This article is the product of a great deal of lonely thought and conversation with friends, locally and back home in Virginia. I have avoided writing to this point for worry that the scale and scope of what I am trying to do would grow out of control, and that I’d be left with a giant mess of too many topics and not enough content.
In light of this concern I have decided to break this mindf**k into two different parts. This is part one. Original inspiration came from Matt Taibbi’s “Vampire Squid” article, one of the finest pieces of historical critical writing I’ve ever seen.
Read it now, come back, and start over again here. The page will open in a new window, so don’t worry about forgetting what you were doing prior to having your brains liquified by that class-A piece of journalism.
In recent days, news of General Motors’ IPO, government and public reactions to the TSA’s junk-handling policy, and increasingly dire financial problems in Ireland have compelled me to finally try to give some cohesion and solidity to the mess of ideas that have been clogging the pipes of my brain through all of November.
I hope that in trying to successfully articulate my most recent feelings on the state of the US and global economies, I can finally clear my head enough to write something happy about living in France.
That’s the idea, anyway.
The political landscape in the United States is now more dependent on hard cash than ever before. If you have trouble visualizing the link between money and “voter” habits, have a look at OpenSecret’s most recent graphic on campaign spending by (largely) corporate donors. This summer’s landmark campaign finance case, Citizens United v. Federal Election Commission, in which corporate donors got awfully close to becoming people (I will use wikipedia from time to time, get over it.), is chiefly responsible for this massive injection of dough into the election cycle. Now, more than ever, candidates are dependent on extreme amounts of private money to even gain entry into the political space, virtually establishing a network of connected individuals who are ready and willing to sacrifice principles in exchange for a fast and fat check on the road to a seat in the legislature or elsewhere.
Your vote counts less and less each election as politicians become increasingly vetted on their ability to secure campaign cash and less on their capacity to lead and respond to the needs of their constituencies. My home state exemplifies this trend in its virtually nonexistent campaign finance law. For example, take this excerpt from WaPo’s reportage on our 2009 gubernatorial race:
Republican Robert F. McDonnell has received more than $36,700 from Thomas F. Farrell II for his gubernatorial run. Farrell is a high school buddy of McDonnell’s who grew up to become president of Dominion Resources, one of Virginia’s largest companies, and has donated $52,831 to his old pal’s campaigns.
That’s right, the CEO of a fossil-fuel based industrial giant shelled out thirty-six grand to help land McDonnell the governorship. I don’t think I’m leaving the realm of common sense in having a less-than-optimistic hope for carbon-cutting legislation or efficiency regulation on utilities in his term. Dominion itself has parted with over $400,000 in 2010 alone, making it the largest political donor in Virginia. To say that this business has political clout is an understatement the size of the sun.
But I am already falling into picking apart the details of politics’ relationship with business and money at too local a level. I digress. What I really came to talk about is the potential collapse of the entire global economy at the hands of an extremely small group of people. That story begins in the US as well. If you’ve read the Taibbi article that I listed as a prerequisite for this entire operation, you should be more than primed for getting into what’s next.
Diversity in markets is a core tenet of capitalism. The more people you have, the more crap you can sell. The more money those people have, the more able they are to participate in the market system (and buy even more crap). The financial elite within the banking system and on Wall Street seem to have forgotten this central rule. America’s income gap has increased to a point where the wealth concentrated in the richest one percent of its citizens is actually hampering market’s ability to offer a diverse array of goods and services. As the New York Times’ Nicolas Kristof notes, we are starting to resemble a “Banana Republic.”
“The richest 1 percent of Americans now take home almost 24 percent of income, up from almost 9 percent in 1976… [T]he United States now arguably has a more unequal distribution of wealth than traditional banana republics like Nicaragua, Venezuela and Guyana.”
That’s right, almost a quarter of the United States’ entire income goes into the hands of one percent of the population. As this number goes up, others must surely go down, and this is the primary driver behind the destruction of the middle class.
As the money trickles up, the goods and services offered to normal Americans must do one of two things, find markets elsewhere (sell our crap to foreigners), or price themselves more competitively to make up for the new lack in disposable income (buy our crap from China). As things become too worthless to produce in The States, domestic manufacturing and service industries pack up and head for cheaper labor and infrastructure — and the jobs go with them.
Things really get good when wealth becomes so concentrated that the richest Americans simply cannot keep up with the production capacity of the global economy. This is where we are today. No matter how you look at it, approximately 3.5 million Americans can’t possibly fulfill the same market demand as the remaining 346 or so. As money flows upward, the need for middle-class goods and services decreases, unemployment skyrockets, and production of everything but mega-yachts and Gulfstream G5’s grinds to a halt. Rich people don’t buy the same things as regular Joe’s, and they sure as hell aren’t going to purchase 5,000 Chevy Silverado’s just to keep demand up.
