If you were just listening to America’s two major political parties, you would hear that the economy is on a path to recovery. Yet, according to a broad range of social, fiscal, cultural, political and environmental indicators, the world’s ‘richest’ nation is experiencing a steady 20-year decline. The nation now faces record-breaking debt, record-breaking trade deficits, record-breaking reductions in government services, record-breaking incarceration rates, and an under-funded infrastructure while three major public-sector programs – Social Security, Medicare and Medicaid – are expected to double as a share of the economy, putting untold pressure on tax rates, the economy and the budget. And that’s before taking into account the fiscal burden of funding an Occupation Army in Iraq while rebuilding a nation we helped destroy as today’s hyper-hawks plan their next War for Empire in the Middle East.
After several decades of both major parties embracing Reverse Robin Hood policies, the United States faces a future that is certifiably dysfunctional: socially unjust, economically unworkable, culturally divided, politically fractured, fiscally devastated, and ecologically unsustainable. Add to that an aggressively militarized foreign policy that’s become a menace abroad, de-legitimizing American democracy while endangering our long-term national security.
Any American not outraged — or profoundly saddened — is profoundly ill-informed. Yet one must now wonder, is that ignorance by design as, over the past two decades, the rules favoring community-based broadcasting were gradually repealed. As broadcasters merged, broadcasting itself – the oxygen of democracy — gradually morphed into a financial property as its ownership consolidated along with the diversity of viewpoints.
A single firm, San Antonio-based Clear Channel, now owns 1,225 radio stations and syndicates programming to another 7800 broadcasters, enabling Hard Right icon Rush Limbaugh to dominate America’s drive-time eardrums while crowding out other perspectives like nothing ever experienced by any nation hoping to sustain a robust democracy. With steady support from both major parties, American democracy now finds itself trapped in a media environment where it’s become difficult to find the real facts about the perilous state of their nation.
As I will show, consolidation helps obscure the disastrous mismanagement of the nation’s affairs, particularly over the past two decades as both political parties embraced the University of Chicago’s “neoliberal” economic model. Without immediate and dramatic reform, this fast-spreading disaster will continue to deepen. As an American learning to cope with the necessity for change in a shut down political environment, I suggest that reform requires that We be Unreasonable.
The U.S. began the 1980s $909 billion in debt, already a huge burden on the next generation, or so voters were assured by presidential contender Ronald Reagan. After 20 years of White House leadership by two fiscally conservative parties who swapped turns in the Oval Office, that debt is now expected to top $7321 next year. But that’s before the full fiscal cost of the War on Terrorism, the War on Iraq, and the War on Civil Liberties tellingly described as a White House-directed security service for the “Homeland.”
The world’s strongest economy can design its debt in many ways. That’s a strategic advantage as U.S. government bonds have long been the “gold standard” for financial securities worldwide. Yet at every turn, regardless of political party, this swollen debt has been structured to make the already-rich far richer. Backed by taxpayers’ ‘full faith and credit,’ interest paid on those bonds goes to just four percent of U.S. taxpayers. Those payments skyrocketed from $58.5 billion in 1980 to $247.5 billion by 2000. Yet taxpayer-paid interest is only the most obvious way that both parties favor the well-to-do with deficit financing that preempts fiscal resources required for other purposes – education, healthcare, research, foreign aid, environmental restoration and such.
For example, in 1981, a Reagan-Bush I “supply-side” investment stimulus was enacted at a projected fiscal cost of $872 billion — 100 percent deficit-financed. This leveraged the entire U.S. economy and doubling the national debt in just one bill. It also embodied a long-term GOP strategy designed to reduce the size of government by reducing its fiscal capacity, a budgetary “crowding out” strategy conceded by then-Budget Director Dave Stockman. The “other” party (led by neoliberals Clinton and Gore) embraced a similar supply-side investment subsidy at a cost of $268 billion, likewise 100 percent deficit-financed.
