The Middle Class—Death by Finance

I recently became aware of an economist’s determination that total wealth in the U.S. peaked in the 1970s. That seemed odd, to say the least, but then I heard the mental tumblers clicking into place, one after another.

How could our total wealth not be still increasing? Aren’t taxes low, aren’t hedge fund managers making millions and millions each year? Then it seemed not so strange, in fact it seemed quite logical. The hinge pin is, of course, Wall Street. The reason Wall Street was invented and continues to exist is to allocate capital. Investors put up money by buying stock in companies and the companies grow and prosper and pay back the stockholders with interest. The stock market gets paid by skimming a little off the top as “fees.” All is well and good. But then some geniuses decided that financial markets could be used for other things than allocating capital, they could be used to create capital. Thus were born all manner of unusual “financial instruments” to the effect, I am told, that Harvard University even teaches “financial engineering” or how to do this.

There’s but one problem with this. Financial markets cannot create wealth, merely redistribute it. So, as more and more capital was distributed to financiers through these “new and improved” financial instruments (derivatives, collateralized mortgage obligations, etc.) less and less was distributed to people who made things and created actual wealth.

According to some sources from 1973 to 1985, the financial sector never earned more than 16 percent of domestic corporate profits. In 1986, that figure reached 19 percent. In the 1990s, it oscillated between 21 percent and 30 percent, higher than it had ever been in the postwar period. In the naughts it reached 41 percent! This corresponded to a doubling of the GDP share of financial markets (from 4% to 8%).

In essence, our financial markets were siphoning off billions of dollars to enrich financiers, beggaring the rest of us. Money that ordinarily would have been used to support viable companies went, instead, to financial funds and instruments promising bigger returns on investment that those productive companies offered. (This is how a sector rated at less than 10% of GDP rakes in 40% of the total profits.) And, because what was good for the market was good for them and they defined what was good for the market, sending jobs overseas skyrocketed. Since this practice was defined to be “good” by Wall Street analysts, stock prices soared and money flowed to financiers when jobs flowed overseas. But fewer and fewer things of real value got created in this country.

There is a political party which wants to deregulate Wall Street and wants taxes on the rich to go down, no matter the effect on the country as a whole. There is a political party which calls rich financiers “job creators” when all of the evidence indicates the only jobs they create are in foreign countries. There is a political party which shouts down any statement that indicates the U.S. is in decline, a decline that they are causing.

Voting for candidates from that party means you are voting to continue to destroy the wealth of this country and hastening our decline.

Either that Tie Goes, or . . .

The Chicago Tribune followed up on a story they ran about this time last year. It was about a guy who wore a tie to work as a car salesman just after the Green Bay Packers defeated the Chicago Bears in the 2010 NFC Championship football game. The tie was a Packers tie and the owner didn’t like it one bit. The employee was ordered to take it off, refused, and was fired (for team disloyalty?). The follow-up was that the guy was hired by another car dealership not far away and, since then, has been employee of the month five times and has sold over 150 cars. People even come in to the dealership asking for “The Packer Guy.”

The reason I share this story with you is that conservatives are always offering as a solution for our public school problems that principals should be able to fire “bad teachers” whenever they want. The above example is indicative of that kind of power. A guy gets fired over a perceived, but not real, problem (guy wearing Packer’s tie in Bear’s Country). Conservatives often argue that only the boss can know the whole situation and the guy may have had other problems you don’t know about and it might not have been just the tie. Well, the guy’s performance at the dealership down the road indicates the firing boss may have shot himself in the foot by ridding himself of a very good employee for no good reason. Ah, say the conservatives, “the market corrects itself, you see.”

I have no problem with the first boss firing the guy for his tie, a nasty look, or any other reason, if he owns the business and if he is the one at risk for making a bad decision (he was). But school principals? C’mon. They have no skin in the game. They are just other employees of the same boss (the public) and no more well-trained to make hiring and firing decisions that the people they are supervising. And back when principals had the power to hire and fire there were enough incidents of principals firing people and then hiring their nephews to bring into question the effectiveness of such a move.

Bureaucracies exist for reasons. Due process exists for reasons. In the public sphere, we need to be reshaping our bureaucracies so they are more effective, not doing away with them and appointing mini-dictators (the counter example of The State of Michigan should suffice as proof).

For starters, how about a definition of teacher effectiveness? How about a coherent policy on what to do with marginally ineffective teachers? I have no problem with firing ineffective teachers, just the basis needs to be something more than a tie.

Send for a Repairman!

In a recent Slate magazine article, Matthew Yglesias commented on the following data …

2008 Average Number of Annual Work Hours
German 1,429
Greek 2,120
Spanish 1,647
Italian 1,802
Dutch 1,389

and here is the quote: “The truth is that countries aren’t rich because their people work hard. When people are poor, that’s when they work hard.”

So, Germany (1429) and The Netherlands (1,389) are rich countries in which people work less than average and Greece (2,120), Italy (1.802), and Spain (1,647) are poor countries (at least by European standards) in which workers are scrambling to make ends meet. The typical source of such data is the 2008 rankings by the Organization for Economic Co-operation and Development and consulting that list finds the U.S. at

 American 1,797 hours per year

putting us right in there with the poor countries. And considering what has happened between 2008 and now, I suspect that that number would be quite a bit higher now. So, why is the richest country in the world acting like one of the poorest? (I can’t help but hear the Church Lady responding “Satan?!”)

There has been an ongoing disconnect between workers and management in this country for over three decades now. The old paradigm was “a rising tide raises all boats” and that for pay increases American workers were expected to produce productivity gains. This was entirely reasonable as why would anyone want to pay more for the same labor (other than maybe to cover the effects of inflation). As I have mentioned before, American workers not only work hard for long hours, they are also the most productive workers in the world. But for the last 30-40 years this pact has been broken to the point of being nonexistent—productivity has gone way up, but salaries not so much if at all. Also, over the same span of years CEOs of corporations have seen their compensation go up from roughly 30X their worker’s average salary to almost 300X the amount their average worker makes. This expression of corporate officer greed also masks an estimate that actual total real wealth in the U.S. has declined over that same period of time.

Obviously the problem with our current system is there is “no one watching the watchers” to prevent them from make self-serving, but in the long term self-defeating, decisions. The Captains of Industry think they must be doing a good job because, gee, they are making so much money. Obviously such shallow thinking disqualifies such people from the argument that “they are worth the money for what they contribute.” How can such idiots contribute anything of worth?

We need a new paradigm in which profit is not the goal but what one can do with the profit is. Yes, yes, I agree with the conservatives that our current system got us where we are but clearly this system has stalled out. Did not our current system replace a past system that didn’t work as well, and shouldn’t we expect this system to run out of gas at some point, like, say, now? The prime example is Wall Street, an entity designed to allocate capital in our system but has been subverted to a role in which it thinks it is generating capital. This is an illusion, Wall Street is merely sucking capital away from people who actually produce something. The declining amount of wealth in the non-financial sector of the economy could account for a large part of our decline in total real wealth.

The system is broke. We gotta fix it.

Onward Christian Soldiers, Mocking Up a War . . .

The arrival of Christmas Day brings more than typical celebrations as it should also mark an end to the latest iteration of the Fox “News” War on Christmas campaign. Fox “News” has spent more time on their made-up “War on Christmas” than they have ever spent on real news items like the numbers of civilians killed in the real wars of Iraq and Afghanistan, for example. And, as usual, Fox “News” doesn’t bother to check any facts as what they have to contribute is not the way it was or the way it is, but the way they want it to be.

Fox minions criticized a governor who invited people to a “Holiday Tree Lighting Ceremony” instead of a Christmas Tree Lighting Ceremony. They apparently couldn’t cut a new governor any slack, even a Republican governor, who apparently just used the same title for the event as the previous governor had used.

On and on Fox “celebrities” have wailed “what would our Founding Fathers think?” Are these are the same Founding Fathers who as Senators and Members of the House of Representatives worked on Christmas Day for the first sixty or seventy years of our existence? Are these are the same Pilgrim founding fathers who banned the celebration of Christmas, including fines for even uttering the term in public? Which Founding Fathers are they talking about?

And, I have to wonder how Christmas Trees became sacred to the Fox “News” crew when there is no tree mentioned in the Christian gospels, nor is Santa Claus. The Christmas Tree was hijacked by earlier Christians, along with the holiday itself, as a way to co-op and diminish pagan traditions. What started out as a winter solstice festival (least daylight of any day of the year) became a celebration of Jesus’ birthday, even though no one truly knows the date he was born.

