Class War in America: the Book |
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Is Getting Short In
a front page article, “Wealth Gap Grows; Why Does It Matter?” The Wall Street Journal reported
that For
all the talk of mutual funds and 401(k)s for the masses…the stock market
has remained the privilege of a relatively elite group. Only 43.3% of all
households owned any stock in 1997.… Nearly 90% of all shares were held by
the wealthiest 10% of households. The bottom line: That top 10% held 73.2%
of the country’s net worth in 1997, up from 68.2% in 1983….
Stock options have pushed
the ratio of executive pay to factory-worker pay to 419 to 1 in 1998, up
from 42 to 1 in 1980.1 If
you are a middle- or low-income worker, this should worry you. Sure, the
more money the rich make, the more they spend, and the more they spend,
the more money lower-income workers can make. But that doesn’t mean that
everyone benefits in the long term, because money isn’t wealth; it’s just
green paper or an entry on a ledger. Real
wealth—the kind that counts—is the kind of home you live in, the car you
drive, the quality of food you eat, the effectiveness of the health care
you receive, the kind of education your kids get, and so on. In other
words, real wealth consists of things—products and services—that you can
actually buy with the money you
have. Wealth
Is a Zero-Sum Game As
all conservative economists know, and deny to the public that they know,
wealth is a zero-sum game. That is true at both the front end—when income
is divided up, and the back end—when it is spent. The
Front End of Zero-Sum: Dividing the Loot There
is only so much corporate income in a given year. The more of that income
that is used to pay workers, the less profit the corporation makes. The
less profit, the less the stock goes up. The less the stock goes up, the
less the CEO and the investors make. It’s as simple as that. Profit equals
income minus expenses. No more, no less. Subtract the right side of
the equation from the left side and the answer is always zero. Hence the
term, “zero-sum.” So,
to the extent a corporation can keep from sharing the wealth with
workers—the ones who created the wealth to begin with—investors and
executives get a bigger slice of the income pie and become richer.
To
understand this aspect of the zero-sum nature of wealth, and the way many
people get rich—that is, besides selling-out our workers to Third World
countries—consider how Gates, Eisner, and Welch Jr. did it. It’s no
mystery, and it isn’t all that hard to do. Although
the following specific details are fictional, the scenario is accurate.
Through their emissaries, Mr. Bill Gates (CEO of Microsoft), met with
Michael Eisner (CEO of Walt Disney Corp.), and John Welch Jr. (CEO of
General Electric). Their discussion went like this:
If
you think that this scenario is far-fetched, read what Barron’s had to say about “What’s Behind
America’s Trend Towards Widened Income Inequality?”: The
revolution in office technology has broken the back of the market for
secretaries and clerks. Robotics has destroyed whole categories of factory
work. These seismic shifts have meant that millions of people who might
otherwise have gotten the blue- and pink-collar positions in these sectors
must now chase what jobs remain. And an increased labor supply generally
brings a lower wage.2 Two
simple questions: Who got most of the benefits of all this new technology?
Who made all the sacrifices? It
was no accident. It was a matter of naked greed combined with raw
political and economic power. When those with the power divide up the
income that workers generate, it’s a totally zero-sum situation. The
same kinds of discussions occur daily in our major corporations, dealing
with issues from outsourcing work to temp organizations, to closing down
U.S. operations and moving overseas. When Michael Eisner insists that his
suppliers use sweatshop labor in Third World countries like Haiti, Burma,
China, and Indonesia, he’s not “creating jobs for women and children.”
He’s forcing American manufacturers to abandon their communities and
workers so that labor costs will go down and he will get a bigger share of
Disney’s income when it is divided up at the end of the
year. In
exactly the same way, when John Welch Jr. forces his suppliers to abandon
their communities and unionized American workers to go to nonunion
Mexico—just like he has done with his own GE workers—he’s not “creating
jobs”; he is reducing labor costs so that he will get a bigger share of
General Electric’s income when it is divided up. The people who divide up the spoils
in this class war are the CEOs, investors, investment bankers,
accountants, lawyers and general hangers-on who are associated with the
power centers. They negotiate among themselves over who gets how much of
the available money—a finite
amount. When the feeding frenzy is over, the workers get what’s left.
