Class War in America: the Book
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Time 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: