Killing the Middle Class; How the Corporatocracy Sets the Rules of the "Game" To Create Peons
OpEd News | October 31, 2006
By Thom Hartmann
Excerpted from Thom Hartmann's newest book, Screwed; The Undeclared War Against the Middle Class -- And What We Can Do About It
the President thought it worth trying, and I acquiesced. I prepared a plan of treaty for exchanging the privileges of native subjects, and fixing all duties forever as they now stood. Hamilton did not like this way of fixing the duties, because, he said, many articles here would bear to be raised, and therefore, he would prepare a tariff. He did so, raising duties for the French, from twenty-five to fifty per cent. So they were to give us the privileges of native subjects, and we, as a compensation, were to make them pay higher duties.
One of the most pernicious claims the corporatocracy makes is that business flourishes best in a perfectly "free" market. And when business flourishes, they say, all of society does better. It's the old trickle-down philosophy that inevitably produces a nation of peons.
Always get suspicious when you see the words free market. Let's go back to the story of Mrs. Flores, whom you met in chapter 2-- the woman who lost her job at Levi Strauss when that venerable American company closed all of its factories here in the USA and moved them overseas.
Cons argue that "productivity" is responsible for the loss of American jobs. They love to quote nineteenth-century economist David Ricardo (1772ï¿½"1823) as saying in his 1817 work On Wages , "Labour, like all other things which are purchased and sold, and which may be increased or diminished in quantity, has its natural and its market price."
Thus, they say, it's natural that American wages should have been in a free fall ever since Bill Clinton signed NAFTA and GATT: America's roughly 100 million workers now have to compete "on a level playing field" with 5 billion impoverished people around the world. Offshoring is simply the normal extension, they say, of Ricardo's classic view of economics.
What they conveniently forget is that Ricardo didn't say the market price was the natural price. On the contrary, he wrote, "The natural price of labour is that price which is necessary to enable the labourers, one with another, to subsist and to perpetuate their race, without either increase or diminution."
In other words labor is part of the game of business, and one of the first goals of the game of business is to "perpetuate" the existence of the laborers themselves. That's the natural price. If businesses want to keep their workers, according to Ricardo, they must make sure that the market price of labor is at least as much as the natural price of labor. And the natural price is the "subsistence" price-- just enough to survive-- which brings us back to Dickens's world.
On the other hand, when in 1914 Henry Ford raised his workers' pay to $5 per day (about double what other manufacturers were paying), he said he was doing so in part because he wanted his employees to be able to buy his cars. If the American workforce can't make a decent living, they'll stop buying products made in America, which will lead to fewer people making a decent living-- this death spiral for an economy and a nation's middle class that we are now seeing as a result of Reagan/Clinton/Bush trade and economic policies.
Everybody knows that games played without rules won't work. Boxers are divided into weight categories to ensure relative fairness in fights; baseball rules define the type of bats that can be used; football players are limited in how they can use their hands so they don't injure opponents or gain unfair advantage.
What's lost on many Americans is that business is a game, too. And We the People define its rules through our elected representatives. The goal of the game is to provide for the life, liberty, and pursuit of happiness of American citizens.
Gaming the System
If government can create conditions that cause a middle class to emerge, by implementing fair rules for business, progressive taxation, and free public education, the opposite is also true: government can create a corporatocracy by deregulating business, by cutting taxes on extreme wealth, and by privatizing as much of the commons as possible. Cons call this "starving the beast."
Here's how you starve the beast: you put through tax cuts for the rich, which cuts back the revenues of the federal government to the point that, if you got rid of all the social programs, you'd have a balanced budget. No more Social Security, no more spending for education, no more spending for Medicare and Medicaid; have the government simply keep the armies, prisons, and police. Let's shrink government-- that's their philosophy.
When you cut all those social programs, you lose the middle class and in its place create a very small, very wealthy elite and a large underclass of starvation-wage workers. You lose democracy and instead create corporatocracy. You change the rules of the game; We the People lose, and the feudal lords win.
