Friday, September 19, 2008

Welcome to the Soup, Rich Folks!

A Much Bigger Picture

The news of course is 100% dominated by “coverage” of the “Wall St. Crisis.” I’ve just given you as much useful information as you’d get from watching 100 hours of MSNBC and CNN simultaneously.

Our man Barack (he’ll always be “Barry” to me) seems to have Old Grumple-puss well in hand. I understand Sen. McCain dribbled some creamed corn down his chin while talking to NBC’s Anne Curry, which of course is very good news indeed for one Rudolph Giuliani. So let’s take a look at the economic “meltdown” that Brian Williams is suddenly a big expert on.

The economic mess seemed to me well reflected in a Margaret Warner piece last night on the Lehrer News Hour. The first thing that hit me was just what a thoughtful and articulate journalist Margaret Warner is. She’s the real deal. She hosted a segment with a bright and articulate economist from a Chicago investment firm as well as Jane Bryant Quinn, clueless commentator, columnist and all-around purveyor of Convention Wisdom. What these three very bright and well-paid women discussed for 10 or so minutes was how the Wall St. Crisis affects “you,” by which they meant, of course, themselves and each other.

Should I move money out of my 401(k)? Are my brokerage accounts at Merrill safe? Just how diversified should my portfolio be? And what about gold (goddammit)?

What struck me was that these rich people are scared. Scared because this Wall St. business may well affect them – rich people! Can you imagine! There is an outside chance that when the chips fall, EVEN PEOPLE WITH LARGE SUMS OF MONEY may get roughed up. For these guardians of the conventional wisdom, this was Serious Business Indeed.

Well rich folks, welcome to the soup! For the last 30 or 40 years, our society’s leaders have dithered while powerful interests (is “Lobbyists for the Rich” too crude?) have run rough-shod over the rest of us. Ordinary Joes (and Janes – and why can’t “Joe” be a universal signifier any way?) have had to take it on the chin as employers walked away from any obligations to them. First it was job security. Then pensions. Then physical facilities. (You know anyone with an office with, you know, “walls” and a “door”? Those things used to have “windows!” Amazing!) Then more and more “productivity” gains – more work, same pay. Then just less pay. Can 2000 people do what 3000 people were doing yesterday? Harvard MBAs assure us that they answer is a resounding “Y-E-S!”

In fact, the entire history of business in the United States over the last several decades has been a tale of shifting wealth away from workers, then customers, to senior managers and shareholders. Enormous pay is needed to motivate people to be CEOs. (It’s hard work!) (Can two CEOs do what three CEOs did yesterday? Harvard MBAs assure us, “Don’t be silly. Pass the caviar.”)

Republicans, and then most Democrats, came to believe that people respond to taxes because it hit their pocket book. (Never mind that most people don’t really know what percentage of their total revenue is paid in taxes, or how much that percentage has gone up and down over the years.) So if we want wind-power, just give people a tax break and soon windmills will be spouting up all over. (I had to swerve this morning to avoid one that had gone up overnight in the middle of the LIE. (I kid.))

But what is the one thing that the government has relentless taxed the most? Labor. The vast majority of tax revenue comes from taxes on labor, a k a “income taxes.” Capital musnt’t be taxed – that would be B-A-D! So we tax labor and as a completely foreseeable result, jobs are scarce and getting scarcer.

So capital accumulates. And accumulates. But, Harvard MBAs assure us, this is very good, since all that capital is available to be invested in things that create – wait for it – jobs! That’s right, give rich people enough money to satisfy their most craven wants, and then give them some more, and presto: jobs! Fantastic, no?

Fantastic, yes, I’m afraid. All that capital has done little to create jobs. It has just stood around and like any underused asset, it is wasting away. Banks are literally being handed checks for billions and billions of dollars in the hope that they will lend it. But they aren’t making loans, mostly because they can’t find borrowers they think will be able to repay.

And that, my friends-s-s-s, is the rub. The pot we’re in (and for those just joining in, “Welcome Rich People! Come on in!”) is a much more dangerous pot than all the Anne Currys and Brians Williams’s can ever hope to grasp.

We have more or less killed our ability to create jobs. We need to massively re-distribute resources so that more of us can earn a decent living, sadly, however, at the expense of hedge fund managers being able to hire Eric Clapton for their kid’s Bar Mitzvah. And we have spent the last 30 years convincing ourselves that the one mechanism that could actually accomplish this feat – the federal government – is not only horribly inept but actually downright evil. (That’s a fact, says Fox News.)

Business leaders will not suddenly wake up and say, “Hey, I know! Let’s violate our legal obligations to our shareholders and start maximizing value not for the shareholders but for the benefit of the most people, employees, customers, and so on. Yeah!”

It is the provenance of the government to lay down the law, even to businesses. (I know some of you are thinking, “No! Un-possible! How could that be? Doesn’t government work for business?” And I can see why you might think that.)

But the truth is the government is the only mechanism we have, and we have spent the last 10 years using it to saw tin cans in half so that it is now terribly useless as an instrument for reforming society.

We are in the midst of a perfect storm. The issue is not banks holding bad loans, or a mortgage crisis. Americans are not going to find getting a car loan or a mortgage “harder.” There’s a reason for the foreclosures. People aren’t earning enough money. Why don’t people just buy health insurance when their companies don’t provide it? Because like the companies themselves they can’t afford it! A spending spree fianced by easy credit is ending, and the results are as painful as they were predictiable.

But that’s not the half of it. American businesses have not embraced innovation, opting instead for lay-offs, outsourcing and all manner of cost-cutting. There is a price coming due on that front. We have massively under-invested in education, a foolishness for which we will be paying the price for decades to come. We have, more or less, been eating our seed corn, and now it’s gone.

It is one of the unspoken premises (which I like to call “Things We All Know™”) that things are so bad that we must look all the way back to the Depression for comparisons. And many Harvard MBAs are quite certain that this is nothing like that. Well, on this I agree with them. But their small-mindedness leads them to conclude that 1929 and the Great Depression is some kind of floor, below which it is not possible to fall.

Who says? Why should 1929 be the floor? Aren’t there the elements present for something much worse? I am sad to say that I believe they are. And even electing a great man like Barack Obama will not be enough to save us, any more than FDR was able to save our grandparents from the Great Depression.

Hang onto your hats, kids! We’re in for a wild ride!

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