Over the last 30 years the US had a class war, and the middle class lost almost every battle. Congress’s refusal yesterday to spend over $700 billion bailing out the nation’s richest people did not confirm that the US was a banana republic, as Paul Krugman would have us believe, where the top 1% of the population steals from the poor and the small middle class to take for themselves.
On the contrary, the bailout’s failure signals that America rejected the opportunity to solidify its role as the world’s largest plutocracy — a country run by the rich for the rich. This was the most significant victory against US plutocracy in 30 years.
The US has been trending towards plutocracy for over three decades. From being the Western nation with the most social mobility, America went to being the country with the least. From having the least inequality in the Western world it went to the most. The amount of money the rich had ballooned to Gilded Age levels and the middle class didn’t get a single raise. Families went from being able to support themselves with one wage earner to needing two.
There has never been a better time to be rich in America. In the last decades the truly rich have gone from merely flying first class to owning their own jets. They’ve gone from earning 20 or 30 times what a normal employee earns to taking home tens of millions of dollars every single year—even when they are running the company, and the country, into bankruptcy.
Congress after Congress, Administration after Administration systematically stripped rules and regulations from the financial system to make more and more leverage and thus more and more profits possible. Tax levels on the rich collapsed and unearned income was taxed at lower and lower rates, while those who earned their money by the sweat of their brow instead of buying securities were taxed much more.
In other words a huge amount of money was very deliberately transfered by government from the working class to the rich. As Jesse Wendel points out, this transfer of wealth only accelerated in the Bush years, where most of the debt run up was for tax cuts for the rich, and most of the rest was for a war which certainly didn’t benefit ordinary Americans, but did enrich companies like Halliburton—that just coincidentally had connections at the highest political levels.
The US has been run, for over 30 years, for the benefit of the rich. The financial sector, which once accounted for about 10% of the economy’s profits, burgeoned to about 40% based on loose money, deregulation and so-called "free" trade—which was no such thing. These profits, as Kevin Phillips among others has explained at length, were chimerical, illusionary, a sign of America’s weakness and not strength.
The Paulson bill was to be the capstone. While billed as 700 billion it actually allowed much money to be spent than even that. If it had been passed, the US government would have effectively promised to take on all the losses of the financial sector and to bail out the rich on the back of the poor and middle classes. It was to be the final act in the descent to American Plutocracy: the capstone law which made it formal "the rich can never lose, only the middle class. The rich are the most important people in this economy and must be protected at any cost to anyone else."
The markets are now panicking, and we are being told the end of ages are coming. And there’s some truth to that: if Congress holds firm on this and then goes on to write and pass a bill which takes care of Main Street rather than Wall Street, then the end of an age is indeed happening; since the financial sector had become so large, so parasitical on the real economy, the end of that age is going to hurt a ton. The US has spent decades offshoring and outsourcing jobs, not rebuilding infrastructure properly, ignoring education, not dealing with fundamental problems like energy supplies, letting its universities work for for short term corporate cash instead of long term gains, and so on. The real economy, in other words, has been under invested even as the financial economy has sucked up all the room. Financial companies promised 15% returns, normal companies were forced to try and do the same, but the reality is almost no company can deliver that without fraud, extremely risky business practices, or both.
As it happens those 15% returns were lies, they were not real. They were a result of fraud, leverage, booking future profits today and various accounting tricks. They sounded too good to be true and as with most such things, that’s because they weren’t true. They were lies.
But because they sounded true, money went into companies that "delivered" such returns instead of into the real economy and the result has been that the real economy, which most of the population lives in (as opposed to the Wall Street "economy" which gives itself bonuses equal to the raises of 80 million people) has stagnated and fallen behind.
Getting off the financial path, off the junkies fix of fake profits and loose money is going to hurt. Let no one tell you otherwise. Over the next few weeks and months we are going to hear a lot of screams that everything bad that happens (and bad things are going to happen) wouldn’t have happened if only the American Plutocracy Act (aka the bailout bill) had passed. As with withdrawal from a deadly addiction, this is true to an extent. Stop taking heroin and the withdrawal effects may make you wish you were dead, and claw for another hit to make them stop. But going back on the drug isn’t the solution to it nearly killing you.
Instead there are plenty of things that can be done to reduce the suffering and to have the US come out of this stronger than ever, with an economy that works for everyone and not just the rich.
But doing those things requires first a commitment to get off the smack, and to start operating a real economy again. The days of "15%" profits, and $50 million salaries need to end, because both were born of lies and delusional thinking and a system which produced paper profits and many billionaires, but no real raises for Americans for 30 years.
We can do this.
- The first step is to to take interim measures to stabilize the economy until a new president is inaugurated in January.
- The second step is to make sure that in January Congress and the new President take the necessary steps to restructure the economy.
The next administration can build a new, stronger economy for all Americans if it has sufficient political will to end the Plutocratic economy, to fix the mess the Plutocrats left behind, and to start making all Americans prosperous again.