At every turn, neoliberals piled on more and more debt to build wealth for fewer and fewer Americans, particularly those who contribute to political campaigns (only 0.25 percent of Americans give more than $200 in an election cycle). The Bush II tax cuts enacted in 2001 came at a fiscal cost of $1,350,000,000,000 ($1.35 trillion). Making those cuts permanent beyond 2010, as Bush proposes, would reduce fiscal resources by $4,100,000,000,000 ($4.1 trillion) through 2013, more than twice the projected shortfall in long-term Social Security funding, a strategy certain to put untold pressure on the nation’s financial health, endangering the value of all pension benefits. Fully half the financial benefits of his tax cut are designed to further enrich the richest 1 percent of taxpayers. The tax cut is timed to have its most devastating fiscal impact just as baby-boomers most need those fiscal resources.
The result of these deficit-financed changes in law? A huge increase in government debt, a huge reduction in budget capacity, and a huge windfall for those already the nation’s most well-to-do – along with a huge increase in political contributions (more than $1.1 billion for both parties during the 2000 election season). In 1982, when the Reagan-Bush I supply-side investment subsidies became effective, Forbes magazine required $91 million for inclusion on its list of the nation’s 400 richest people. Average wealth of those included was then $200 million. By 1986, average wealth was $500 million.
By 2000, $725 million was required to make the list (vs. an inflation-adjusted $161 million). Average wealth then topped $1.4 billion as, from 1998 to 2000, the wealth of this politically favored few grew an average $1.9 million per day. That’s $240,000 dollars per hour, or 46, 602 times the minimum wage. Good work if you can get it. Or if you can hire those lawmakers willing to change the rules to get it for you – sticking taxpayers with the fiscal tab for a policy prescription that increased the number of billionaires from 13 in 1982 to 274 by 2000.
Deficit-financed investment subsidies, deficit-financed interest income, and deficit-financed income tax cuts are not all that the rich receive. Now that their private fortunes have grown far larger – at public expense — repeal of the estate tax will reduce revenues by an even larger amount — another $740 billion commencing in 2011, just when the first baby-boomers turn age 66. The impact of this latest deficit-financed gift is particularly narrow in its reach. Though Hard Right Talk Radio assures its listeners that the “death tax” devastates small business and family farmers, that’s another Big Lie protected from public scrutiny by today’s bought-up and shut-down media. Farmers already enjoy a $4 million estate-tax exemption.
What’s true is that repeal will de-capitalize the nonprofit sector, ensuring a a dramatic drop in charitable bequests that now support hospitals, clinics, colleges, research and so forth. As the proponents of repeal know (but dare not tell), half of all estate taxes were paid by 3,300 estates in 1999, 0.16 of the total, while a quarter of the taxes were paid by 467 estates worth more than $20 million each. Fully half the financial benefits of this latest version of fiscal crowding-out will flow to the topmost one-hundredth of 1 percent, funding a fiscally induced financial aristocracy just as baby-boomers begin to sink into poverty.
WORKING HARDER FOR LESS
It’s difficult to overstate the extent to which the wealth of the nation’s wealthiest is directly due to changes in public policy – and to the bipartisan embrace of “Chicago” economics. For example, over the past 30 years, Fortune magazine reports that the average pay of the top-paid 100 executives skyrocketed from $1.3 million to $37.5 million, or from 39 times the average employee’s pay to 1,000 times. To put that phenomenon in proper context, ponder the fact that these managers are managing Other Peoples Money, the bulk of which was intended, by law, to fund retirement security for a broad base of Americans. As someone who played a hand in crafting much of that law (mea culpa), let me explain.
When I became counsel to the Senate Finance Committee in May 1980, Wall Street money managers oversaw $1900 billion. Those “funds under management” now exceed $17,000 billion, with roughly 55 percent of that money directly traceable to tax subsidies provided for retirement security, my specialty on the Committee. Those tax subsidies now reduce tax revenues by $110 billion per year, a projected $553 billion fiscal cost over the next five years. That ranks retirement security second only to national security (and interest on the debt) as a budget expense that preempts other public needs.
In addition to allowing senior managers to skim at least $500 billion (more than $1 trillion at the market peak in early 2000), what else did Wall Street do with the retirement funds entrusted to their care over the past two decades? For starters, the nation’s share of after-tax income received by the topmost 1 percent nearly doubled from 1979-1997. Over that period, the average income of the richest fifth jumped from nine times the income of the poorest fifth to 15 times. By 1998, the richest one percent had as much combined income as the 100 million poorest Americans. The top fifth now claim 49.2 percent of national income while the bottom fifth gets by on 3.6 percent.