If they’re in a Third World country, and if they’re lucky, they may get subsistence wages. If they
are Americans, and if they are lucky, they get an opportunity to find
another job, usually at lower pay. The
barbarians of antiquity at least had to work to earn their living. They
rode horses in the snow, rain and mud, and used swords, spears, and arrows
to destroy families and communities. Today’s barbarians have it much
better. They destroy families and communities by pitting workers against
each other, and they can do it by using their telephones—and they don’t
even have to leave their comfortable air-conditioned
offices. The
Back End of Zero-Sum: Spending Income Since
we live in a society of auction markets, the more money other people have,
in effect, the less you have. Even The Wall Street Journal recognized
this patently obvious fact in the previously referenced article, “Wealth
Gap Grows…”: A
growing disparity in affluence can hurt the less well off, even
if their incomes are also on the rise. In the San Francisco Bay area,
where stock-driven wealth exploded in the 1990s, a middle-class family
earns about 33% more than the national average—but has to pay up to four
times the national average to buy a home because of intensely competitive
bidding from freshly minted millionaires.… Cornell University economist
Robert Frank argues that Silicon Valley could, as it has in so many other
ways, be foreshadowing a national trend. From bigger cars to higher
tuition for the best schools, the richer rich will ratchet up prices for
everyone else. “Extra spending at the top,” he says, “raises the price of
admission.”3 It’s
gotten to the point that even professionals like doctors and lawyers are
sometimes being priced out of the kind of life-style they’ve grown
accustomed to expect. Fortune
reported that real estate prices in the San Francisco area have escalated
to the point that “it has gotten so bad that well-salaried professionals
without big options packages—even doctors and lawyers—simply can’t
compete.”4 They’re being out-bid for traditional
doctor/lawyer-type homes by the newly created multi-millionaires of the
computer industry, who don’t even have to bother applying for a mortgage.
They pay cash. The
land-grab that the Journal and
Fortune were referring to here
is actually old hat. Back in 1993, Newsweek called the zero-sum
nature of land and housing “Aspenization”: A
town [Crested Butte, Colorado] with such attractions is a natural target
for what people in Colorado call Aspenization: the upscale living death
that fossilizes trendy communities from Long Island’s Hamptons to
California’s Lake Tahoe. Aspen was a splendid place, too, before it was
discovered by the rich and famous—and the greedy and entrepreneurial. Now
it’s a case study in over-development. Its lavish second homes sit empty
for most of the year while three-quarters of the work force, who can’t
afford to live there, commute from forty miles down-valley—a two-hour trek
at rush hour.5
Similar
situations are occurring all over the United States. People who do the
service jobs along the North and South Carolina coast have to commute by
bus 2½ hours each way to work. They can’t afford the rents that have risen
because the wealthy bought up available land and cheap homes, and replaced
them with expensive homes, if not mansions. Even the city of Branson, in
the formerly remote hills of Missouri, had to build dorms for workers,
because they could no longer afford the rents in the area after it was
discovered by America’s high-income earners. It’s
not just in resort areas that low- and middle-income persons are feeling
the pinch. From the mountains of Arkansas to the deserts of New Mexico,
people are finding that a massive land and property grab has accompanied
the huge increase in wealth of America’s royalty. Even The Wall Street Journal expressed
surprise at the rise in housing costs across the country in its article,
“3BRs, 3 Baths, No Vu. Price: $500,000”: What
Can Half-Million Buy? Not Much, Even in Fargo …Weekend Journal recently
went on a cross-country house-hunting tour, and we were amazed to discover
how extensive and widespread the price increases have been. It wasn’t just
the usual real-estate nightmares such as Manhattan and Silicon Valley. In
states from Oklahoma to Minnesota, we found half-million-dollar listings
that upscale buyers only recently would have viewed as “starter
homes.”6 This
kind of problem is going to spread in ways most people have not foreseen.