The Fox “News” people don’t care about the large number of Americans who are not Christians, in fact most Christians don’t care about a large number of other Christians (fundamentalist/evangelical Christians are fond of stating that Catholics are not really Christians and Mitt Romney and Jon Huntsman Jr. are both self-professed Christians but are considered cultists by Iowan evangelicals). Yet Fox “News” is still painting any who do not celebrate Christmas as they do as un-American, godless, secular conspiratorial atheists.

Why is Fox “News” tearing down America with lies and innuendo? Is it because they want to rebuild the country in a form more to their liking, history and reality be dammed?

Apparently, yes.

Playing by “The Rules”

Readers of this blog probably know that I am in favor of changing the “rules” regarding campaign finance. Clearly the system we have doesn’t work. I want to stop the money at the boundaries of political districts. For example, in the gubernatorial recall effort in Wisconsin, I would like all monies coming from outside the state of Wisconsin to be separated from those coming from within. Any political speech in the form of ads, leaflets, whatever, paid for entirely or in part from these outsider’s money would have to be clearly labeled “Paid for by Outsiders.”

So, why not start a grass roots campaign and try to get people to play this way? The reason is basically that if you don’t play by the “real rules,” you will lose. If the people trying to recall Governor Scott Walker were to shun outside money while the people supporting the Governor did not, they would lose that battle. The rules need to be changed first.

What got me thinking about this was a comment in another blog that Howard Zinn’s People’s History of the U.S. was a polarizing book. That book was written from the viewpoint of all the people who got left out of the other U.S. history books, the “little people” who tend to get ground to dust under the wheels of history. I might have agreed with that viewpoint but the polarization of our society started with right-wing think tanks (financed by rich folks) who influenced heavily people, well, like Newt Gingrich who were amoral enough and self-centered enough to think that was a good idea. If those on the left of the political spectrum stay in the center and leave the field to the distorters (think Texas history school book selections), our history will look more right-wing that it has in the past.

The strategy of labeling people “them” and “us” has a long history. The reason is that it is effective, but is it good for the survivors? Think about the label “liberal.” Does anyone use that label anymore? Very few do. The reason? Radio and TV talk show “personalities” have distorted its meaning and demonized the label. You hear all kinds of people now labeling themselves as “progressives” when that term had long fallen out of general use. A progressive is a liberal labeled differently. Demonizing liberal thinking people was not an effort begun by the left. It was right-wing bloviators (Limbaugh, Beck, and their ilk) who did the deed.

So, should we eschew polarizing behaviors as being undesirable (which I sincerely believe they are)? The answer right now is No! This is a game where one side sets the rules (like war). Look at what happened to President Obama when he tried to play the “Bipartisan Cooperation Game” to “change the culture of Washington, D.C.” only to find out the other side had changed the rules. “Cooperation” had become “capitulation” under their rules and was no longer desirable. Being “bipartisan” was being disloyal and cowardly, so that was no longer desirable. But Obama kept trying to play by the old rules and he just kept getting hammered. His task is to figure out how to play under the current rules while recreating the rules that favored cooperation instead of confrontation. I wish him luck. It can be done; it is just difficult right now.

Rule #1 of Politics: You Gotta Play by The Real Rules.

How the NRA Reflects the Current State of Our Politics

The National Rifle Association’s cause célèbre is defending the Second Amendment to the Constitution. Here it is in all of its glory (although there are two versions of it, essentially differing only in punctuation):

A well regulated militia being necessary to the security of a free state, the right of the people to keep and bear arms shall not be infringed.

Now the problem is that most people interpret this amendment upside down. Most people think the constitution gives us our rights as citizens when, in reality, the Constitution limits the powers of government. So, this amendment doesn’t give us the right to bear arms, it prevents the government from infringing upon our right to bear arms.

But most people gloss over the “well regulated militia” aspect of the amendment. Basically, when this was written, people were quite worried about enemies to the new republic, both from within and without. Also, the vast majority of the founders were utterly opposed to standing armies (meaning full-time, permanent armies like we have now). Standing armies were anathema as they were seen as the coercive element of monarchies. And as additional proof, while this amendment was written just after the end of the Revolutionary War, the standing army of the U.S. had already been disbanded.

Even at the beginning of the Civil War, there were only a few thousand troops serving the Union, and most of them were in the West fighting the now infamous “Indian Wars.” So, if there were no standing armies, what were there? There were militias. Groups of citizens who trained under arms part-time, in case there was a need of a military force locally. Some of these were sponsored by states, some by private individuals, and some by organizations. When the Civil War began, President Lincoln asked each of the northern states to provide men at arms for the cause, which is why so many groups were called the “Maryland Volunteer Militia” or some such name. They were groups of men associated with a particular region. All the men were typically friends and/or neighbors in any one militia. (And we still have militia today.)

In order for a militia to be effective, they needed arms. These arms were typically personal as very few of the militia supplied them. So, if the government were to infringe upon individuals right to own or bear arms, the militias could end up poorly trained and poorly armed, which could be disastrous for the country.

One could argue that, now that this country has millions of men and women under arms (provided by the government) permanently, that we no longer believe in or support the idea of militias as a way to defend the country, etc. And since there is no longer a justification for the second amendment, it is moot. (There was only one justification supplied, that of the importance of well regulated militia.)

I don’t know whether this argument will ever be settled but let me get to my main argument. Current law requires that anyone selling guns remotely, e.g. through the Internet, that the seller must refuse a sale if they suspect that the buyer couldn’t pass the typical background check (to see if the buyer is in one of the categories that are not allowed to own arms: former felons, people deemed mental deficient to safely handle guns, etc.). The violation of this law is a felony. The NRA deems that this form of self-policing is fine and that it works very well and no further legislation is needed.

So, New York City hired an agency to purchase guns over the Internet, clearly stating during each transaction that the “buyer” could not pass a background check. What they found was that 62% of the sellers went through with the transaction, one infamously telling the buyer “You shouldn’t tell me that.” when the buyer indicated they couldn’t pass a background check.

Well, that should put the kibosh on the NRA’s resistance to new regulations, no? No. A survey of NRA members showed a majority of the members want better regulations in this area. That didn’t change leaderships position either.

This scorched earth resistance to any restriction on the “right to bear arms” by the NRA is typical of situations that are “no turning back” situations. Another is zoning battles where NIMBY stands are taken. If you don’t want a nuclear waster treatment facility in your community, you fight hard, tooth and nail, to keep it out, because if you lose, you lose big time and forever. There is no going back.

But regulations aren’t cut in stone, they often are changed back and forth over time until settling upon a reasonable set or people get tired of fighting over them. The NRA, though, doesn’t believe that our politics allows back and forth movement any more (or maybe never did). And the NRA isn’t alone.

Don’t you find it interesting that politicians are doing things that are virtually guaranteed to lose them their jobs at the soonest elections? There is a “now or never” push to “move the goal posts” on all kinds of fronts: environment regulations, business regulations, taxes, entitlements, etc. and politicians are being paid richly to do things that are counterproductive to the country and their political careers. These are all signs of “no turning back” behaviors.

As always in politics, if you want to know why “follow the money.”

Public Financing of Elections? Nah! There’s a Better Way

Reformers of campaign financing have pushed the idea of public financing of election campaigns for years, to which the “public” in question responds with a giant “nah.” The recent news (Rumor? It is hard to tell the difference these days.) that Casino magnate Sheldon Adelson is planning to donate $20 million to a PAC backing Newt Gingrich’s presidential campaign (which has managed to raise only a paltry $7 million to date) suggests another path: billionaire financing of elections!

Think about it. Each candidate needs to find a single (or multiple, I haven’t figured out the details just yet) gazzillionaire to finance their campaign. Candidates who can’t find one are clearly “nonviable.”

The advantages to the general public are incredible. For one, there would be no irritating requests for money from candidates. No fundraising dinners, no rubber chicken and peas, no meaningless speeches. No irritating websites screaming “Donate, donate, donate!”

Also, since all of the money is coming from one individual it would become far easier to discern when a politician is doing the bidding of his monied master. And since our politicians wouldn’t have their hands out to all and sundry, they could spend more time doing what they were being paid to do. Donations from other sources would clearly be influence peddling, because the politician-candidate’s campaign expenses would have already been covered. Solicitations by politician-candidates would clearly be extortion cause they wouldn’t need the money to finance their campaigns.

The benefits to the general public over our current chaotic system are enormous.

Hey, they’re going to take money from the rich and do their bidding in any case, why not make it “transparent?”

‘Sup with the G.O.(W.)P. (Grand Old War Party)?

Lately every Republican of stature and all of the presidential candidates, save Ron Paul, have excoriated President Obama for ending the war in Iraq. In addition, there have been Republican calls to undertake military strikes in Iran, Pakistan, and other places around the world. What is going on?

Ex VP Cheney has suggested that the Obama administration should have launched an attack on Iran to destroy a drone that was lost in their territory. Cheney, of course, was ignoring his own precedent when one of our military planes wandered into Chinese airspace and was brought down. Then, President Bush asked for the men to be returned, which they were at least after President Bush apologized as demanded by the Chinese. (The plane was returned . . . in pieces after having been studied in great detail.) Cheney rattled no sabers then.

Various Republican presidential candidates want to bomb Iran’s nuclear sites to preempt them from developing nuclear weapons. Others want us to “get tough” with Pakistan.

The great puzzler is the vehemence regarding our withdrawal from Iraq. We still have thousands of troops in Germany and Japan from WWII and in Korea from the Korean War, so I guess these folks are arguing that it is traditional to leave troops behind. Mitt Romney wants us to leave ten, twenty, or thirty thousand troops in Iraq. To do what wasn’t specified, except to “protect their fragile democracy.”

What’s puzzling about this, and I am not referring to the bogus reasons for starting the Iraq War in the first place or Bush and Cheney’s plans to expand the Iraq War into Syria and Iran, is that the agreement requiring us to leave Iraq by the end of 2011 was made by George W. Bush the year before he left office. President Obama is just fulfilling former President Bush’s word. And, by the way, Iraq wants us to leave. Think about it, would we want foreign troops (say, Chinese) permanently camping on our own soil? Or would we want them to leave?

Apparently what is fueling this warmongering behavior is hatred of all things that President Obama has committed to, but in so doing Republicans are creating a stark choice for the current election:

If you like the wars we’ve been conducting and want even more of the same, vote Republican.

If you would rather choose our conflicts more judiciously, vote Democratic.

Makes it kind of an easy choice, no?

Conservatives are Winning Their War on Government

In today’s newspaper there was a report on a poll indicating that 79% of surveyed Americans think that our current Congressmen do not deserve re-election. (As always they rate their own Congressman considerably higher.) This is just one indication that conservatives are making progress on their war on the federal government. That this is a genuine effort on the part of the monied interests of this country is undeniable, if for no other reason that Congressmen are behaving in ways that almost guarantee they do not get re-elected, an almost unforgivable sin on the part of an elected official.

The evidence is amazing. Republican senators voted to not extend the temporary payroll tax reduction (for Social Security, Medicare, etc.) because they objected to a 0.7% tax on earnings over $1,000,000, this in the face of a poll of millionaires indicating that their taxes should go up. It is almost as if they have a political death wish. The House of Representatives, which came under Republican control based on a “Jobs, Jobs, Jobs” campaign in 2010, hasn’t passed a jobs bill that has become law. The ineffectiveness is staggering, even for Congress.

Additional evidence of the conservatives war on federal government is that conservative justices on the U.S. Supreme Court are attending political fund raising events (Scalia and Thomas), have wives working for lobbyists on issues coming before the court (Thomas), have relationships with monied interests backing business deals backed by justices (Thomas), and other activities that would be ethics violations by any other federal judge in the system. The Supreme Court isn’t subject to the ethics rules of the federal bench, possibly because no one could conceive that conservatives would try to undermine citizen’s faith in government by encouraging such behavior in justices.

One commenter on the court has said that the only pattern you can see in SCOTUS opinions is that if an individual comes in a case against the government, they lose; if they come in a case against a corporation, they lose; if a corporation comes in a case against the government, it wins. All of these undermine people’s faith in government.

In the media, conservative radio show hosts, like Rush Limbaugh, and television giant Fox Media keep up a steady beat that a) you can’t trust government, and b) you can’t trust the “other” media. Vile statements spew forth from these sources that one would have thought had been driven out of our society 50 years ago, “Obama hates white people!” “Obama hates this country,” etc.

