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Adam Smith’s “Invisible Hand” Picking Our Pockets

Now that Newt Gingrich has torn the mask off the ugly face of  predatory corporate capitalism, it’s clear why defenders of the status  quo such as AEI President Arthur C. Brooks were so eager to frame the  debate after the Wall Street collapse in 2008 as an existential clash  between “entrepreneurship” and “European-style statism” in which freedom  itself was endangered by “expanding bureaucracies, a managed economy  and large-scale income redistribution.”

Trickle-down, supply-side capitalism sold itself for decades to a  gullible public as the comforting belief that a rising tide raises all  boats. There was no need for class warfare, the rich assured us, since  giving them more money meant more jobs for us. That was the  implicit bargain when America agreed to cut the taxes of the rich in  half.

Yet, the most important economic story of the last 30 years has  been the growing income gap brought on by the radical transformation of  the American economy from one that makes things to one that packages  debt – and does so by enhancing the purchasing power of the masses at  the expense of the predictable wage growth that supplies the foundation  of a stable and broadly-based middle class society.

Denied the utilitarian argument that trickle-down capitalism  works best for everyone, defenders of laissez faire have more recently  turned to metaphysics and morality in order to build their firewall  against what they can all see coming: a Second New Deal.

This helps explain the peculiar, desperate and almost frenzied  explanations we’re hearing from plutocrats like Mitt Romney, who is  being forced (thanks to Occupy Wall Street and now Newt Gingrich) to  explain to us in greater detail just how he came by all those millions.

Romney’s reliance on the fall-back reactionary politics of “envy”  and “class warfare” shows it’s a story he’s not keen on telling.

As Charles Blow wrote in the New York Times,  Romney “lambasted” his Republican opponents Newt Gingrich and now Rick  Perry for poking about into what Romney did as head of the private  equity firm Bain Capital.  Obviously targeted for a friendly  Republican audience rather than a more skeptical general election one, Romney’s  only comeback seemed to be a tactical one — that attacks against him  and his performance as a latter-day Robber Baron were playing right into  the hands of President Obama, who Romney charges with dividing America through the “bitter politics of envy.”

On NBC’s Today show Romney went further and said the entire  debate about income inequality was out of bounds, even telling host Matt  Lauer that questions about whether those palatial fortunes of the rich  were fairly won should be entertained — if they are entertained at all  — only “in quiet rooms” where opposition to out-sized fortunes  could either be safely reasoned with or bought off.

Listen carefully because Romney’s is the authentic voice of the New American Aristocracy.

And that’s the problem, says Blow. With all due respect to  Romney’s “quiet rooms,” says Blow, Americans have been quiet for far too long  about a reward system that unfairly favors the  few.

Notes Blow, a report released last week by the Pew Research  Center found that about two-thirds of Americans perceive a “strong  conflict” between rich and poor. That is up 19 percentage points from  2009. Another report cited by Blow showed that the United States ranks  near the bottom among Western countries in the social mobility it  provides its citizens.

“This has nothing to do with envy and everything to do with fairness,” says Blow.

Indeed, as all those Tea Party Republicans who’ve been brushing up on their early American history can no doubt tell us, it’s precisely  the power of concentrated capital to re-create a British aristocracy  wearing colonial blue that was at the heart of the bitter rivalries and antagonisms that separated Federalists from  Anti-federalists, Hamiltonians from Jeffersonnians.

More recently, conservative apologists for Big Monied interests were quick to label Elizabeth Warren as a leftist radical who  hates all that is decent and holy about American rugged “individualism,”  while harboring the typical Harvard elitist’s contempt for the simple  desire of average Americans to get ahead. Yet, even conservatives had to  concede that when Warren spoke about the American Social Compact she  was articulating the commonplace truth that “nobody in this country got  rich on his own.  Nobody.”

Nevertheless, the starkly elitist and anti-government writings of  Ayn Rand are enjoying an Indian Summer among America’s plutocracy  largely due to the flattering portrait Rand paints of them as society’s  only “productive class” and upon whom the rest of us parasites must  feed. These are the members of America’s superclass, says Rand, who have  it within their power to bring civilization itself to a halt should  they decide to “Go Galt” – go on strike – in order to resist the taxes  imposed on them to support the lassitude of the greater idle masses.

