Trickle Down Treachery

Unsurprisingly the meeting of the G20 yielded nothing new.  Never mind that people are losing their jobs by the hundreds of thousands and even millions, and companies large and small are closing their doors and laying off employees, while these ‘leaders’ of the free world enjoyed yet another meal on the tab of the middle class taxpayer, nibbling their caviar and sipping $500 per bottle wine, they could find not one action they could jointly undertake to ameliorate the lives of all those who have trusted our economic fate in their hands.  Worse, what many do not realize, and characteristically omitted by the mainstream and financial media, is their proposed ‘potential’ solution to our present financial and economic meltdown will have the exact opposite effect, further plunging us into chaos and making it all the more difficult to extricate ourselves in the future.  The actions discussed the G20 include the very actions that led us to this precipice, tax and interest rate cuts.  Why do tax and interest rate cuts, which sound so beneficial or at least innocuous, spell further doom?  Equally important to ask, is our present economic condition the desired outcome of twenty-eight years of trickle down economics?  The latter question begs because its answer could undermine any appropriate economic response to the real and underlying economic disaster that is unfolding before our very eyes.  In other words, if tax and interest rate cuts cause the largest and most wealthy individuals and corporations to increase their wealth and power yet more, they may have no desire or intent to address the challenges faced by the majority of the population.

To understand the current financial predicament that faces most nations around the world today one has to go deeper than the banking and credit crisis.  The ‘great engine’ of free market economies is the consumer.  The great engine is not working anymore.  It is not working because the consumers are unable to keep up the growth in spending necessary to support the growth in production that has been envisioned by the laisser-faire free marketeers.  In their plan growth is supposed to continue without stop, forever.  The consumers cannot keep up their spending because their income has been undermined by twenty-eight years of neo-conservative and neo-liberal economic policies.  As a side note, there is no difference between neo-conservative and neo-liberal policies.  They simply burn the candle from both ends.  While the neo-conservatives enrich themselves, the neo-liberals sell-off our nation’s wealth and sell-out their constituents, the middle class.  Both parties have supported de-regulation and corporate welfare.  Both parties are equally to blame for our current fiscal fiasco.  The flip side of the consumer is the worker, or employee.  Neo-economists have for many decades, but particularly since Reagan, sought to undermine the employee.  They have succeeded beyond measure.  For most of the last thirty-five years, income of the middle class has declined, all while the economic boom has enriched those at the uppermost echelons of the income stream.  It took only sixteen years to almost completely export the manufacturing capacity of the US to third world nations where poor people will work for a few dollars a day, seven days a week, and without worker or environmental protections.  In order to maintain the appearance of normalcy during this period it was critical to extend credit to the US employee.  This credit made it possible to claim that our economy was healthy when in fact, the goods were being loaded, lock-stock-and barrel out the back door.  Now with a severely limited productive capability, the US cannot produce its way out of this economic collapse and we certainly cannot afford to borrow our way out.

Homes prices are the lowest they have been in a decade or more and interest rates are relatively low.  So why are people not buying?  No one can afford to buy anymore because the price of everything is still too high for most citizens and no one is capable of taking on more debt.  The result?  Millions more will lose their jobs in an increasing vicious cycle of job loss, drop consumer spending, further job losses, further drop in consumer spending until we hit a very hard bottom that will make the Great Depression look attractive.  We will have to invent new economic terms to describe the horrors we are about to face.

The economy has been over-stimulated since Reagan took office.  More stimulation is not the cure to our current economic woes.  It’s like giving a cup of coffee to someone who has been binging on methamphetamines for three days straight.  There is a limit to stimulating the economy.  As far as cutting taxes goes, we know this is code for cutting corporate taxes.  Cutting corporate taxes will only result in more capital flight from the US not consumer spending.  The engine will grind noisily to a complete halt

Many world renowned economists are saying that a massive depression is not possible to avoid at this time.  There is no fix.  Giving our money away in a phony ‘bailout’ scheme only places more funds in the hands of those who do not need them.  The purpose is to position them to buy up everything when prices eventually crash and hit bottom.  More importantly, this criminal act does not actually stimulate the economy.  It only makes matters far worse.

