How did the American economy get so hollow?

Posted on October 31st, 2011 in General by Robert Miller

 

Wages vs Productivity in America

Les Leopold, writing in Alternet,  has provided an excellent, graph-driven account of why we have an Occupy Wall Street (OWS) movement today. They are demonstrating for the same reasons that each of us might offer about the financial condition of our country and why we see so little opportunity for job prospects now and into the future. For those people that have jobs, they are finding it difficult to make ends meet, many are  loaded with student loan debt and and large numbers of Americans are being evicted from their homes, with many others teetering on the brink of foreclosure.  Government has not only failed them, but participated in the actions that reduced employment opportunities to a shadow of what is needed for a healthy society. The government bailout has been directed to the wealthy, many of whom caused the economic meltdown in the first place.  Our culture and economy have been hollowed out by those still in charge, yet these same players continue to generate new high risk investment “instruments” and still send jobs overseas. If the OWS demonstration doesn’t grow into a national crescendo, it’s because we will allow it to fail–it is our turn to step in, support the  movement and facilitate their energy to build a national consensus for making a new economy that works more effectively for people, with enhanced wages, reduced costs for education (do you remember when tuition at the University of California was free until Ronald Reagan introduced tuition charges which have now soared to all time highs?), reversing our expensive, privatized culture and do so with a progressive tax base that stabilizes our society and allows us to rebuild a very broken economy–one that includes vitality in its support of a stable, social safety net. These are not impossible goals. The economy needs to work for all of us, from top to bottom and for too long we have neglected the latter in favor of the former.  We need our country back, the one we assumed we had all along, the one that slowly eroded without our notice because of the small incremental steps that were  too subtle for human detection. In retrospect however, we went over a cliff.

We have a long way to go before we achieve a sense of national focus on the right target and the means to achieve these objectives.  But the OWS movement got the place right.  The financialization of America has been a bad turn of events, not a good one. The wages vs productivity in America  graph [taken from lepold’s article]  illustrates what happened to the wages of the American worker over the past several decades and why there is an Occupy Wall Street movement gaining momentum today.  Throughout most of our history [United States] there existed a tight relationship  between worker productivity (economic output per hour of labor) and wages (weekly wages in the graph have been inflation adjusted to 2008 dollars).  When expressed in this way, you can see how the wages and productivity  tracked one another, but began  to deviate in the late 1960s, at which time wage earners’ weekly income  fell flat ,though productivity continued to grow: on this scale the highest weekly wage was $746 a week in 1971-1972 ($2008), but could be, in today’s $ more than $1000 per week had the relationship between productivity and wages continued at it’s pre-1960s relationship.   What happened quite simply was that management stopped rewarding workers for their increase in productivity and started to use the additional profits from gains in productivity to plow them back into the organization, reporting them as increased profits which led to enhanced value for publicly traded stock. A rise in the value of the stock enhanced the personal gain of management and made them look like geniuses, when all the while it was in reality a transfer of wealth from workers to management. Stock purchases increasingly became part of the CEO salary picture and eventually could be back-dated to insure a handsome golden parachute. Simultaneous with the development of the golden parachute for management, the gold watch for employees  went the way of the Dodo bird. The wild merger mania that occurred during the Reagan years led to a decrease in plant efficiency, compensated by downsizing, robbing retirement packages and selling off assets of companies. Mergers led to a decreased competition and upward movement of prices. Eventually local stores would be replaced by Wal-Mart, whose low wages were supplemented by the social safety net at public expense. Wal-Mart continues to be a government-subsidized operation and has contributed to the third world-like feminization of labor.

The figure on the right, also from Les Leopold’s article in Alternet  illustrates how the loss of worker’s compensation helped to elevate the top 100 CEO salaries based on the average worker’s annual salary. Here you see an explosive growth in CEO salary from 45x in 1970 to 1723x in 2006. You can argue that this massive salary increase was created by taking the salary deserved by workers for their increased productivity and then diverting it into corporate income and stock values.  This change did not happen by accident. It happened when the neoliberal movement began to change the nature of our economy and culture, to emphasize free market conditions and globalization, as national borders began to melt and multinational corporations begin to emerge with huge influence on the laws that regulated business and capital markets. The flaw that exists today in Wall Street is continued belief in the idea that a free market is a perfect instrument and, in time, will solve all problems. These same neoliberal capitalists also express the idea that a financial crisis is good once in a while to wipe the slate clean and get a fresh start. Increasingly, from the dotcom crisis of 2001 and the Great Recession of today have reduced labor costs substantially. The Republicans are voting to maintain the current crisis to further reduce labor costs of the American work force. Indeed, for each crisis created by capitalism, a labor surplus is created which allows the capitalist class to manipulate working conditions further by having an excess of labor such that labor lowers their demands and becomes more pliable.