Warren articulates an alternative view in which the resources of  these wealthy job creators are nothing but worthless paper in the  absence of the critical collective investments society makes in the  human and economic infrastructure necessary to build the kind of economy  where all that paper can be profitably put to use.

You can see now why Warrren’s alternative narrative about the  value of investments in roads, research and schools made by a government  Rand’s superclass is so intent on dismantling would be seen as  destabilizing to the self-serving mythology plutocrats have constructed  for themselves that unregulated private capital is solely responsible  for wealth creation and the jobs that go with it. And this is why  conservatives were so determined that Elizabeth Warren and her  subversive ideas be knocked down, and now — and even by social conservatives who believe birth control is immoral and should be illegal who nevertheless lined up to attack Warren on her imagined assaults on “individualism” and “personal autonomy.”

Recently, I wrote about the arbitrage Republicans have used to  great effect in recent decades to profit from the gap that exists  between the way the public thinks about how the economy works and how it  really does. The public thinks the same old rules still apply about  people being rewarded for the risks they take and the contributions they  make within a competitive “free market,” where taxing away the fruits  of those labors in order to give rewards to others less prudent or  hard-working is thought to be both unfair and unjust.

That in a nutshell is the basic concept called The American Work Ethic to which most American voters subscribe.

But there is a huge gap between the facts and fictions of our  economic existence that Blow helps to illuminate when he writes about an  older Contract with America that the wealthy in this country have now  broken.

The old “social symbiosis,” says Blow, was one where Americans  working together “create a society in which smart, hard-working people  can be safe and prosper, and the rich in turn reinvest a fair share of  that prosperity back into society for posterity.”

It’s an arrangement in which everyone benefits, says Blow. “But  somewhere along the way this got lost. Greed got good. The rich wanted  all of the societal benefits and none of the societal responsibilities.  They got addicted to seeing profits go up and taxes go down, by any  means necessary, no matter the damage to the individual or the  collective. Those Maseratis weren’t going to pay for themselves. And the  resulting income inequality helped to stall economic mobility.”

The values of “freedom,” “individualism,” “entrepreneurship” –  and the corresponding attacks against “envy” and “class warfare” – which  the Republican Party and its wealthy benefactors are feverishly putting  forward to protect their privileges and vested interests, are  predicated on public belief in what Blow calls the “idea of equal opportunity” that is  central to this country’s “optimistic ethos.”

But income inequality and “corporate greed,” he says, “are making  a lie of that most basic American truism. The rich and their  handmaidens on the political right have consolidated America’s wealth on  the ever-narrowing peak of a steep hill and greased the slope. And they  want to cast everyone at the bottom as lazy or jealous, without  acknowledging the accident of birth and collusion of policies that  helped grant them their perch.”

A Republican Party whose agenda is now so wholly At One with  America’s One Percent thinks nothing of passing laws to dismantle unions  in order to prevent average workers from gaining economic leverage by  means of pooling the one resource they possess – their labor. Yet, at  the same time, Republicans define as “persons” those legally  incorporated enterprises that are nothing more than creatures of the  state and of those laws which allow the wealthy to pool that resource  which they have in such abundance – their capital.

And once this basic inequity receives the attention it deserves,  that low roar you hear gaining volume in the distance will be the sound  of Americans waking up to fact that for far too long the plutocrats in  this country have been using Adam Smith’s famous “Invisible Hand” to  pick their pockets.

 

By: Ted Frier, Open Salon, January 15, 2012

January 16, 2012 Posted by | Class Warfare, Economy | , , , , , , , | Leave a comment

America Is Not A Corporation

“And greed — you mark my words — will not only save Teldar Paper, but that other malfunctioning corporation called the U.S.A.”

That’s how the fictional Gordon Gekko finished his famous “Greed is good” speech in the 1987 film “Wall Street.” In the movie, Gekko got his comeuppance. But in real life, Gekkoism triumphed, and policy based on the notion that greed is good is a major reason why income has grown so much more rapidly for the richest 1 percent than for the middle class.

Today, however, let’s focus on the rest of that sentence, which compares America to a corporation. This, too, is an idea that has been widely accepted. And it’s the main plank of Mitt Romney’s case that he should be president: In effect, he is asserting that what we need to fix our ailing economy is someone who has been successful in business.

