Early History
While to many it seems as if tax payer bailouts of corporate incompetence and malfeasance is a rather recent phenomena a look at our nations past may prove otherwise. Similarly most would hazard to guess that our current gulf between the rich and poor in the US is also unprecedented. Yet, a brief look at our economic history seems to point to the fact that our current situation not only follows the norm, but seems to be sticking to the general history of the nation.
Before we take a look at the actions of our democratic capitalistic society it might be helpful to explain why the following history is seldom reported or acknowledged. While most presidential hopefuls just tow the party line, it is refreshing and perhaps enlightening to keep the following quote of a current candidate: “Truth is treason in an empire of lies.” – Ron Paul
In colonial times American freedom and political participation was based on land ownership. During the early years of this country only land owners could vote or be considered to be free and entitled to basic human rights and protection of law. The status of citizen being based on land ownership came from our European heritage since the medieval times.
In fact the term “real estate” stems from Spanish and Portuguese roots in which the word “real” means royal. In ancient Europe only lords and kings owned land. Royals awarded land to those who they felt would be of benefit to their safety and power, as soldiers, producers of food, arms, etc.
These underlings were given a title and a position of authority in exchange for their complete loyalty and service. The increasingly pampered life, honor code, and unwavering fidelity to king/lord/master rendered those of station to be of value and service to the king without being a threat to them (due to their pampered incompetence).
While it is true that England did not let the colonies break away without a struggle, it is also true that they were not willing to commit many troops or generals to America when France and Spain and the other ambitious warrior cultures were an immanent threat to their empire. The US won its political independence way before it won its economic independence.
The competition amongst European nations, royal families and even the church were limiting factors in terms of the power and wealth of any individual nation (entity). Though the America’s had indigenous peoples to conquer and defeat, their values were such that they were seldom in competition. Between war, law and disease the indigenous populations were quickly eradicated or, marginalized or contained by the ambitious American’s.
Soon the young American nation began to realize that it had almost unlimited frontiers. The westward expansion of the US took many decades. The land was abundant and diverse and relatively pristine and unused. While European land had been forested, mined and tilled for centuries, the new world had been left almost completely untapped.
While land travel and trade between districts in Europe were laden with tolls and tariffs, the American frontier was open and unrestrained. The competition and conflict between the European royal states took an economic and political toll on each nation, putting them at a huge disadvantage to the bustling United States. Without centuries of infrastructure and wear on the environment the US was able to capitalize and incorporate every new invention and industry with relative ease.
No nation on the planet was anywhere to being close to the US in terms of its ability to benefit from the industrial revolution. Its combination of natural resources such as coal, gold, iron, timber, fresh water, arable land, fish, furry animals, and open farm and cattle land was beyond the imagination of any European. It is hard to overstate the economic, political and resource advantage the US had over every other nation. It’s unique favored position was unparalleled and unprecedented.
While the high seas were about the only place an ambitious European could go to escape the control of the royals, the adventurous American had but a days travel westward to escape the control of the aristocracy. While in Europe the world of lawless cutthroat ambition was mainly on the high seas, in the US land pirates dominated the terrain as outlaws and robber barons.
Adam Smith’s view of free market capitalism with its self-regulating “laws” of supply and demand were highly dependent on the aforementioned honor code of the world of European aristocracy. Anyone who doubts this only need to read Adam Smith’s works to hear his concerns, warnings and requirements to insure that the system of capitalism functions correctly.
The wild west and the world of the robber barons had little use for honor in business and commerce. They were ruthless as the land was vast. The European aristocracy cited the prevalence and success of conmen as just one example of the new worlds lack of cultivation and breeding. As Oscar Wilde put it: America is the only country that went from barbarism to decadence without civilization in between.
A bountiful land during a time period of technological and industrial growth and invention is sure to flourish and the US rise in global wealth and productivity was very impressive. Families made fortunes in a few years which had taken centuries to acquire on “the continent”. The surge in technological growth afforded riches in both agriculture and industry. The Civil War had much to with the battle between the two titans of economic largesse (agriculture and industry).
Yet, despite all its advantages, natural opulence, and resource richness the US had more than its share of economic upheavals. Despite having no real adversaries to waste funds on defense, and a huge unified landmass with relatively no taxation and commercial interference the US had several severe economic recessions and depressions.