In its article, “No Inflation? Look Again; It’s confined to stocks today,
but it will spread,” Barron’s
warned its readers that Rising
stock prices will inevitably lead to rising prices in the rest of the
economy…. Since much of the newly
created money has gone into the stock market, stock prices have been bid
up to astronomical levels relative to prices of other goods in the
economy. Consequently, by selling some shares, stockholders have a great
and growing ability to buy consumer goods, such as homes and
automobiles.7 This
warning is not often heard by those who have been conned into believing
that everyone, even those who don’t own securities, will benefit from a
soaring stock market. And those who feel good about their $2,000, which
grew to $4,000 in the stock market, had better get a grip on reality.
By
today’s standards their $2,000 gain is a minuscule amount, and they’re
eventually going to lose most of it to those who really made money in the stock
market—or to those who are going to inherit massive amounts of profits
from the stock market. When the wealthy start seriously buying up
everything in sight, especially land and homes, low- and middle-income
Americans will suddenly discover what the skyrocketing stock market was
really all about. This
kind of economic reality doesn’t hurt just poor people. The Wall Street Journal reported
that even some “rich” people are being priced out of the market for the
summer vacation rentals they’ve been getting in the past.8 For
the summer of 2000, it will cost $20,000 for two weeks in a cottage in
Nantucket, a 25% increase over the previous year. In Martha’s Vineyard,
it’s $3,000-5,000 a week for standard cottages. It’s been estimated that
the price for vacation rentals nationwide rose 18% in 1999, after rising
11% in 1998. So,
as the rich get a lot richer—and your increasing income doesn’t keep up—poverty trickles down to you. You
get priced out of the markets you have been able to enjoy in the past.
Similar
observations could be made about college tuition, quality health care,
meals at restaurants, automobiles, entertainment (from movies, plays, and
concerts to professional sports events), and on and on. The same problem
exists for virtually every aspect of life in which people must work in
order to participate in auction markets. It even carries over into
recreational opportunities and discretionary time with one’s family, since
people are forced to work more hours to keep abreast of rising
prices. Naturally,
members of our new American royalty fully expect themselves and their
descendants to stay ahead of the game and to continue to afford all the
luxuries of modern life, and in unlimited quantity. Their supply of money
will require high profits for corporations, investors and businesses—and
low wages for workers—for as far into the future as we can
see. If
you now live in a $200,000 home, drive a modest car, eat at home, never
take vacations and plan to send your kids to a state university—and are
satisfied with your life and don’t desire any more—you may think that the
inflation described above won’t affect you. Wrong.
Remember: the writer of this book, the doctor you go to, the professor at
your local college, your lawyer, the local pharmacist, your state senator,
the managers and owners of your insurance company, grocery store, theater,
hardware store—ad infinitum—they
have been infected by the greed and materialism virus. In its article,
“Amid Economic Boom, Many of the ‘Haves’ Envy the ‘Have-Mores,’” The Wall Street Journal described
how our greediest Americans are driven to become even
richer: As
the job market surges and the stock market has boomed, a wave of envy is
gnawing at those near the top of the economic pyramid as they see others
making even more….
Even some of the newly
envious feel vaguely guilty about it. But they are rankled nonetheless,
especially when they compare themselves to neighbors, college classmates
and former co-workers making far more in high tech, Wall Street, or as
entrepreneurs.9 The
only way these envious people are going to realize their dreams of a royal
life-style is by charging you more for the products and services you must
have. And if they have the power to pull it off, and you are powerless to
stop them—count on it—they will. And the additional income you work for in
the future will buy less than your present income buys
today. 2000
Plus: 1929 and Déjà Vu All Over Again?
The
fact that workers’ wages started to go up in 1999 is small comfort. If
increases in workers’ wages don’t keep pace with income increases for
other categories of people, their net wealth—in terms of what their money
can buy—goes down. The
problems that have plagued societies since the beginning of time are the
same that today’s conservative financial press describe in their news
stories. Wealthy conservatives never seem to recognize when their
accumulation of power and money becomes excessive to the point where it is
self-destructive. As
today’s conservative financial press clearly recognizes, the wealth and
income disparity is continuing to get worse. It isn’t debatable any more.
Conservative pundits have had to change their position from the 1980s—that
the income disparity didn’t exist—to today’s position: it exists, but it’s
fair because the rich work harder and are more successful than anyone
else. They
continue to deny that income disparity is the result of their power and
their control of politicians, and they’ve been able to convince the
majority of voters that their political policies will eventually benefit
everyone. It’s
only when the economy comes crashing down that those same voters will
discover the long-term disaster that they have brought upon themselves.
Just what will happen when: §
The
bottom half of the world’s consumers no longer have enough money to
purchase the products they need, as happened in the late 1920s, and more
recently in Asia, South America, Russia, and most of the Third
World? §
Wealthy
investors, to preserve their assets, withdraw their funds from the stock
market, as they did in 1929-32? §
Recently
affluent executives and investors suddenly find their income streams cut
off and can no longer make payments on $500,000 ranchettes and $1,000,000
homes? §
Social
conditions for the poor become intolerably worse, with the corresponding
increase in crime, drugs, divorce, child and spouse abuse, violent
revolutionary groups, etc.? If
you think that wealthy conservatives will invest their money in order to
provide jobs and to help our country solve its problems, forget it. That
isn’t ever why they
invest. They
also don’t invest to get tax breaks, or to stimulate the economy, or to
help out their community. They invest only to get rich off the labor of
others. And if they are already rich—and see that the stock market is
crashing—they simply withdraw their funds and use them to buy up severely
depreciated homes, farms, raw land, and whatever else desperate people are
dumping onto the market. But,
that’s all somewhere in the distant future, right? The constant drumbeat
we hear today is that this is the best economy we ever had, and we’ll
never again be as bad off as we were in the depression. There is simply
too much wealth and prosperity to spread around for us to worry about who
is getting how much, to what effect, and for what
effort. Sounds
good, but if you read between the lines, you find that even conservatives
are beginning to worry. A schizophrenic optimism/ pessimism duality is
beginning to surface in the financial press. Sure, conservatives tell us
that times have never been so good. But, almost as an afterthought, they
admit their nagging suspicion that all is not well in this economy that
shamelessly favors the rich—at the direct expense of the poor and middle
class. For
a classic example of this kind of duality, look at Fortune’s description of this best
of all economic worlds in its article, “These Are the Good Old Days.”
After repeating the usual mantra of low inflation, booming business, and
low unemployment—better even than the “swinging sixties,” “earnest
fifties,” or “roaring twenties”—it acknowledged: Not
that it’s a perfect economy. Eleven percent of America’s families live in
poverty. Many others have suffered a decline in real income since 1989.…
Wages
have stagnated—the often-quoted Department of Labor figures show that the
average hourly wage today is worth only $7.50 in 1982 dollars, down from a
peak of $8.63 in 1973…. Average family income has grown robustly, due in
part to millions of wives who’ve taken jobs.… But perhaps the single
biggest long-term danger for the U.S. economy isn’t one that will much
affect the normal economic measures or pose any immediate threat to the
current expansion: the growing gap between rich and poor, and between
those who have the education and skills to benefit from the emerging
high-tech economy, and those who don't. While millions of Americans have
marched into comfortable prosperity, at least as many—perhaps even
more—have fallen back.10 So, this is how
conservatives describe an economy that “is stronger than it’s ever been
before”: §
Jobs
are plentiful (enough for workers to work two jobs), §
Business
sales and profits are growing, §
Inflation
(increase in wages) has almost disappeared, §
The
financial markets are booming,
and §
We’re
leading the technological revolutions of our age (so the wealthy and educated
will continue to benefit). That’s right, the best economy so far. After
all, conservatives never evaluate an economy on the basis
of: §
The
number of American families who live in poverty, §