In so doing, he has, of course, invited close scrutiny of his business career. And it turns out that there is at least a whiff of Gordon Gekko in his time at Bain Capital, a private equity firm; he was a buyer and seller of businesses, often to the detriment of their employees, rather than someone who ran companies for the long haul. (Also, when will he release his tax returns?) Nor has he helped his credibility by making untenable claims about his role as a “job creator.”

But there’s a deeper problem in the whole notion that what this nation needs is a successful businessman as president: America is not, in fact, a corporation. Making good economic policy isn’t at all like maximizing corporate profits. And businessmen — even great businessmen — do not, in general, have any special insights into what it takes to achieve economic recovery.

Why isn’t a national economy like a corporation? For one thing, there’s no simple bottom line. For another, the economy is vastly more complex than even the largest private company.

Most relevant for our current situation, however, is the point that even giant corporations sell the great bulk of what they produce to other people, not to their own employees — whereas even small countries sell most of what they produce to themselves, and big countries like America are overwhelmingly their own main customers.

Yes, there’s a global economy. But six out of seven American workers are employed in service industries, which are largely insulated from international competition, and even our manufacturers sell much of their production to the domestic market.

And the fact that we mostly sell to ourselves makes an enormous difference when you think about policy.

Consider what happens when a business engages in ruthless cost-cutting. From the point of view of the firm’s owners (though not its workers), the more costs that are cut, the better. Any dollars taken off the cost side of the balance sheet are added to the bottom line.

But the story is very different when a government slashes spending in the face of a depressed economy. Look at Greece, Spain, and Ireland, all of which have adopted harsh austerity policies. In each case, unemployment soared, because cuts in government spending mainly hit domestic producers. And, in each case, the reduction in budget deficits was much less than expected, because tax receipts fell as output and employment collapsed.

Now, to be fair, being a career politician isn’t necessarily a better preparation for managing economic policy than being a businessman. But Mr. Romney is the one claiming that his career makes him especially suited for the presidency. Did I mention that the last businessman to live in the White House was a guy named Herbert Hoover? (Unless you count former President George W. Bush.)

And there’s also the question of whether Mr. Romney understands the difference between running a business and managing an economy.

Like many observers, I was somewhat startled by his latest defense of his record at Bain — namely, that he did the same thing the Obama administration did when it bailed out the auto industry, laying off workers in the process. One might think that Mr. Romney would rather not talk about a highly successful policy that just about everyone in the Republican Party, including him, denounced at the time.

But what really struck me was how Mr. Romney characterized President Obama’s actions: “He did it to try to save the business.” No, he didn’t; he did it to save the industry, and thereby to save jobs that would otherwise have been lost, deepening America’s slump. Does Mr. Romney understand the distinction?

America certainly needs better economic policies than it has right now — and while most of the blame for poor policies belongs to Republicans and their scorched-earth opposition to anything constructive, the president has made some important mistakes. But we’re not going to get better policies if the man sitting in the Oval Office next year sees his job as being that of engineering a leveraged buyout of America Inc.

 

By: Paul Krugman, Op-Ed Columnist, The New York Times, January 12, 2012

January 14, 2012 Posted by | Class Warfare | , , , , , , , , | Leave a comment

“Investment Baining”: Bitter Politics of Envy?

You’re just jealous. At least that’s how Mitt Romney sees it. The millionaire who posed for a picture with the boys at Bain Capital with the long green clinched between their teeth and poking out of their collars and jackets now says that people who question what he did there, and what rich people do now, are just green with envy.

In his New Hampshire victory speech on Tuesday, Romney lambasted his Republican opponents (who have raised real issues about his role at the private equity firm Bain Capital) for following the lead of President Obama, whom he described as a leader who divides us “with the bitter politics of envy.”

The next day on “Today” on NBC, Romney defended the statement, rejecting the notion that there were questions about Wall Street behavior, saying the whole discussion was about class warfare. He even went so far as to suggest that such talk shouldn’t even be openly entertained. When the interviewer asked, “Are there no fair questions about the distribution of wealth without it being seen as envy, though?” Romney responded, “I think it’s fine to talk about those things in quiet rooms and discussions about tax policy and the like.”