While many economists are involved in analyzing the extremely complex numbers that describe investment and debt ratios, that compare current conditions to the Great Depression and explain the specific straw that broke the camel’s back, one need not look so deeply into these statistics to understand the underlying root cause.  When the great ‘engine’ of the US economy falters and sputters to a stop, one need not understand advanced economic and monetary theory to understand what is wrong.  Its simply the collaose of the US consumer that is the root cause.  This collapse is the result of crushing the workers and employees for three decades.  If the consumer cannot spend and the consumer is the flip side of every employee, then we need to get money into the hands of employees.  We need to increase the ranks of employees, not diminish them by letting businesses fail, such as the auto makers.  At this stage, even though the US automakers failed to market fuel efficient cars and instead manufactured gas guzzling SUV’s Hummers and the like, now is not the time to pay them back by letting them fail. That will only punish the workers even more.  Instead we need to prop up our industries, factories and businesses so they can hire employees, pay them a decent wage or salary, and let nature follow its course.  We can do this and demand that Detroit auto manufacturers make more fuel efficient vehicles.  Its not one or the other.  We can do both.  While this will not fix our economic problem, it will greatly reduce its impact and will shorten the duration of the hardships that are unquestionably coming and coming very soon.

Breaking the back of unions and undermining the income of regular employees must be viewed against the backdrop of a larger purpose.  Large corporate oligarchies hate democracies and have made this abundantly clear over the past century by subverting virtually every popular democracy in the world, particularly in Central and South America, where the US influence was greatest.  Democracy is the greatest enemy of oligarchs.  The US is only the last one left to subvert, to turn into a new third world.  It was the biggest and strongest democracy and posed the greatest threat to corporate hegemony on the planet.  Since Reagan assumed office, the corporations have successfully dismantled the last and greatest popular democracy in the world.  Election of Barack Obama may make a little but of a difference but Obama will inherit a nation in economic tatters.  He may be a great future President but he cannot conjure magic and will be incapable of undoing the damage of three decades of neo-economics.  What tools does he have?  He can increase government spending on infrastructure, putting ever greater downward pressure on the dollar and probably resulting in major inflation instead of the deflation normally associated with depression.  He can lower interest rates, but as noted above, who will borrow money anyway?  He can simply print money, but no amount of printed money will succeed in curing our economic ailments.  In fact it will lead to hyper inflation faster than government spending on the infrastructure.  The real medicine we need would require a radical change in economic policies the likes of which will simply not be accepted by Congress or other influential members of our nation until it is too late for even these measures to work.  Such measures would have to include a great reduction in debt forced by government action.  For example a good idea would be to immediately cancel and outlaw all derivatives.  Those who purchased them would lose but since they cannot be paid off anyway in the event of global drop in stock and investment portfolios values, who cares of those who bet on failure fail themselves?  Second, many debts should be selectively forgiven.  This should be done carefully but would include deferral or elimination of huge amounts of debt held by average people and employees.  Other radical measures would also be needed, for too extreme for our politicians to embrace until it’s too late.

As for the ‘free’ market, it is already a thing of the past.  The oligarchies saw to that.  They told us the ‘free’ market leads to the most efficient production and distribution of wealth.  But our markets are not free.  They are monopolistic.  That is the opposite of the free market.  Moreover, with unemployment at record levels and threatening to continue skyrocketing, one cannot argue that millions of idle works constitutes efficient production or use of resources.  The opposite is true.  An oligarchy leads to massive inefficiencies when it comes to unused resources.  There are millions of unemployed and this number will continue to increase without abatement.  Unemployed workers represent a huge resource that is idle.  How can anyone make the argument anymore that the US style ‘free’ market is the most efficient?

Until the powerful are willing to admit that their wealth is tied directly to the consumer and that the consumer is the flip side of the worker, we can never ameliorate our very sick economy.  But do they already know this?  Are they using this crisis, like they have so many others, to further disenfranchise the ordinary person, the average worker, the employee and the middle class?  Look out for government solutions that only increase the power of the IMF and World Bank. Beware when the government gives your tax money away to the largest banks.