Cons have been winning this particular game of "starve the beast" since Reagan first started seriously playing it in 1981. They've done it in large part by lying to the American people; and they've had to do that because if they told the truth the majority of Americans would throw them out of office.
This is, after all, still a democracy. If the majority of us agree to get rid of Social Security so that only the wealthy can have retirement benefits and the old are left to fend for themselves, so be it. If a guy breaks his back and can't work and the majority of us decide not to help people who are disabled, and as a result he has to beg on the street, well, we can democratically decide to screw him and ourselves.
But the cons are not having this debate in an open and honest fashion. They are not asking We the People if we want to get rid of, for example, the Head Start program. They could ask, "Do we want to invest in our youth now or not?" We know that if we invest in educating the very young, fewer of them will become criminals. It will save us money over the long term. But if the majority of us say, "No, we would rather pay $50,000 to imprison them later than pay $300 to put them in Head Start now," then fine, it's a democracy.
But that's not the way the cons are doing it.
Instead of explaining why it would be better for Americans to give all their money to a corporate elite, they're giving huge tax cuts to the rich while pretending that the tax cuts benefit all Americans.
Instead of arguing that Americans should not expect the right to health care or security in their old age, they are prompting a government crisis by handing to the rich money they're borrowing from China, Japan, and Korea in the name of our grandkids. We are borrowing so much money from these countries that if they so much as blink, our currency could crash.
And that's just what the most ideological of the con elite want. They want an economic crisis because they figure that's the only way they can force a cut in spending on social programs.
In 2004 they thought they had starved the beast enough and sent Bush out on the campaign trail to advocate getting rid of Social Security-- privatizing it, putting it in the hands of Wall Street. But it didn't work. Turns out We the People apparently like Social Security. So the cons went back to starving the beast. Bush instead passed a new series of tax cuts, with more to follow.
The cons are trying to play the game so that the rich benefit while the rest of us lose out. They get tax cuts, and we get program cuts. That's not the "free" market. That's a market that's being created for the benefit of the rich at the expense of the middle class.
How the Game Works
The question Americans have faced since the first arguments between Thomas Jefferson and Alexander Hamilton in the 1780s was whether the game of business should be played with the primary goal of enriching the few, or-- while allowing the few to enrich themselves-- enhancing the quality of life of the many.
The cons suggest that if the rich win first, benefits will "trickle down" to the rest of us. Protecting workers, they say, will produce abnormalities and dislocations from the "free" market. For example, they suggest that when minimum wages are fixed by government, and labor can lawfully bargain to increase wages by increasing scarcity of labor through union actions, the result is an increase in prices, ultimately "hurting the working person."
But the economist they most often cite on this thinking, David Ricardo, disagreed that raising wages first increased prices. He noted, "On the contrary, a rise of wages, from the circumstance of the labourer being more liberally rewarded, or from a difficulty of procuring the necessaries on which wages are expended, does not, except in some instances, produce the effect of raising price, but has a great effect in lowering profits."
In other words, all the talk about keeping wages down to keep prices down is a smokescreen: business owners want to keep wages down to keep profits up.
And when wages go down, profits do indeed go up. American wages have been falling steadily since Reagan first reintroduced con economics in 1980, and American corporations are generally more profitable than they've been in decades. In part this is not only because wages are going down within the United States but also because U.S.-level wages are being replaced by India- and China-level wages through outsourcing and offshoring.
"But offshoring isn't the problem for American workers!" the cons shout. "It's the increase in productivity. American businesses need fewer workers because automation and hard work have made our workers more productive."
This is a tragic lie, and it's been bought hook, line, and sinker by most American politicians and even many economists.
Productivity is, very simply, the measure of how many products or services can be produced for how many dollars of labor expended. But offshoring distorts productivity figures in two ways.
First, foreign labor is cheaper, but it produces nearly identical amounts of product or service. The result is "increased productivity."
Second, many corporations don't list offshore labor on their balance sheets as a labor expense. Because they hire offshore companies as subcontractors to do work previously done by their own employees, they get to reduce the number and the cost of their employees while having an only slightly increased line item for the subcontractor on their profit-and-loss statements. The result implies that the remaining employees are getting more done because the offshore employees are no longer counted in the productivity figures.
But the Indians and the Chinese know something you won't hear on con "business" programs: while China and India eagerly let multinational corporations move work to their nations from the United States, they fiercely protect their own domestic industries primarily through the use of tariffs-- taxes on imported goods-- and the strict regulation of imported labor.
Winning the Game for America
To return balance to the international game of business, America should follow the lead of the Chinese and the Indians. We can use tariffs to balance trade relationships.
From the founding of this country, our operational principle was: If there's a dollar's worth of labor in a pair of shoes made here, and you can make the same shoes in some other "cheap labor" country with 10 cents' worth of labor, there will be a 90-cent import tax (tariff) when you bring them into the country, to protect our domestic industries and our manufacturing jobs . Tariffs level the field for both American business and American labor. Without tariffs the only winners are the East India Company's modern incarnations-- the multinational corporations (which is why the multinationals push so hard for the WTO and other such institutions, treaties, and trade agreements).
This is not a new idea, by the way-- it's how America has protected its economy from the founding of this nation right up until Clinton signed NAFTA and GATT. The first law imposing tariffs was in place before the Constitution was ratified in 1789. Tariffs represented 100 percent of federal government revenues from the founding of this nation until around the time of the Civil War and about a third of our total federal revenues up to World War I. They were still a major source of revenue right into the 1980s, when Reagan first took a whack at them.
For example, Jefferson wrote in his diary on March 11, 1792: "Hamilton had drawn [Jean Baptiste] Ternant into a conversation on the subject of the treaty of commerce recommended by the National Assembly of France to be negotiated with us." France wanted concessions from America as a way of enhancing international relations but was unwilling to reduce its own tariffs. Jefferson noted, "Hamilton communicated this to the President, who came into it, and proposed it to me. I disapproved of it, observing, that such a volunteer project would be binding on us, and not them; that it would enable them to find out how far we would go, and avail themselves of it."
George Washington was more of Hamilton's mind. "However," Jefferson wrote,
The deal ultimately fell through-- Jefferson saw it as a Machiavellian scheme by Hamilton to try to irritate England-- but it shows how tariffs were an important aspect of American foreign policy from the administration of George Washington up until Bill Clinton got us into the World Trade Organization, thus eliminating most tariffs and trade "restrictions," letting multinational corporations instead of sovereign nations write the rules of international business.
To solve the crisis of the disappearance of America's middle class, the United States should follow Jefferson's lead and protect American workers. We should pull out of the WTO, NAFTA, CAFTA, and other multilateral treaties that give corporations the power to enforce their will on our government and our workers. This will again allow us to impose leveling tariffs on work done overseas. Offshore labor can then be set in price-- by adding tariffs to it-- to equal a living wage in the United States.
If a company wants to hire people to answer the phone in India for $2 per hour, fine. Let them do it-- and pay a $10-per-hour tariff on top of the $2 hourly wage. If somebody wants to manufacture a computer in China with $10 worth of labor that would be worth $100 in the United States, no problem-- just impose a $90 tariff on it when it's imported. Most companies will simply return to the United States for their labor, and those that don't will enhance government coffers with funds that can be used for national health care and the education of our workforce.
This is easily doable. By walking away from the Anti-ballistic Missile Treaty and the Kyoto accords, George W. Bush showed Americans that we really do have the power to simply ignore or disavow international treaties to which we've already committed.
It's time to apply that experience to the WTO, GATT, and NAFTA and return to our Founders' ideal of a nation in which the rules of trade and business are, as Jefferson said, "very much guided" by the interests of We the People rather than by a handful of multinational corporations.
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