Rate of top 100 CEO salaries per average worker annual salaries

Did it ever occur to you that despite the fact that for decades we have been aware of the salary inequities between men and women, who earn less for the same work, the situation has not really changed, despite social pressure to establish gender equity in salary. That is the nature of neoliberal policy–keep women’s salaries as low as possible and move more women into the work force, thus reducing total labor costs. We may want to think that the feminization of our work force was done in the name of gender equity, a noble cause,  but neoliberal policy means that a net reduction in labor cost is achieved when more women enter the work force, such that maintaining women’s salaries below their male counterparts reduces labor costs as the proportion of the work force increases in female representation. If you look at the global labor situation, where a more informal manufacturing has taken place in some industries, such as making shoes or clothing in third-world countries, often localized in Export Processing Zones (EPZs),  more and more women have entered the work force, some with children, who can adapt to  flexible hours of work consistent with their needs for child care, particularly in single parent families. Neoliberal strategies for cheap female labor have also led to slave labor prostitution among very young women and this is a growing world-wide problem, which is also found in the United States.

Neoliberalism on trial

Posted on October 20th, 2011 in General by Robert Miller

 

Occupy Wall Steet Vol 2

Neoliberalism is on trial: in time, the charges will be enumerated and the clarity of history will focus on the magnitude of the error we made by allowing a radical economic and social system to be implemented through a false promise given as a cure for a poorly understood problem of the 1970s (stagflation).  But a growing populist judgement, coming out of the Occupy Wall Street movement,  has already been reached, aided by the Arab Spring and countless other demonstrations that have emerged,  railing against the sanctuaries of neoliberalism, without necessarily identifying the root cause, even though it has been mentioned. It all began in Tunisia, late last year,  when a young vegetable seller, Mohammed Bouazizi, lit himself on fire after suffering a humiliating interaction with authorities: it was December 17, 2010, exactly nine months before the Occupy Wall Street movement began. Rising from that single event, with Tunisia first, the Middle East caught fire in Egypt, Bahrain, Syria, Yemen, and Libya, Madison and Wall Street where a global movement is underway to challenge the socially destructive outcome of the  neoliberal experiment, which resulted in a rising, but increasingly isolated, capitalist class, at the expense of everyone else’s  shot at dignity. The attorneys for the plaintiffs have yet to make the full-throated case against neoliberalism and there is a lot that needs to be discussed besides the history of its false promises. That will come in time, and admittedly, it may not be the OWS movement that provides the thrust of the critique. But people are in place to do this and only need a stage to articulate the reasons that neoliberalism has been such a colossal failure beginning at its very origins; claims of a triumph were made when Allende in Chile was deposed and replaced by Pinochet, who used the “Chicago Boys” guided by Milton Friedman to introduce neoliberalism into Chilean economy, which initiated the downward trajectory of the middle class and eventually spread to many other South American countries. But the IMF is now mostly out of South America and more democratic societies are emerging, even though many face opposition from the capitalist class that flourished under neoliberal authority.

But if all goes right, if a guilty verdict is eventually reached against neoliberalism, what should the sentence be and how should it be carried out? There were some laws broken during the march-up to the neoliberalism of today and deceit was rampant (in the past, I have repeatedly referred to neoliberalism as Reaganism, but that characterization robs our understanding by pinning the tail on only one donkey). The penalty that our financial system must pay is the full cost of getting itself re-embedded into our culture. Since this a global market system, and all nations are implicated to one degree or another,  the entire global community has paid a heavy price for the rise of the capitalist class to the exclusion of a more equitable, open and participatory society. But it is time to begin the long road of recreating a financial system that serves society, supports education, invests in job creation and challenges the value of privatization. Then too, these changes need to be mindful of the future health of our blue planet.

It seems that our election cycle of 2012 is shaping up to be the mother of all  elections, certainly for this new century and perhaps the most important election since that of FDR in 1932. It will not be an election between one ideal candidate, like FDR of 1932 and one undesirable, like Mitt Romney (who thinks the military is too small), but hopefully it will be an Obama as the front runner who must yield to the demands of the Occupy Wall Street movement. Perhaps Obama can be transformed from the corporatist that he is today to someone more heroic in the struggle against the neoliberal institutions that he has so far been willing to serve.  The Occupy Wall Street movement has become global, with an estimated 1500 cities worldwide experiencing some form of crowd demonstration and street/square/park  occupation. The organizers credit the Arab Spring with the inspiration for the non-violent character of their actions. Their strategy is waiting for proper growth, which will in and of itself lead to a form of political action. What we have to fear most is that the American version of neoliberalism has morphed too far into neoconservatism, which means that the state itself has so much invested in the neoliberlist culture of today that, at some time,  it will actively suppress the Occupy Wall Street movement, as they have done in the recent past with pepper spray and clubs.  Thus, while the OWS movement waits for growth, they are at risk of violent suppression. For the moment at least, Zuccotti Park is Tahrir square and hopeful expectations have been aroused.

