Saturday, April 6, 2013



Currently, economists are debating whether our economic problems are cyclical or structural.

By cyclical, they mean are we merely stuck at the wrong place in the business cycle—and matters will improve once a little time passes; because then things will return to normal.

By structural, primarily they mean that there is a mismatch between the qualifications of the unemployed and those desired by employers—an issue which can be resolved by making improvements in education and training.

I hold to the view that our problems are vastly more serious that such a debate implies; and are fundamental. Beyond that, I believe we have been going adrift for decades. One could make a good case that the rot started in the early Seventies.

Yes, I know this is a very serious accusation, but let me put forward some of the evidence. However, first let me define the purpose of an economy—at least as I see it.

An economy is a politically constructed economic system designed to deploy the talents and resources of all concerned to the best advantage of all concerned from the cradle to the grave—whatever be the unit (a county, a region, a state or a nation, or the world as a whole).

If an economic system is not constructed to work to the benefit of ALL, it is corrupt. It doesn’t belong to a predatory elite. It belongs to ‘We the People.’

Now, let me list some of the flaws in the U.S. economic system. In essence it is a stacked deck—and stacked against the average American at that.

  • The legislative structures which devise the economic system are, essentially, owned—politically directed—by an elite. This does not constitute democracy as determined by the Constitution. It is actually plutocracy—rule in the interests of the rich, directly or indirectly by the rich. It should also be said that money has a disproportionate influence on U.S. politics at all times and at all levels. For example, as research shows, it means that congressmen tend to listen to their paymasters ahead of the constituents who voted them in. That means that most Americans, whether they vote or not, are not adequately represented.
  • As a result of a vast amount of legislation passed over the years, the economic system is constructed to favor the rich and the corporations they own. It is tilted against small business and the individual in numerous ways. Look no further than the bank bailout during the Great Recession. The very institutions which caused the problem received the aid—courtesy of the average taxpayer. That is profoundly wrong.
  • Anti-trust legislation has not been enforced. As a consequence, most market sectors are now oligopolies—which means they are dominated by a handful of corporations which collude where necessary.
  • Thanks to numerous deductions and loopholes, corporations no longer pay the share of tax they used to. Many major corporations pay little or no tax at all.
  • Taxes on income earned through direct labor are significantly higher than those earned through capital gains.
  • Government, at various levels, subsidizes major corporations in numerous ways. Its assistance for Small Business is derisory in comparison. Given that Small Businesses are major job creators, that makes no sense.
  • Financial corporations, such as the Big Banks, now have a disproportionate effect on the economy and earn a disproportionate share of corporate profits. They are also disproportionately helped by the government on an ongoing basis. For instance, right now the Federal Reserve is supplying the Big Banks with money at almost no cost—whereas that same policy results in savers getting almost no return from their savings accounts. In fact, if inflation is calculated in—which it should be as it is very real—the typical American saver, who has money in a bank, is actively losing money.
  • The dominance of financial corporations—also known as financialization—has created a debt culture from the individual level to that of national governments. The entire system is structured to get one into debt.
  • Worker rights in the U.S. are minimal compared to other developed countries, and favor corporations. The latter have the power and are pro-active in using it to eliminate and all opposition.
  • Unions have been largely eliminated from the private sector. Whatever one thinks about unions, they have been responsible for most labor rights and the pay rates they have negotiated have had a significant influence on pay rates as a whole. Now that their influence has been reduced so substantially, it is noticeable that pay rates are being driven down.
  • The pay rates of most Americans are currently in decline. In contrast, major cost areas such as health, education, food and gas costs are increasing. Households are trying to maintain their standards of living through debt and cutting back on savings—but that is a slippery slope. The current savings rate is a miserable 2 percent. College debt is roughly $1 trillion—yet well paying jobs for graduates are decidedly scarce.
  • The percentage of GDP going to labor has never been lower.
  • Corporate profits have never been higher, as is the corporate share of GDP.
  • Major corporations have been under-investing in the U.S. for years. Instead they have been outsourcing and investing abroad. The U.S. Tax system encourages such actions.
  • Corporations have been eliminating job security for many years. Beyond that, the defined pension is vanishing rapidly. Alternatives are being hit by excessive charges.
  • The current U.S. economic system either cannot or will not deliver the number of jobs required by the population. In addition, pay is steadily being driven down and such jobs as are being created are largely poorly paid. Meanwhile, corporations are keeping vast sums of money overseas to avoid U.S. taxes.
  • The Middle Class is being hollowed out at a rapid rate. This, in turn, means that demand is dropping because people simply don’t have the money. Falling demand is the antithesis of economic growth.
  • There is increasing evidence of a growing disillusionment with the current economic system by Americans as a whole. This is showing up in polls on job satisfaction, on the way in which many employees carry out their duties, and, above all, in the speed at which Americans are withdrawing from the labor force. They loathe the way they are being treated, and, with good reason, trust neither the political system nor corporate power and influence. People are voting with their feet against the status quo—and it is hard to blame them.

This article is not an attack on capitalism as such. Given the correct legal environment, the free market can be extraordinarily effective. However, what we have here is a major distortion of the free market in favor of the rich and major corporations. We need a reasonable set of rules and a level playing-field.

It is a criticism of corporate power in its present form. Big multinational corporations are, in effect, answerable to no one, have loyalties to no country, regard much of their personnel as inter-changeable and disposable, and have scant sense of social obligation. While paying lip service to shareholder control, primarily they are fiefdoms run for the benefit of the chief executives and their immediate management teams. There are exceptions, but they are just that.

Is it a solvable problem? Theoretically, it certainly is, albeit after a great deal of work. In practice, given the lock that the rich and their corporate interests have on the levers of power, it seems unlikely that the necessary changes will take place until a visionary leader is elected who understands the issues, and who has a Congress which will support him or her. Given the number of gerrymandered districts that are in place—particularly where Republicans are concerned—it is hard to be optimistic over the short term.

The consequences of continuing as we are, are going to be dire. We may have some statistical growth because of the energy boom, and other matters, but growth in GDP—Gross Domestic Product—is of little consolation to most Americans if most of the gains are going to a tiny minority, and the quality of the average American’s life is deteriorating.

In sum, the average American is being right royally screwed.

Given this situation, one might reasonably expect the media to highlight it, and politicians to make it an issue. The media, who are corporately owned do not. They cover fragments of the story, such as the unemployment figures, but fail to join the dots and explain the significance of the totality.

As for our politicians, they too are corporate creatures Accordingly, they, also, focus on fragments—but refuse to articulate the overall picture.

The measurable decline of this Great Nation is a secret hidden in plain sight.







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