During the years leading up to the 20th century and the first decade of the 20th century the US was known as the land where fortunes could be made and lost. Since fortunes were gobbled up by businessmen and businesses the gap between those of wealth and those of poverty was huge. While free market capitalism had a lot to do with risk takers, the ambitious and the determined being able to amass fortunes, it also was a major impediment to that wealth being shared and the vast majority of people being either exploited or enslaved.
Managed Economies
In 1913 two major events occurred which would change the way America’s economy would function. The first was the origination of the federal reserve as the central bank of the US, and the second was the constitutional amendment instituting a national income tax. Neither is logically consistent with a democratic society or with free market capitalism. Since the US’s brand of capitalism was proving to be inconsistent at best and incompetent at worst, the pooling of money from the populace was seen as a way to help manage the economy, with the goal of strengthening and securing both the futures of government and business. The federal reserve in particular was designed by the US’s financial elite to help reduce competition and protect their interests and practices.
Despite the economic security offered by the taxing of the public a major depression arrived in a few years time. Yet, following that came a decade of financial excess where investing and gambling once again became almost synonymous. This was a time when even America’s working class started to dabble in becoming part of the investment class.
While WWI had positive and negative effects on the US economy, it greatly improved our world status as all European nations were weakened by its magnitude. The US became a creditor to Europe, a major arms supplier, and an investor in Central and South America.
The great depression once again showed that despite our resources, technological advancement, geographic safety, and emerging global creditor status our economy was still vulnerable and fragile. Our relatively short seven month involvement in WWI plus the fact that our land was not destroyed by bombs and warfare though giving us a tremendous advantage over our industrialized nations competition still did not prevent our capitalistic system from imploding.
During the depression banks loans all but stopped and jobs disappeared. The void was filled by the US government who put people to work and lent then money. The role and function of government expanded greatly and that of major business receded.
During WWII the US’s role as creditor and arms supplier became more and more pronounced. The manufacturing needs of WWII were unprecedented and the US was the only industrial land free of bombings to have their factories function at top production. Only one bombing occurred of a major US military base and that was Pearl Harbor in Hawaii which most people forget was still almost two decades from becoming a US state.
The US was the only industrial nation to emerge out of WWII stronger and more powerful than when it entered it. The US emerged from WWII as the world leader and almost every nation was either under direct US control or owed the US substantial amounts of money. The US government efforts at emerging out of the great depression were funded by the US taxpayer through income tax, war bonds, and charity. Many of the poorest of this nation gave their time freely out of patriotic pride, and many gave their life to help America become strong and defend freedom.
The Spoils of Empire
Through natural resource wealth, industrial and manufacturing capacity, land development, the spoils of war (repaid money from other nations), and the sponsor of industrial growth across the globe the US became the wealthiest and most powerful nation on the globe. In the 1950’s the standard of living of the American middle class became the envy of the world.
US businesses were quick to take over government factories and operations. The US citizen quickly adapted to its needed expanded role as consumer to support the growth and success of American businesses. Over the next two decades the US government spent a great deal of its energy into developing a military presence around the globe, once again funded through the US taxpayer. The US government also used taxpayer money as “foreign aid” to help other nations industrialize and become customers of US businesses.
Most American’s still view post WWII foreign aid as a humanitarian gesture to help supply the basic needs of our recovering allies and to rebuild destroyed infrastructure. While this was true the bulk of foreign aid was used for other purposes.
During the 50’s and 60’s their were laws which stated “foreign aid” was to be given first to US corporations and business entities doing business in the targeted nation. This meant that that US corporations who had established themselves in a nation receiving foreign aid could expect (be legally entitled) to receive the bulk of the funds available. Fortune 500 companies are not idiots and therefore, by the end of the 70’s nearly all of them had used these taxpayer subsidies to expand their businesses abroad. Obviously, many foreign businesses desiring/needing funds had to either develop a businesses relationship becoming a functional front for US corporations or be completely bought out by US interests.