As the NYT points out, the bankers and Wall Street managers do not take the OWS movement seriously and they are certain that merely waiting the movement out, letting it die of natural causes, will be the only action required. As one Wall Street hedge fund manager put if, “Most people view it as a ragtag group looking for sex, drugs and rock ’n’ roll.” In response, Paul Krugman points out in the NYT, that when hedge fund managers talk about getting credit for what they do and how much they pay in taxes, they are in essence admitting that something is truly wrong with America when its only visible success is in the financial sector of our economy. Everyone else is hurting.

While you’re checking things out you might want to read David Graeber‘s article in The Guardian. In that article he proposes that the stagflation-caused introduction of neoliberalism didn’t really cure the problem it claimed to address-it was never fixed from the get go: [from Graeber] “What we’ve learned now is that the economic crisis of the 1970s never really went away. It was fobbed off by cheap credit at home and massive plunder abroad – the latter, in the name of the “third world debt crisis”. But the global south fought back. The “alter-globalisation movement”, was in the end, successful: the IMF has been driven out of East Asia and Latin America, just as it is now being driven from the Middle East. As a result, the debt crisis has come home to Europe and North America, replete with the exact same approach: declare a financial crisis, appoint supposedly neutral technocrats to manage it, and then engage in an orgy of plunder in the name of “austerity”.”
Time is on the side of the Occupy Wall Street protestors: for the election of 2012, a continued ground swell in numbers and cities occupied will impact on the 2012 election even though neither of the political parties knows how to adjust to this beginning of a new force in the political spectrum of America. Until the world gets right, it will be liking watching the effects of global warming on our television sets without any meteorologist ever mentioning that global warming or global climate change is responsible.  The trap of television is the visual presentation without a story to go with it, without an explanation because our visual apparatus overwhelms the need for aduitory reference. Neoliberlism created the capital class and mainstream media, owned by the capitalist class created capitalist class news, a kind of numb the senses senseless.

  • Here is another interesting feature of the Occupy Wall Street movement, reported by Rebecca Solnit from Tomdispatch: “Having been at many demonstrations in my life, here’s the strangest and perhaps the most striking thing I’ve noticed: I have yet to see a single counterdemonstration, or even a single counterdemonstrator.  Not one.  Nor a single sign expressing disapproval, outrage, or upset with the Occupy Wall Street movement.  This, believe me, is not normal for protests.  Talk about expressing the will of the 99%!”
  • More from Solnit: “And the earliest public opinion polls reflect this.  According to an Ipsos poll, a startling 82% of Americans have heard of the movement, striking percentages are following it with some attention, and — according to TIME magazine — 54% of Americans have a favorable view of it, only 23% an unfavorable one.  Perhaps this shouldn’t be surprising in a country in which 86% of those polled believe “Wall Street and its lobbyists have too much influence in Washington,” or in which median household income fell by 6.7% after the Great Recession of 2008 was officially declared over (9.8% since it began).”

The beginnings of the neoliberal movement promised personal freedom and human dignity beyond anything possible under a more Keynesian, state-regulated system–the system that was more or less in place at the time. That was the bold promise.  Through their first meeting, which founded the Mont Pelerin Society in 1947, attended by  people like Friedrich von Hayek, Milton Friedman and Karl Popper, the group portrayed their philosophy as “liberalism.” Their appeal didn’t gain much traction until the 1970s, when the post WW-II economic system began to collapse in a period described as “stagflation” (slow economic growth coupled with high inflation). The neoliberal label reflected their emphasis on free market principles developed in the latter half of the 19th century, which had displaced the older ideas of Adam Smith and Karl Marx. In response to the current collapse of neoliberal economics, Karl Marx is being resurrected again and is currently the subject of serious academic discussions. How much further this will go and how much the conversation include the dangers of neoliberalism to nature and global climate change is surely the next exciting chapter that will at least partially unfold in the Occupy Wall Street movement. Who can wait?