In quiet rooms? That’s the problem. Too many have been too quiet for too long. And, on this point, we must applaud the efforts of the Occupy Wall Street movement. It took income inequality and corporate responsibility out of the shadows and into the streets.

A report released on Wednesday by the Pew Research Center found that about two-thirds of Americans now perceive a strong conflict between the rich and poor in this country. That was up 19 percentage points from 2009.

As The New York Times pointed out in regard to the report, “conflict between rich and poor now eclipses racial strain and friction between immigrants and the native-born as the greatest source of tension in American society.”

And this has nothing to do with envy and everything to do with fairness.

Elizabeth Warren, who is now running for the Senate seat that Romney ran for in 1994 and didn’t get, probably rebuts this myth of class warfare best by reframing the discussion in terms of a “social contract” between the rich and the rest of society. At one of her campaign events, she explained:

“There is nobody in this country who got rich on his own. Nobody. You built a factory out there, good for you. But, I want to be clear: you moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory and hire someone to protect against this because of the work the rest of us did. Now look, you built a factory and it turned into something terrific or a great idea. God bless. Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.”

That is the corporate Contract With America: societal symbiosis. We create a society in which smart, hard-working people can be safe and prosper, and they in turn reinvest a fair share of that prosperity back into society for posterity.

Everyone benefits.

But somewhere along the way this got lost. Greed got good. The rich wanted all of the societal benefits and none of the societal responsibilities. They got addicted to seeing profits go up and taxes go down, by any means necessary, no matter the damage to the individual or the collective. Those Maseratis weren’t going to pay for themselves.

And the resulting income inequality helped to stall economic mobility.

As The New York Times reported last week, “many researchers have reached a conclusion that turns conventional wisdom on its head: Americans enjoy less economic mobility than their peers in Canada and much of Western Europe.” The Times report speculated that: “One reason for the mobility gap may be the depth of American poverty, which leaves poor children starting especially far behind. Another may be the unusually large premiums that American employers pay for college degrees. Since children generally follow their parents’ educational trajectory, that premium increases the importance of family background and stymies people with less schooling.”

Indeed, a November report by the Pew Charitable Trusts’ Economic Mobility Project pointed out, “In the United States, there is a stronger link between parental education and children’s economic, educational, and socio-emotional outcomes than in any other country investigated.”

Pew has found that most children raised at the top of the income spectrum stay there and most raised at the bottom stay at the bottom.

An equal opportunity to success is central to this country’s optimistic ethos, but income inequality and corporate greed are making a lie of that most basic American truism. The rich and their handmaidens on the political right have consolidated America’s wealth on the ever-narrowing peak of a steep hill and greased the slope. And they want to cast everyone at the bottom as lazy or jealous, without acknowledging the accident of birth and collusion of policies that helped grant them their perch.

Income inequality is a threat to this country and the middle class that made her great. If Romney wants to be president, he needs to understand that.

As Alan Krueger, the chairman of the White House Council of Economic Advisers, said on Thursday, “I think it is clear that we can’t go back to the type of policies that exacerbated the rise in inequality and threatened economic mobility in the first place if we want an economy that builds the middle class.”

Not envy Mr. Romney. Opportunity.

 

By: Charles Blow, Op-Ed Columnist, The New York Times, January 13, 2012

January 14, 2012 Posted by | Class Warfare, GOP, Middle Class | , , , , , | Leave a comment

Why Do Republicans Hate Poor, Hungry People?

It’s almost as if Republicans are actively striving to get a reputation for being mean to poor, hungry people. On Tuesday, the Philadelphia Inquirer reported that the administration of Gov. Tom Corbett plans to start restricting eligibility to the Supplemental Nutrition Assistance Program (formerly known as the food stamp program). Specifically, the state is imposing an “asset test” — anyone under 60 years old with savings of more than $2,000 is no longer eligible for assistance.

The news isn’t quite as bad as some outlets are spinning it. Pennsylvania’s proposed asset test conforms to federal guidelines for SNAP and doesn’t include the value of a recipient’s home, retirement savings or car. But what’s troubling is that the nationwide trend has been headed in exactly the opposite direction. Only 11 states currently impose asset tests for SNAP eligibility. Just four years ago, in fact, Pennsylvania’s Democratic governor, Ed Rendell, abolished the state’s asset test.