That lack of widespread purchasing power fuels what the Chicago cognoscenti call recurrent “overcapacity” recessions as the capability to produce goods and services outstrips the financial capacity of Americans to buy what could be produced. Just prior to the 9-11 attack, the U.S. was (once again) sinking into an overcapacity recession, a key reason we lack the essential economic tools to pull us out of this latest morass despite massive (deficit-financed) spending on armaments and on the Department of Homeland Security.
Rather than investing to catalyze broad-based purchasing power, half the total gain in real income (47 percent) between 1983 and 1998 flowed to the topmost one percent while only 12 percent trickled-down to the bottom four-fifths. Keep in mind that these trends were financed with your retirement savings and with vast fiscal resources meant to encourage your saving – resources that could have been used for other public purposes. Sixty percent of the income gains captured by the top one percent flowed to the top 0.1 percent while almost half that gushed to the top 0.01 percent – those 13,000 taxpayers with annual incomes of at least $3.6 million.
By 2000, the topmost one percent were pocketing 21 percent of national income, more than the combined purchasing power of the poorest 100 million Americans. This systematic looting of pension savings was helped along by neoliberal theorists happy to rationalize more executive suite skimming even as the average pay of the top-ten CEOs soared from $3.45 million in 1981 to $154 million in 2000.
What does this mean? Even as America and Americans created vastly more financial wealth, fewer people saw more money in their pockets or more wealth in their portfolios. Even as the presidents of “both” parties trumpeted “our” economic boom, most folks had roughly the same or even less than before. Meanwhile, neoliberal lawmakers leveraged-up our national balance sheet, loading it up with massive debt while holding us personally liable. Don’t pay your taxes (to repay Our Debt) and off to jail you go.
Households likewise leveraged up their personal balance sheets, helping finance a Wall Street-boosting illusion of shared prosperity as purchasing power was financed with household debt that relied on a combination of home equity loans — limited largely to the top 20 percent – and massive credit card debt.
At one end of the neoliberal food chain, the annual pace of personal bankruptcies continues to hold steady at 1.4 million for each of the past five years, an average 7,000 per hour as household debt topped $7.6 trillion in 2001, a record-breaking 73% of GDP, while home mortgage foreclosures reached a 30-year high. Meanwhile, anticipating brisk sales, Daimler-Chrysler launched over the July 4, 2002 weekend its $300,000 Maybach luxury sedan as high-end boatyards continue to report strong demand for super-luxury yachts, 150-feet or longer.
The personal windfall pocketed by the topmost few was financed largely from three sources: public debt, public retirement savings and public tax subsidies meant to fund retirement security. Yet the scope and the scale of this heist – clearly the largest in history – reaches well beyond the realm of finance. The typical American now works 184 hours longer than in 1970, an additional 4-1/2 weeks on the job for nine percent more pay. So much for 200 years of labor-saving progress – much of that also financed with taxpayer-subsidized research and development. The bottom fifth saw their average after-tax income fall nine percent from 1977-1999.
This massive rip-off includes not only the theft of peoples’ time and dignity but also their foregone health-care and other key amenities of modern life such as higher education as college costs spiraled out of reach (the typical student now graduates with $15,000 in student loans, up from an average $2,000 in 1980). All values were required to play second fiddle to the Chicago-inspired pell-mell pursuit of financial returns at the cost of civil cohesion, community viability, even sacrificing to Wall Street the health of the natural capital on which all life depends.
The all-encompassing extent of this neoliberal-facilitated thievery comes more clearly into view when you realize that national economic policy is based on full employment while the largest tax paid by four out of five Americans is a tax on jobs – the Social Security payroll tax. With support from “both” parties, the largest tax hike of the past two decades was enacted in 1983 after Alan Greenspan chaired a Reagan-Bush I presidential commission that raised the Social Security tax, already the nation’s most regressive tax, a ‘flat tax’ now levied on the first $80,900 of income.
BEWARE: NEOLIBERAL LOOTERS LURKING
Looking at the Social Security tax, some taxpayers have grown receptive to the neoliberal notion that we partially privatize this retirement insurance. Wall Street’s favorite proposal would redirect $100 billion in job-tax revenues into financial markets that have been anything BUT kind to the typical investor. For example, from 1983 to 1998, 53 percent of market gains flowed to the top 1 percent of households.
