even has been historically a not-so-good thing.
If the explosion of investment and government subsidization of finance began in the 80's, it hit its stride in the 90's. Between slick Bill Clinton deregulating financial and corporate regulations and the blossoming of hundreds, hell thousands of tech companies, and the growing ability to trade online and over the computer and interweb which allowed for a whole new breed of market manipulations and vehicles (i.e. the ability to make fucking ANYTHING into a security or, essentially, a vehicle in which people could "invest" in spite of its growing similarity to back-alley betting), speculation was at an all-time high. This resulted in the dot com bubble, which burst in 2000 after a good chunk of companies with stock valuations hundreds and thousands of times bigger than actual earnings simply went under because there were too damn many online companies and not enough demand.
This would have been a time to pull things in. To start looking at other places where rampant speculation was occurring. For example all the unregulated energy speculation committed by Enron, a company who counted as one of its best friends George W. Bush, who logged in more time on their company jets than any other non-employee while he was Governor of Texas. This unregulated speculation led to the Enron collapse in 2001. Then there was the further dropping of taxes for the top percentages of wealthy Americans, compounded by an overly costly war without any chance for reparations - should we "liberate" Iraq, what, were they gonna give us oil for free? Anybody who took a Freshman sociology course could tell you that, no, Iraq would and could not just turn around and give the American hegemony free oil for fighting their civil war. So this was a war without any real gain which, compounded with lowered taxes, drained the government of its money which could have been better spent by fixing the levees in New Orleans or even building a fucking island shaped like George Washington - anything would have been better than the Iraq war and now, increasingly, than the Afghanistan war as well. Also, it must be noted the comedy of wealthy hawks pointing to increased military size and presence who aren't willing to increase their taxes to pay for it, much less send their children off to fight it, opposite to WWII's themes of sacrifice and rich AND poor doing their duty.
At the same time securities and derivatives and credit default swaps and so on began to evolve as mathematical evil geniuses, given carte blanche and incentivized by absurd amounts of money, invented more and more advanced ways to find glitches in the matrix through which they could "grow wealth" - though there was seemingly little incentive to grow actual productivity, the original reason for having stock markets and the wealth grown was, therefore, mostly just a fictionalized accounting of electric numbers on virtual ledgers.
This wild west of money manipulation led to a bunch of bankers playing fast and loose with money which would not normally be available for such speculation had Glass-Steagall not been repealed by Clinton and the SEC been gutted by Clinton and W. and, along with the Fed, been turned into essentially a revolving door between the regulators and the people they're supposed to be regulating. It's like high-ranking detectives in the NYPD leaving the force for a lucrative position with the Mafia and then heading back from the Mafia to the NYPD to "enforce th laws". Of course eventually shit's gonna go down. Which it did, in 2008, when all the speculation came to a head and burst but this time with reserves and manpower drained after a decade of wars with no real well-delineated goals and no real foreseeable benefits as well as a workforce increasingly unemployed and unemployable thanks to radically escalated industrial outsourcing and technology gains which raise productivity at the expense of actual humans. Think of something as simple as how many receptionists were replaced by automation, leaving you to swear into the phone because they won't put you on with a fucking person (if you start swearing on an automated line, by the way, the computer supposedly identifies that you're irate and sends you to an operator much faster).
Obama bailed out the banks because he was told they were too big to fail. And while the TARP funds for the most part have been paid back (or at least a majority of them have been), this massive government expenditure had very little trickle down to the average American whom the government claimed it was trying to rescue. And while the whole "too big to fail" moniker might be true, it's only because we allowed them to grow that big (Bank of America, for example - used to be a bank can't operate outside its own state as it might make them too big but, alas, the Bank Holding Act of 1956 was gutted by the Gramm-Leach-Bliley act of 1999 and then, boom, they take over the fucking world and need to be bailed out because their collapse following an ill-timed acquisition of Countrywide would have trillions of dollars of ramifications) that they became giant liabilities to our national economic safety. Then he was faced with the stark truth - the US Government has done everything it can to encourage American financial and white-collar growth at the expense of its blue collar workforce, thus making us into a middle-man country of pencil-pushers and it's easy to cut out the middle man when times get tough. America's also embraced new technologies, essentially leaving behind any and everybody who was born and trained before, has no access to, or can't afford to be educated in the usage of computers and other modern technology - essentially, we've created our own highly-unemployable lower end to the workforce. And yet Obama has to build this service-based economy (though the services aren't much needed) and to put to work these people the world has passed by?
Tune in here for a rundown of where we are now and what Romney and Obama are suggesting to fix what's obviously a hideously-broken economic situation.
- Ryan
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