Republicans are blocking appointments to federal benches and federal offices at an astonishing clip. Federal agencies with no one in charge rarely perform well.

All of these actions do one thing. They undermine citizen’s belief that the federal government can do anything right. That they are counter to representatives’ desires to get re-elected indicates the seriousness of the campaign.

So, why is this happening now?

The adage is strike while the iron is hot. Conservatives have had a “pack the Supreme Court” strategy for over 20 years and the court has gotten more and more conservative over that time. President Obama has reversed that trend somewhat and part of the pressure to be rid of him is to make sure he makes no more appointments to the court. And the Citizens United court case has given unprecedented power to corporate interests by unleashing floods of corporate money into our elections.

The goal: to shrink the size of the federal government until “it can be dragged into a bath tub and drowned.” Why? Because the state governments are “manageable” (think West Virginia and the coal industry) and eliminating the oversight of the federal government will give corporate interests free reign to make even more money. The fact that they are making record profits right now tells them they are on the right track.

The middle class as we know it was created by the federal government in the aftermath of the Great Depression and World War II. With the rest of the world torn up and us feeling that “we are all in this together” the wages and earnings of working class people exploded and . . . we were all better off. But the filthy rich didn’t feel filthy rich enough, so we have the situation we have now.

They started this class war. If we don’t fight back, we become the thralls of the monied interests: entertained by “reality TV,” barely making do, dreams a thing of the past.

The Corruption Papers, No. 5, The Doctrine of Gentle Commerce

My last post, addressing President Obama’s Kansas speech echoing some of the sentiments of former President Theodore Roosevelt, was actually on topic regarding the focus of my recent comments—political corruption. At the core of the problem of political corruption is a torrent of money unleashed by corporate and other monied interests. The core of the corporate problem is that profit has become an end in itself and not a means to an end. Roosevelt addressed this in his 1921 speech and, well, you can’t say we weren’t warned.

To address this issue, we need a bit of perspective. Up until the turn of the 20th Century, the dominant policy on trade was mercantilism in which government control of foreign trade was a mechanism to ensure prosperity and security of the country. In other words, commerce was backed by the diplomatic and military prowess of countries (think of the Opium Wars between Britain and China). This led business leaders to a position that their enterprise was of paramount importance to our country. It also bred a certain arrogance and beggar-thy-neighbor mindset. An example of this mindset that comes to mind is from the early 20th Century. As the Standard Oil Trust was creating a monopoly of the oil business in this country, their most common business model involved buyouts of other oil businesses. Those who refused to play found themselves surrounded by Standard Oil stations selling gasoline at a price far below what they could offer. If they still didn’t sell, they were driven into bankruptcy. If they did sell, it was for far less than they were first offered. Basically this is business planning by Attila the Hun. This practice is no longer legal but it does indicate the mindset created from many decades of mercantilism. This mindset has not disappeared.

The Progressive Movement countered with the Doctrine of Gentle Commerce. In this mode, trade is a form of reciprocal altruism which offers positive benefits for both parties and gives each a selfish stake in the well-being of the other. (Imagine civilized commerce with no bullying.) With regard to labor, Gentle Commerce defined the trade as labor provided the means of production and management provided labor the means of existence in an atmosphere of mutual respect and interdependency. Obviously the violent resistance of management to labor being organized in the 19th and 20th Centuries, the vehemence of which has been lessened but is still present today, tells us that the mindset of the days when the government went to battle to make business better has not entirely departed in the business community.

If corporate interests were operating from the modern “trade benefits us all” viewpoint they would understand that it is good business to support labor well. Even that social troglodyte Henry Ford understood this. Pay your workers well and they can buy what you are selling. That our economy is 70% domestic (China’s is about 30%) is indicative of the path we were on.

When Republicans come to power, they use every trick in the book to undermine organized labor at the behest of their corporate masters. Their masters do not honor people who work with their hands. They worship profit and profit alone and not what they accomplish earning that profit. These corporate interests are going to have interesting inscriptions on their tombstones, I imagine something like “He made a great deal of money diminishing those who worked for him.”

The Republican’s corporate masters tout gentle commerce when extolling free trade agreements, but their hearts are elsewhere. And their pockets, well, they are full of Republican hands.