This ongoing larceny will clearly accelerate if money managers are given another $100 billion each year in market-boosting funds to manage. Imagine the chutzpah of these neoliberal looters — knowing ahead of time that 53 percent of that stock market boost will boost the portfolios of their well-heeled clients, all of it funded with job-endangering taxes on employment. Plus that’s $100 billion per year in tax revenues that will no longer be available to pay current Social Security benefits, ensuring even more fiscal crowding out.
These Chicago-inspired gangsters make Al Capone look like a small-time hood as they rigged Wall Street with enthusiast help from “both” major parties. Advised by a tight network of think tanks (Heritage Foundation, American Enterprise Institute, Brookings Institute), this cabal clearly intends to convert American’s pension savings into a source of funds for creating a new over-class. That process, already well along, continues to accelerate, financed with more taxpayer-backed debt, more taxpayer-paid interest payments, more taxpayer-subsidized investment subsidies, more deficit-financed tax cuts and more taxpayer-funded government contracts, including those used to fund “our” commitment to empire-building in the Middle East.
To keep their legislative lackeys in line, Wall Street’s money managers and stockbrokers now account for 71 of the nation’s top 400 political contributors. The top-five zip codes for political contributors to “both” parties now run up the posh upper East Side of Manhattan, coincidentally home to the nation’s media and money-management elite. To those who propose the public financing of federal elections, I suggest those are already publicly financed, you just can’t see it because the funding is circuitous and indirect. Wall Street funds its political input largely with investment fees subtracted from your pension savings and extracted from tax subsidies meant for your retirement.
The neoliberals have infected the policies of “both” parties to such an extent that only the top 20 percent of Americans are now able to keep up financially. Yet even the highly indebted top fifth lives in constant fear of financial free-fall, a fear worsened by the loss of 2.2 million jobs in just the past two years, particularly among the bottom 80 percent who find themselves working far longer and having less to show for it. That includes not only less time for their families but also less time for the civic engagement now needed to jettison those policy-makers who’ve long embraced this unworkable and perilously anti-democratic economic model.
Persuaded to seek ever higher financial returns, the bottom 99 percent watched helplessly as their retirement funds flowed into the portfolios of managers, the well-to-do and a lavishly paid cadre of professionals who service the financial-services industry. Accountants, attorneys, bankers, investment bankers, stock analysts, pay consultants and assorted other accomplices remain delighted to cover-up their thievery with what passes for logic in the neoliberal worldview: “Just maximize financial returns and, trust us (we’re from Chicago), everything else will work out fine.” The global pursuit of that reductionistic notion requires lots of legal talent. By 2001, average partner pay in the top 100 law firms nationwide was $798,500. Senior partners in large Wall Street firms pocket some multiple of that amount.
Yet even the profound insecurity created by this model domestically pales in comparison to the wall-to-wall wreckage its operations create abroad. Neoliberalism went full-throttle global when the World Trade Organization joined the World Bank and the IMF as the Big Three regulating global finance. With finance the animating force driving globalization, the fixation on financial returns became not just a means but an end in itself. In the U.S. alone, $17 trillion of managed-money is constantly on the hunt for returns, 24/7. This returns-myopic model is now busily at work seeking an empire in the Middle East, jeopardizing national security while trashing a half century of American goodwill earned at immense cost in both blood and treasure.
POVERTY ABROAD
Today’s stunning concentration of wealth is now a worldwide phenomenon that accompanies the worldwide spread of the Chicago model. In the four years to 1999, the world’s 200 richest people doubled their wealth to a combined $1 trillion. By comparison, the combined income of the world’s 2.5 billion poorest is $1 trillion. In countries where the neoliberal model is deemed “successful” (by Chicago standards), the results are reflected in recent World Bank research showing that 62 percent of Indonesia’s stock market wealth is owned by that nation’s 15 richest families. The comparable figure for the Philippines is 55 percent and 53 percent for Thailand.