In short, the richest, most pro-market folks on Earth are screwing themselves out of capitalism. You would think that this might send up a few red flags. After all, most wealthy people are college-educated, fairly articulate and must show at least some problem-solving ability, right? Absolutely, and while they wait for the hammer to come down even harder, they’ve figured out some novel ways to keep scoring cash in the meantime.
The first, and least worth noting, is the probable extension of the Bush-era tax cuts for the wealthy. There are myriad more creative ways to help the rich get richer, and all of them include using the public as an unwilling investor.
The stimulus package was designed to do one thing: keep the gears of the global economy well lubricated. By making available trillions of taxpayer dollars at an interest rate that can’t be seen with the naked eye, American and foreign governments addressed the urgent need to prop up multi-billion-dollar firms that had made a series of bad bets on expected market outcomes, particularly the state of some $1.3 trillion in so-called sub-prime mortgages, held by some of our greatest banking institutions. Nevermind that these were the exact same companies who had engaged in this reckless behavior in the first place. Parents agree that the best way to punish a child’s excessive spending is to give them more money (Taibbi offers a far better analysis of the financial bailout than I could ever hope to write). Remember all those obscene bonus payments offered to banking executives during this period of American hardship? Yeah, they still went out as planned. The arrogance is blinding. You’re welcome, Goldman Sachs.
GM let itself loose again on November 17th with its long-expected initial public offering (IPO) reducing the US Treasury’s holdings in the company from around 61% to 33-37%. As Businessweek notes, the Treasury is taking a loss on the sale, requiring shares to climb above 60% in order to fully recoup its losses.
The entire GM fiasco serves as a beautiful example of America’s newest fiscal habit: socializing debt (using the government to dump losses on the taxpayer) and privatizing the profits thereafter.
The United States government made the decision to purchase 61% of GM in order to keep the automaker afloat, a perfectly reasonable move considering the amount of potential jobs lost by its bankruptcy. Unfortunately, with the subsequent restructuring of the company, most of those jobs were lost anyway. Again, this was expected, given the internal bloat of the company coupled with its inability to deal with auto workers’ unions, one of the factors in its demise. GM will now (hopefully) emerge with a much leaner, innovative ideology — one that allows it to compete globally if they know what’s good for them. In the process, however, you and I could lose a shit-ton of money on 9 billion dollar gamble.
The Treasury has already short-sold us on recouping its losses from GM’s failure, keeping its stock offering low enough to make shares appealing to investors. Furthermore, I’m not going to buy that garbage because GM is a worthless firm and always will be, so some other investor is likely to grab some short term gains off the shares that average folks won’t purchase, either because they don’t believe that the company will succeed or, like most middle-class Americans, the world of investment stops at their community bank. The folks who will make money off this IPO already have the cash to finance it, and they’re certainly not too keen on giving any to you (except maybe Oprah).
It’s unlikely that the average taxpayer will ever see a return on his or her mammoth purchase of General Motors in 2009, and jobs lost to its failure are not likely to return to the auto industry, an increasingly mechanized operation. Who will take the fall if/when GM fails to shine again? My money’s on Joe the Plumber.
I’m afraid that so far I have failed to realize my principal goal in writing this editorial: maintaining strong links among these separate cases of defrauding the public and avoiding producing an incoherent mess of undirected indictments of the government and the wealthy, so I will try to throw everything under one umbrella in conclusion.
We are witnessing the largest transfer of democracy from the vote to the checkbook in the history of the United States. Starting with increasingly bought elections and reaching its peak at the undeserved burden placed on the taxpayer in bailing out irresponsible corporate behavior, we have become the largest investor in the private sector without the freedom of choice lauded by the creators and proponents of modern markets. The destruction of the middle class in America, the failure to create new jobs and our increasing dependence on cheap, foreign sources of production are all direct byproducts of this involuntary investment. As the income gap widens, these effects will only become more noticeable and severe as fewer people are able to participate in the system due to lack of disposable income, further shrinking markets and further reducing productivity here and abroad. The richest 1% of Americans cannot create enough demand to satisfy domestic and global economies; they will never be able to do so. As wealth continues to travel upwards at the hands of our own government, bought wholesale by the same people who supported the federal bailout, global capitalism will continue to remain unstable. By suppressing diversity in markets and reducing the number of people capable of participating in them, the financial industry is doomed to fail, and we are doomed to keep paying for it when they do for as long as we have the cash.
…or we could just print some more money and see what happens.