Yet, the above only outlines the the ways that the US taxpayer was used for the benefit of US corporations. Not only did we fund and subsidize their foreign operations, but US corporations could tap into another substantial tax payer subsidized pool of money awarded for the purpose of covering advertising costs for US corporations abroad. Since these companies had offices and even headquarters abroad they also were able to use their foreign presence to reduce if not completely avoided paying US income tax.
So to summarize US corporations and banks which failed to loan money, provide jobs and assist the struggling US working class during the great depression were able to take over and buy out government interests after WWII. They were then over the next two decades able to have the US taxpayer fund and subsidize the expansion and success of these same corporations through foreign aid and other entitlement programs. Many of these operations could and did in fact either replace US jobs, or cause unfair competition practices for US workers.
Yet, despite these advantages plus all the other advantages of resources, invention, empire, military might, etc. the US still found itself in another financial crisis in the stagflation of the 70’s. When Reagan introduced the wonders of trickle down economics American’s were unaware that they had already been subsidizing the government for four decades and Corporate America for two decades.
More Pie for Me
Due to my desire to keep this post from becoming way too long, I have not gone into depth regarding the role invention has played in padding our economic advantages. No nation was better positioned to benefit from the automobile as the US, yet many books have been written on the commercial and economic boon caused by advances in communication, transportation, energy, agriculture, electronics, health and medicine, materials, automation, and space exploration, just to name a few.
As an interesting story which casts some light on the role of big business and its relations to workers and capitalism. In 1953 Walter Reuther, then president of the United Auto Workers, made a revolutionary discovery regarding the nature of profit in business. Using the new field of computer programmers he discovered that the computers proved that General Motors would stand to make record profits if they granted union demands for unheard of higher pay, plus unprecedented vacation, health, and life time benefits. When GM’s computer programmers verified the information, GM granted the unions requests, which resulted in GM becoming within three years of the new contract the first US corporation to achieve a billion dollar profit (even after taxes) with steady growth occurring for the next 20 years.
Despite the data supporting the benefits of sharing the wealth and more equal distribution, the theory and functioning of capitalism is on maximizing relative wealth through competition and the lowering of overhead. Market capitalism is based on competition not cooperation, and relative wealth (disparity) is the true mark of success and the result of competition. Somewhere along the line GM realized that they could further maximize profits by not honoring the deferred payment aspects of workers contracts by using up and reneging on retirement plans.
Over the last two to three decades, compared with other industrial nations, the standard of living and quality of life of American’s have been declining. In many ways the American standard of living is declining in comparison to its own standard of living prior to the 1980’s. The nations that have surpassed the American’s in standard of living, health, life expectancy, education and other accepted measures of quality of life, have done so through social policies regarded as being in conflict with capitalism and free enterprise. Those “emerging and third world nations” which take our loans and follow our directives are not experiencing the growth of standard of living and quality of life as those who are attempting to remain sovereign nations from a policy standpoint and who are likewise instituting social welfare style programs.
The US corporate community hides behind their myths regarding “globalization” as a smokescreen of their role in the failings of capitalism and the steady decline in the American standard of living and quality of life. The loss of American jobs to cheap labor has been going on for decades ever since the 50’s. It isn’t so much that we are being replaced as workers and consumers by the global community, but more that we are no longer needed as consumers.
The capabilities and extent to which automation is used is grossly understated. The truth of the matter we don’t have anywhere near the need for 6 billion jobs. In fact, we don’t truly have a need for a small fraction of that number, and each and every day advancements in automation, robotics, electronics, and artificial intelligence are making more and more jobs obsolete and an unnecessary business expense.
The so called economic rebound is not due to the exploding middle class in China and India, the bulk of their populaces are still decades away from replacing us as consumers. The rebound in profits is more the reduction of overhead in firing workers, not building new factories, and the liquidation of assets. The real profit is attained by corporation getting either direct bailout money, or loans at unprecedented low interest rates and their using that money in stocks and other financial instruments.
As trillions of dollars are printed and handed to a precious few, the rest of us either economically stagnate or suffer a reduction in pay rate or working hours. With interest rates near zero, it doesn’t really matter how much money you owe. It will only matter when interest rates rise, and the federal reserve has already promised to hold interest rates down until the end of 2013 if not longer.
Just by being tax payers we are falling more into debt with each dollar printed. As the national debt climbs the majority of us will owe more in terms of the national debt than our net worth, regardless of whether we have any personal debt.