Income patterns are also highly concentrated worldwide. The richest fifth now account for 86 percent of global consumption while the poorest 20 percent get by on 1.4 percent, down from 1.7 percent two decades ago. By the mid-1990s, the combined income of the topmost one percent worldwide (50 million people) equaled the combined income of the poorest 57 percent (2.7 billion people) according to World Bank research. Since 1985, says the former head of the UN Development Program (UNDP), economic decline or stagnation has affected 100 countries, reducing the incomes of 1.6 billion people. For 70 of those countries, average incomes are less in the mid-1990s than in 1980, and in 43 of the countries, average incomes in the 1990s were less than in 1970.
Three billion people presently live on $2 or less per day while 1.3 billion of those get by on $1 or less per day. With population expanding 80 million each year, World Bank President James D. Wolfensohn cautions that, unless we address the “challenge of inclusion,” 30 years hence we could have five billion people living on $2 or less per day. The UN reports that two billion people suffer from malnutrition, including 55 million in industrial countries. These trends suggest that, in three decades, today’s brand of globalization could create a world where 3.7 billion people suffer from malnutrition, including 100 million in developed countries.
UNDP reports that 1.1 billion people lack safe drinking water. Adequate sanitation is lacking for 2.3 billion. According to the UN Food and Agriculture Organization, 36,400 people die each day from conditions related to malnutrition; most are children under five. Universal access to primary health care for children remains a distant dream, even in the United States. At present rates of development, the UN estimates that even universal access to safe drinking water cannot be expected before 2025 in Asia, 2040 in Latin America, and 2050 in Africa – after a half-century of development assistance.
After two full decades of a policy-mix meant to ensure fiscal crowding-out, policy-makers now routinely cite the lack of fiscal resources as the rationale for failing to support even the most rudimentary development need (safe drinking water). Instead, we propose that the human family wait another half-century to address critical human needs that were first identified a half-century ago.
Meanwhile, the $458.7 billion in Pentagon and intelligence outlays committed for 2003 are only the down payment on an imperial plan meant to project American military might worldwide. Bush II says to expect even more deficit-financed military spending this summer in a supplemental appropriations bill, but only after the GOP enacts its next round of deficit-financed tax cuts for the well-to-do. The fiscal crowding out due to defense appropriations alone is on track to top $500 billion per year by FY 2009, further eroding Washington’s financial ability to fulfill a broad range of commitments and responsibilities.
The book of Isaiah advises very simply: if you want peace, work for justice. Global justice remains the best formula for national security in a globalizing age. If the goal of globalization is to encourage genuinely open societies worldwide (i.e., democracies), then armaments are no longer a feasible means to secure societies. During the Cold War (1948-1989), national security spending topped $12.7 trillion (in inflation-adjusted 2000 dollars). We’ve since invested another $4.9 trillion (1990-2002). We’re now committing to defense outlays totaling another $3,500,000,000,000 ($3.5 trillion) through 2009, for a six-decade outlay of $21.1 trillion.
Meanwhile, neoliberals in “both” parties insist on spreading an economic model that foreseeably creates divisions more severe than anything the human family has seen since just before the Great Depression, the last time such a Great Divide was embraced by policy-makers.
FIXING THE CRISIS
The worldwide persistence of abject poverty is not inevitable. Given the model’s foreseeable results, any objective observer must conclude that the results are intentional. If so, policy-makers are complicit. Either that or the results are unintended, suggesting that policy-makers are incompetent. Take your pick: clueless or corrupt. Where the model fails most dramatically is in the fast-widening gap between rich and poor, both within and among nations. As the world’s most financially sophisticated nation, it’s difficult to imagine that the results were not fully foreseen, even now.
Development based on the neoliberal model is certain to further widen today’s unjust, terrorist-inducing divide. Far from being genuine conservatives, Chicago-entranced policy-makers expose themselves as profoundly lousy risk-managers. Rather than manage long-term systemic risk – the litmus test of any true conservative — they’re funding yet another costly round of arms and armies to suppress symptoms destined to worsen with the spread of more arms and more armies. Meanwhile, those costs preempt the modest fiscal resources required to eradicate the persistent abject poverty that’s certain to fuel global discontent.