And with good reason, as we can readily learn from two new freshly updated informational fact sheets on SNAP coincidentally published on Tuesday by the Center on Budget Policy and Priorities.

SNAP serves as the bedrock of the federal safety net. Ninety-two percent of SNAP’s $78 billion budget goes to benefits that can only be used to buy food. Seventy-five percent of SNAP participants are families with children. There are already plenty of restrictions in place that ensure that SNAP benefits primarily go to people who are legitimately poor. According to CBPP, “93 percent of SNAP benefits go to households with incomes below the poverty line, and 55 percent goes to households with incomes below half of the poverty line (about $9,155 for a family of three).”

SNAP gets high marks for low levels of waste and fraud, kicks into action quickly and efficiently when the economy craters, and is rated by the Congressional Budget Office as one of the two most effective forms of federal stimulus. Perhaps best of all, the number of recipients usually declines just as quickly when the economy rebounds. According to a recent study by the USDA, in the mid-2000s, “More than half of all new entrants to SNAP in the mid-2000s participated for less than one year and then left the program when their immediate need had passed.”

As the U.S. economy continues to recover, SNAP outlays will surely decline. So why hurry it along? Could it be because conservatives think there’s something fundamentally wrong with providing nutritional support? Or is it the racial angle — the intersection of poverty and race that encourages people like Newt Gingrich to call  Obama “the food stamp president.”

The most charitable way to interpret Gingrich’s slur is as a critique of the president’s management of the economy: If he’d been a better president, fewer people would be eligible for assistance. But there’s also a deeper, darker level that connects the classic conservative antipathy to anything vaguely smelling of the nanny state. And the more one ponders that, the harder it is to fathom. The richest Americans skated through the Great Recession, while poor people lost their jobs and their homes and struggled to put food on the table. SNAP was there to help, to prevent the kind of pain and suffering that plagued American during the Great Depression, or that still afflicts citizens of less fortunate countries today. We should be thankful that Obama is the food stamp president; it’s a tribute to the progress inherent in becoming a civilized nation. We don’t let our citizens starve when Wall Street causes an international catastrophe. We should be proud of that.

 

By: Andrew Leonard, Salon, January 11, 2012

January 13, 2012 Posted by | Class Warfare, GOP | , , , , , , , | Leave a comment

Economic Inequality: Pushing Worthwhile Questions Into “Quiet Rooms”

On NBC this morning, Matt Lauer asked Mitt Romney whether Americans with “questions about the distribution of wealth and power in this country” are necessarily motivated by, in the Republican’s word, “envy.” The host asked, “Is it about jealousy, or fairness?”

Romney was unmoved. “You know, I think it’s about envy,” he said. “I think it’s about class warfare.”

That’s rather remarkable, in and of itself. Plenty of Americans just want to have a conversation about rising income inequality, poverty, an unjust tax system, and wealth that’s increasingly concentrated at the top. For the likely Republican presidential nominee, those questions aren’t just wrong, they’re the result of “envy.”

And then it got worse. Greg Sargent has the video of the exchange:

LAUER: Are there no fair questions about the distribution of wealth without it being seen as envy, though?

ROMNEY: I think it’s fine to talk about those things in quiet rooms and discussions about tax policy and the like. But the president has made it part of his campaign rally.

I see. So, Americans are allowed to ask questions about inequality, so long as we’re not too loud about it. Let’s just stick to quiet rooms — perhaps Romney can loan us one from one of his mansions — where we can be told to stop being envious.

Greg added, “Romney was twice given a chance to nod in the direction of saying that concerns about these problems have at least some legitimacy to them, that they are about something more than mere envy or class warfare, and that they are deserving of a public debate. And this is the answer he gave.”

We’re getting a closer look at Romney’s ideology, and at this point, it’s looking rather twisted.
Remember, just last week, he argued that families who slip into poverty are, in his mind, “still middle class.” This is also the guy who takes a rather callous approach to firing people.

Romney is doing very well with wealthy voters. Why anyone else might vote for him remains to be seen.

 

By: Steve Benen, Contributing Writer, Washington MOnthly Political Animal, January 11, 2012

January 11, 2012 Posted by | Class Warfare, GOP Presidential Candidates, Middle Class | , , , , | 1 Comment

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