The US through the vehicle of modern free market capitalism has squandered its inherent wealth and resources and is busy squandering that of the entire globe. It has exploited and then squandered the potential wealth and human benefits of the greatest advance in human inventiveness and technology ever witnessed. It is engaged in poisoning and destroying the very bounty on which its temporary wealth was predicated on, and due to its outdated economic concepts is prohibiting and ruining the use of all the emerging technology which could create a standard of living dwarfing that of even our wealthiest citizens.
The Myth in Sum
The competitive free market system has not created wealth, but only exploited and used it up. The wealth of our planet was provided by nature but recognized and utilized by man through his creativity, inventiveness and resourcefulness. As has been noted many times necessity is often the mother of invention. Need and problem solving have always spurred on invention and technological advancement not capitalism. Capitalism was the beneficiary and not the cause of the inventions which led to improvements in our quality of life.
Yet, we now have learned that comfort as well as the struggle for survival can foster invention and creativity. Leisure and comfort can often provide the mental space and freedom for people to envision and create the possible, oftentimes yesterday’s dreams become today’s realities. Likewise todays dreams could become tomorrows realities.
Capitalism is neither the cause not the necessary evil partnered with progress and technological advancement. I hope that you can glean from this article that capitalism has been as much as an obstacle as a vehicle for advancements in our standard of living and quality of life.
The greatest myth we have in our society is that government is inherently inefficient and to blame for all the limitations and problems of free market capitalism. A look at economic history shows that capitalism has been quite inefficient and incompetent on its own, and if anything the US government through tax payer and printed funds has been the savior/enabler of a highly dysfunctional economic system. I would also add, that qualities such as being selfish, exploitative, chronically mendacious, sociopathic, and compulsive are markers for success in capitalism, while compassion, fairness and ethics are limiters and detriments to success.
Another significant myth is that we have recently started down the road of bailing out large and incompetent banks and businesses. The truth of the matter is that the American taxpayer has been underwriting, bailing out, and subsidizing business incompetence for over 70 years, with no end in sight.
The Politics of Wealth Extraction and Transfer
The culture of corporate bailouts and the ritualistic extraction and transfer of wealth from the planet and its people into the hands of the few runs deep in our society. Here is a short summary of one of its major blood lines.
The powerful role of lobbyist and special interest groups in American politics in often mentioned, let’s take a look at one of the ways they function. Political campaigns are expensive and politicians believe that there electability often depends on getting more donations than their opponents. The majority of money raised from campaigns comes from large donors and not the average tax payer.
The money donated to a candidate through special interest groups is an investment which is designed to pay dividends in the future. Since most are familiar with the large political donations of Jewish interests supporting the Israeli government we will take such an enterprise as a fictitious example. We could take many others, but this particular relationship is easy for me to hypothesize from.
Let’s say a special interest group for an allied nation such as Israel donates with the expectation or the hope that their financial support will be rewarded in-kind. A politician who feels their current and future electability is dependent on the continued financial and political support of their donor, will most likely try to please their donor and meet their needs and goals.
I chose this scenario because one of the largest and most blatant uses of tax payer money is in defense and military expenses. Along with the intelligence community military expenditures are often the most vague and unregulated due to reasons of “national security”.
One single contract for military hardware such as fighter planes, missiles, ships, or even heavy armaments can run into several billion dollars. As a practical example the cost of the new missile defense system we gave to Israel far outstrips the donations made on Israel’s behalf for many years. Yet, we know the military largesse gained through our business dealings with Israel is astronomical for both Israel and the Pentagon (and the American companies their contract with).
We’ve all heard stories of the unbelievable price tags placed on Pentagon purchases. While many of these are for high tech machines which are hard to place a fair price tag on, we also know that basic supplies such as lights and toilet paper can carry the most outrageous of price tags. The logical reason our Pentagon would be willing to charge and purchase such prices is because it is purchase with tax payer money.
When it comes to military and defense spending the US taxpayer is the kitty, and the government and all the special interest groups are the fiscal beneficiaries. I think it is safe to say that the defense department is the largest and most untouchable vehicle for the extraction and transfer of individual wealth from the citizens (tax base) to the favored corporate and banking elite.