RFM

 

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Occupy Wall Street identifies Neoliberalism as the core problem

Posted on October 15th, 2011 in Culture,Economy by Robert Miller

Occupy Wall Street Movement

If you visit the Occupy Wall Street website as of last night and today, you will see recognition that neoliberalism is the root cause of our economic problem. I think this is a good, timely identity to make, though it should send many scrambling to find out more about neoliberalism. That’s good too. In short, Neoliberalism is the system that Milton Friedman was instrumental in formulating as a kind of economic theory, but Ronald Reagan and Margaret Thatcher introduced the system into America and Britain as the dominant social and economic system, based on a globalized “free market” economy. It basically holds that the free market can solve all problems, that it is a perfect instrument. Poverty is not the result of bad market behavior,  it is caused when people decide not to work and take themselves out of the work force (because their earnings decline). The free global market can solve all problems–it adjusts to deal with supply and demand and, left completely on its own, can solve problems with benefits for all participants. Their claim is that everyone will prosper and the free market will also solve poverty, having claimed to raise millions of people above the poverty line. But the reality is that deregulation of markets gives neoliberals the ideal environment with which to enslave the global work force.

This form of capitalism is vicious and uncompromising towards labor and through the IMF, the World Trade Organization and the World Bank, has resulted in huge debts for loans to third-world countries and massive dismantling of social policies and the social safety net. But the important achievement for the Occupy Wall Street group is that they have identified a problem–an economic system in which our financial system no longer serves society, but instead society is supposed to serve the financial system. America has been financialized, an event that took place in the 1990s when profits from the financial sector exceeded those of manufacturing. Neoliberalism externalized the relationship between society and economics. We had a much healthier relationship between the financial sector and Main street in the period after the depression and into the 1970s. But accelerated under Ronald Reagan, we have the neoliberal system of today where our financial system is completely free from serving society’s needs and has become “dis-embedded” within our culture. Our financial system needs to be “re-embedded” into our social structure and become one force that serves the interests of the entire society, not the interests of the few. In the process of making these demands and changes, we need to confront the issues of global climate change and recognize that unchecked growth in greenhouse gas emissions seriously compromises our future and the future of our children. It is alarming that this message doesn’t have much traction.

Yes, market reforms have to be part of the solution and we need to decide that risky financial investments such as those which the over-the-counter stock market is making are  risky and leaves our financial system at huge risks, especially now that Wall Street knows they are too big to fail. The privatization of wealth and the socialization of risk have encouraged Wall Street Investors to continue creating high risk “instruments” of investment. In the short run, these need to be under tighter regulatory control and in the long run, the re-embedding of our financial system needs to take place to insure that we can meet some of the serious problems we face that require immediate attention, such as greenhouse gases and our future on the planet. In my opinion that will require taking over the banks and financial investment firms and reorganizing them to work more effectively for society and the preservation of the environment.  Back in the 1960s and into the 1970s, the fortune 500 companies had made their peace with FDR’s New Deal. It was only when Ronald Reagan, backed by new wealth from self-made millionaires,  claimed to be opposed to taxation and wanted to keep more of  their money from  exposure to Federal taxation.  Thus government became the problem, not the solution to their interests and from there, things went completely downhill, but did so incrementally, such that few people noticed what was happening and few warning signs were put up along the way.

This is where we are today, in a financial collapse that rivals what existed during the Great Depression. It is clear that what we need is a new economy, one based on investment in our infrastructure. Does anyone know why China is doing so well and what mechanisms they used to rebound from the recession? Yes, massive investment in their infrastructure-like highways, high-speed trains, airports and transportation. They are the Keynesians of today and to them the future belongs, unless we begin to realize that what’s missing in our culture is low cost education, right through college, rebuilding our infrastructure, with improvements in highways, bridges, the introduction of high-speed rail, improvements in public transportation. These are things we can afford to do and in the process, by directing the excessive profits of the neoliberals, who otherwise endanger our  economic system, we can achieve a never-ending improvement in our infrastructure which includes addressing the problems of global climate change so that we grow more and more compatible with nature and our natural resources.

As an article that summarizes the OWS movement very well, I recommend David Graeber’s article in The Guardian. For many reasons, I generally find the Guardian superior to the NYT and, for a British Newspaper, there is plenty in The Guardian about America, testifying to the fact that there are probably many American readers who look to The Guardian for news and opinion. For late night people, because the NYT goes to bed early, The Guardian comes to your email box about the same time as the NYT, despite the 7 hour difference between Minnesota and England. So the way I think of it, the NYT  is indispensable for getting news–I am hooked on it, but on the other hand The Guardian has periodic, more pithy and penetrating articles that cover the American scene and often integrate it into a more global view. I now travel to Europe much more regularly because my scientific interests, as determined by scientific meetings, cannot be met by staying in the U.S. anymore. Recently I attended two different scientific meetings in Europe, one in Prague and the other in Amsterdam. Both were on a very high plane and have become the kind of meeting that one cannot avoid if one wants to stay current in your field. China will soon join this scientific resurgence and America will have to become increasingly aware of what’s going on in other countries. Perhaps science and technology can lead the way to encourage Americans to start learning more about the world outside of the U.S., though I am not holding my breath.

RFM

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