The
number of persons who suffered a decline in real
income, §
Stagnating
wages, or the fact that now, §
Wives
have to work so a family can have a decent income. §
The
income gap between rich and poor is exploding, or the fact that §
At
least as many (as got
rich)—perhaps even more—“have fallen back” in terms of their
inflation-adjusted income. This
is a better economy than the one we had in the “swinging sixties” or
“earnest fifties,” when the income gap was narrowing? When wives didn’t have to work,
and husbands had time to spend with their families? When working Americans
had reasonable levels of income and job security? When those who benefited most from
our nation’s economic policies paid far more taxes (70-90% of income
between 1942 and 1982) than did those who were making all the
sacrifices? So,
after the wealthy, educated, and powerful benefit from the sacrifices that
they forced on workers, what will they do when the economy tanks? Bet the
farm on it: When the going gets tough, the wealthy and powerful will get
going—as in “gone.” In a Forbes
op-ed piece, “Time to Switch,” Steve Hanke described the standard
time-honored strategy for sophisticated investors when it looks like
workers are about to make more money, thus cutting into corporate
profits: All
seems right with the world. The Dow is up 85% over its reading of a little
more than two years ago.… [But] How will higher wage
costs play out? With little pricing power in the markets for goods,
business will just have to eat the higher wage costs. As wage pressures
slowly build, sky-high profits won’t be sustained. A prop gets knocked out
from under the stock market.… Given this state of affairs,
what should investors looking for value do? As he was rushing to catch a
flight to London from his home in Nassau, Bahamas, the ever-wise Sir John
Templeton remarked to me last month that it is now time to switch from
stocks to bonds. I agree.11 Although
this investment advice was at
least three years premature, it shows that wealthy conservatives always
remain alert to danger signs that indicate when it is time to withdraw
from the American economy: Low unemployment rates, average hourly earnings
begin to creep up, and sky-high profits aren’t as easy to come by.
So
what are investors to do when it looks like the economy is going to tank?
Switch from stocks to bonds, of course. That is, quit investing in the
kinds of securities that produce products and services, or create jobs.
After all, when the majority of the public has no money to buy products
and services, why invest in a business to produce them? In other words, if
times get tough—because of what wealthy conservatives have done to the
purchasing power of workers—bail out of the economy. The party is over!
Take the money and run! Switch from stocks to bonds. Make sure you and
your descendants stay rich. Signs
are proliferating that time is getting short for the burst of our economic
boom. Almost daily throughout 1998 and 1999, there were reports about the
danger that workers may begin to share the prosperity of the previous
two-and-a-half decades. In one of its periodic “The Snake in Wall Street’s
Eden” articles, Business Week
noted that “1998 is looking more and more like the year reality creeps
into paradise”: 1998
looks more and more like the year when economic reality overtakes nirvana.
That is, exceptionally strong economic growth and red-hot labor markets
will eventually have unfavorable consequences for profits and Fed
policy…. Aside from some weakness in
exports and manufacturing, there is nothing in the latest data to show
that Asia by itself is slowing the economy sufficiently to blunt rising
labor costs or ease the Fed’s growing concern that overly rapid growth in
1998 could fuel inflation in 1999.12 An
entire book could be filled with articles just like this that were
published by the conservative financial press throughout 1998 and 1999.
Conservatives prove beyond doubt that when they brag about this economy
being the best ever, they don’t include working-class Americans in their
rosy scenario. They
openly admit the zero-sum nature of corporate profits—the more money
workers get, the less the investors and executives will get. If the
economy ever gets to the point where workers’ wages start to go up, it’s
time to pull the plug on economic growth and raise interest rates. But
that could cause the economy to come crashing down. Increased profits
would be harder to come by. Not only that, the bottom half of consumers
all across the globe are running out of money. Even The Wall Street Journal, in its more honest moments, saw
the problem and described it like it was. Under the head “U.S Firms May
Lose Labor-Cost Advantage,” the Journal publicly acknowledged that
“During most of the 1990s, U.S. manufacturers have cashed in on a great
bargain: the American worker”: U.S.
factory wages and benefits have remained low, compared with those in many
other industrialized countries. And companies have turned that edge into
growing global market share and solid profits. Recently, however, several
factors have combined to reduce that labor-cost advantage….