Political motives become suspect when you realize just how few financial resources are required to address that systemic failure (i.e., persistent abject poverty). For instance, UNDP reports that $35-$40 billion per year is sufficient to address the minimal conditions required for the flowering of human potential worldwide: safe drinking water, adequate sanitation, sufficient nutrition, primary education, basic health care, and family planning for all willing couples. That $35 billion is only 7.6 percent of the 2003 budget for national security, or roughly what we spent in 1999 to maintain the military readiness of our nuclear arsenal, a decade after the fall of the Berlin Wall. For the developed world to raise $35 billion would require foreign aid totaling 0.7 percent of each countries’ GDP. That compares to an average 0.22 percent presently contributed by donor countries, and just 0.11 percent by the United States.
Rather than propose a sensible development strategy, G-8 leaders announced in 1999 a debt relief initiative for Heavily Indebted Poor Countries, aiming to cap debt service for each of the world’s 41 poorest country’s at 15-20 percent of export earnings. That may sound like a good deal, but compared to what? When the victors of World War I limited German reparations to 13-15 percent of exports, that financial burden triggered a humiliating recession that led to WWII and the rise of a virulent form of fascism as Germany morphed into the Fatherland.
After seven years as counsel to the Senate Finance Committee (since advising in 35 countries), I can say with confidence that finance is a design science that can be structured either for exclusion or for inclusion. Imagine if policy-makers polled people on their preferences. What sort of ownership patterns do voters consider optimal? Imagine if national economic policy included not only widespread employment of our labor resources but also widespread ownership of the nation’s capital resources. What if an “ownership impact report” were required everywhere policy impacts finance, including the financing of development in other countries? Imagine if U.S. tax policy favored broad-based ownership as a way to anticipate future fiscal demands, reducing demographically foreseeable tax burdens.
Imagine if every government contract required that contractors include as shareholders not only their employees but also their suppliers’ employees. What if private firms were granted access to public lands (for drilling, mining, lumbering, ranching, etc.) only if they set aside a prescribed amount of their shares to fund the nation’s future retirement needs? What if the airwaves, another public asset, were reserved for use by broadcasters whose ownership is imbedded in the communities they serve?
Imagine if carbon emission rights were used to finance capital accumulation for broad swaths of the American public rather than, as now envisioned, giving those funds (in the hundreds of billions) to the oil companies. Imagine if your retirement savings were invested not to convert managers into multi-millionaires and millionaires into billionaires but to fund your retirement security. As a design science, alternative financial futures are politically possible provided the rules are changed, along with the rule-makers.
We the Unreasonable
In 1999, UNDP reported “we have entered an era of grotesque inequality.” Their conclusion: “Development that perpetuates today’s inequalities is neither sustainable nor worth sustaining.” Paradoxically, the free enterprise component of democracy is founded on the sensible notion that free markets provide an opportunity for free people to freely express their free choices and thereby enjoy the dignity of self-determination, democracy’s most treasured freedom. Yet due to the neoliberal model’s indifference to wealth and income patterns, development often undermines the very premise on which its operations are based.
For example, to equate markets with expression of the common will is misleading. Markets don’t respond to people but to people with money. Embrace a policy mix, like today’s, that concentrates income, and that mix undermines both self determination and markets, the very foundation on which free enterprise democracies are built.
Similarly, private enterprise is based on the sanctity of private property as a bedrock component of democracy, offering the possibility for both security and sanctuary. Yet private property depends for its legitimacy on its lack of exclusivity. Embrace a policy mix, like today’s, that concentrates ownership and that mix is destined to endanger both private enterprise and democracy. Add to these results today’s dramatic lack of fiscal foresight and it’s clear that, whatever neoliberalism’s political proponents may call themselves, “conservatives” they certifiably are not. Yet rather than abandon or alter the model, “both” parties insist that the model borders on perfection and, alas, it’s the world and those in it who must change – to fit the model.
Support for such dysfunctional and anti-democratic results requires systemic corruption to maintain a model that is itself systemically corrupt. After several decades of Chicago-insistent market fundamentalism, wed to 20 years of GOP-insistent fiscal crowding-out, the future we now face is a form of intergenerational financial terrorism. A nation designed to endure ‘for the ages’ requires a policy mix designed to generate more sensible and sustainable results. That’s why the well-informed will remain We the Unreasonable until we detect in our policy-makers some semblance of decency and plain, sane common sense.