Between the ever escalating national debt which bails out and subsidizes the wealthy corporate financial sector and the defense department whose trillions of dollars goes to “Non Governmental Organizations” (NGO’s) the transfer of wealth is occurring at an astounding rate. Since much of the money siphoned to corporations (NGO’s) and financial entities is printed (created) just for that purpose our relative wealth is being wiped out with our tacit consent. Every dollar printed that goes to the few reduces the relative net-worth of all the other people.
Such stealth ways of extracting and transferring wealth unnecessary and in fact allows many of the largest beneficiaries to whine and belly ache about how much more they are expected to pay in taxes than the average person. It is interesting to note that those who are not only receiving a free lunch, but also breakfast and dinner and a little spending money to boot, are the one’s doing the most complaints about the entitlement programs such as social security which the government extracted from worker’s paychecks and was used to bail out corporate incompetence and malfeasance.
The stock market rally over the last two to three years has been fueled by the trillions of dollars given to save incompetent businesses who were deemed to big to fail, and printed and loaned out at historically low interest rates to the financial elite. While those low interest rates insure that the incompetent businessmen and their corporations enjoy record profits it also prevents retirees and those on a fixed income from being able to live off interest and dividends. This forces millions of Americans out of safe investments and into riskier one’s such as the stock market.
With so many being forced into the stock market as a way to avoid poverty and hopefully have enough money till their death, the most devastating and tragic extraction and transfer of wealth is soon to occur. In the very near future it is very likely that a severe but inevitable stock market decline will wipe out the remaining paltry wealth of millions of Americans. Many of whom have been the most loyal and devoted of citizens espousing the glories of the very capitalism which will leave them bankrupt as well as their children.
What Can Be Done?
In a word: Everything.
The problem is that the medicine we’ve been taking is the very cause of the disease. Our economy is sick because of free market capitalism. The longer we continue to take the poison the longer and harder our recovery. Our rise in the standard of living was due to our natural resources, ingenuity, sweat, advances in medicine and technology and partaking in the spoils of empire. There have been previous empires during times of progress which have improved the standard of living of many of its citizens, and they were not capitalistic societies. And their way of economic and political life seemed wonderful until the fall of the empire.
We could be like every other empire and have our lifestyle decay with its decline, or we could use rather than exploit the still incredible resources which our science has identified. We are just learning of the ways our sun produces and transfers energy to our planet. Our planet turns this sun energy into other forms of energy such as food (foliage, fish and animal life), wind, water power, etc. Years ago we had no knowledge of the incredible amount of energy contained in a single atom.
If we were to stop needing to only use energy which we can make a profit off of, to place a meter on and to limit and distribute it for capitalistic ventures, and instead freely use the energy for one and all, we would quickly be able to produce more than enough energy for our needs. Some of this centuries greatest minds such as Buckminster Fuller have expressed great confidence that the solutions already exist and only have to be implemented. These people state that the energy and food needs of the planet can be met without damage to the environment while making the current standard of living of our current elite look modest in comparison.
This is not a fantasy or a dream. Yet, it also is not a utopia. It is just a step in the right direction just like every other step civilization has taken improving the quality of life for those on the planet. This time though it could be done in such a manner as to respect the integrity of nature rather than harming and exploiting nature.
There is much of our society and history of which we can be proud and have no need to change. We can choose to restructure our economic social system in a way that doesn’t reward the robber baron, conman, and outlaw mentality which became the successful mentality of our “free enterprise” system without becoming fundamentally different people. We can build a successful and plentiful society that is based on our higher ideals of trust, care and community and not one based on fear, hatred and an outdated model of the fight for survival.
One guidepost is for us to make decisions based on what is beneficial rather than what is profitable. Such a subtle shift of emphasis could have immense benefits. Many of our solutions will be accomplished in such a simple way. To paraphrase something I said earlier, today’s visions become tomorrows realities, let’s have a vision worthy of becoming tomorrow’s reality.
Yet, one thing is for certain and that is the process of wealth extraction and transfer is a fact and it is occurring. Our next road, no matter what it is, will be hard to begin until we demand that this current path is ended and not just detoured to once again benefit the few in the name of the many.
Jim Guido