Foreign companies are
starting to adopt some of the cost-cutting tactics that U.S. companies
introduced earlier in the decade…. Many of America’s competitors, however,
are just starting to downsize, outsource or otherwise trim labor costs….
“I think we’ve reached the
limit to squeezing labor,” Mr. Roach [chief economist for Morgan Stanley
Dean Witter] says. “I think that process is just beginning in Europe,
Japan and probably developing Asia.”13 Incredible.
As if workers in the U.S. haven’t already been squeezed enough by having
to compete with victimized workers in other countries—now their
competitor-workers are themselves going to be squeezed even
more. A
trio of articles from the same issue of Business Week gives a hint of
where our country is in its economic cycle. The first, “Up in Arms But
Down in Clout,” describes how even the most profitable corporations are
cutting union jobs: Companies
in industries from apparel to electronics have shifted production to
nonunion shops and to Mexico…. Even the most profitable
companies are still cutting union jobs. In June, General Electric Co.
announced that it would lay off 1,500 members of the International Union
of Electric Workers…where pay averages $17.50 an hour. Some jobs will go to nonunion
workers earning $9 an hour at a plant GE bought in LaFayette, Ga. Others
will be moved to a joint venture GE has in Mexico with a Mexican company
called Mabe.14 These
are not just American low-tech jobs, and it’s not just American union
members who are hurting in the exodus of industry from our country. In the
second article, “Why Mexico Scares the UAW,” Business Week revealed that No
longer do Mexican workers merely produce low-tech parts such as wire
harnesses and seat covers.
Now, dozens of new plants churn out higher-tech components such as
airbags, brake systems, and instrument panels for automakers in the U.S.,
Europe, and Japan. And Mexican engineers, skilled but paid a fraction of
what U.S. counterparts earn, design and test transmissions, brakes, and
engines at state-of-the-art facilities, such as GM’s Delphi Division
technical center in Juarez.15 No
doubt die-hard conservatives will see no relationship between the previous
two articles and the following article from the same issue of Business Week. For those with some
sense of history, however, the third article, “The Summer of Wretched
Excess,” is prophetic: Religion
in the Hamptons means repeating “thank you God for Alan Greenspan” at
every party, every polo game, and every benefit. It’s the mantra of money
in this summer of glut.… Yet, all is not perfect in
this monied paradise. Beneath the gloss there is an edginess. “When will
it all end?” is heard as much as “Is that Martha Stewart?”… No one
actually says it out loud, but the question is always there: If the market
goes, how in the world will I pay for that enormous house? The cars? The
lessons? The clubs?” How will
I remain a dues-paying member of the leisure class?… So, people bravely party on.
The extravagant benefits with chandeliers adorning giant tents, the
networking, the dancing, the celebrity shoulder-rubbing. It’s splendid.
It’s exciting. It’s like that other Long Island party that Gatsby threw in
the ’20s, waiting to end badly.16 Conservatives
have done such a thorough and complete job of destroying the incomes of
working-class Americans that it’s impossible to tell how long the party
for our new aristocracy will last. Another year? Two years? Five years?
Who knows? But
what we know for sure is: the longer the party lasts, the more disastrous
it will be when it ends. Of course, for those who have built up
substantial financial resources—those who are already paying cash for
their homes and businesses—it will be an economic boon. They will be able
to increase their ownership of our country even more, as real wealth—land,
buildings, businesses, etc.—go on the auction block at fire-sale
prices. Those
who can least afford the end of the party—those who have no financial
resources to fall back on—will present our society with problems that have
no acceptable solutions. Certainly, the conservatives of our society, and
especially our politicians, will not want to address them, or to admit
their own roles in creating them. So.
What do we do about all this? Now go to:
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