Transgenerational Financial Terrorism
By Jeff Gates, AlterNet
August 10, 2003
alternet.org
Surprisingly few Americans are worried about the nation's
fast-weakening financial condition, or even about our fast-widening
economic divide. Yet one must wonder if this lack of concern is by design
as, over the past two decades, laws favoring community-based
broadcasting were repealed. As broadcasters merged, broadcasting ("the
oxygen of democracy") consolidated, along with the range of available
viewpoints.
Texas-based Clear Channel now owns 1,225 radio stations and syndicates
programming to 7800 broadcasters, enabling hard-right radio icon Rush
Limbaugh to dominate the nation's drive-time eardrums while crowding
out other perspectives like nothing seen since the fall of the Soviet Union.
With support from both major political parties, Americans find themselves
immersed in a media environment where it's all but impossible to learn the
real facts about the perilous state of their nation.
Media consolidation helps obscure the gross mismanagement of the
nation's financial affairs as both parties embraced the University of
Chicago's "neoliberal" economic model. As the 1980s began, the national
debt was already a hefty $909 billion. After 20 years of leadership by two
like-minded, neoliberal-inclined parties, that debt – our debt – is on track
to reach $7384 by September 2004. In a 2003 survey on transgenerational
accounting, economists working for the U.S. Treasury identify $43
trillion in unfunded government liabilities.
At every turn, this expanding liability – our liability – was used to expand
the wealth of the already-wealthy. In 1981, while I served as counsel to
the Senate Finance Committee, Republicans Reagan and Bush proposed
supply-side investment subsidies enacted at a fiscal cost of $872 billion,
every cent deficit-financed. In the mid-90s, Democrats Clinton and Gore
enacted a similar investment subsidy at a fiscal cost of $268 billion, also
totally deficit-financed.
Both the debt and the interest owed on that debt are backed by our full
faith and credit. Interest payments – received by just four percent of U.S.
taxpayers – grew from $58.5 billion in 1980 to $247.5 billion by 2000.
Combine our interest payments with investment subsidies paid for with
our debt and what's the result? In 1982, when the supply-side subsidies
first became law, Forbes required $91 million for inclusion on its list of the
nation's 400 richest. The average wealth of those listed was then $200
million. By 1986, average wealth topped $500 million.
By the close of the Clinton era, $725 million was required just to make the
list (versus an inflation-adjusted $161 million). Average wealth by 2000
topped $1.4 billion as, from 1998 to 2000, the wealth of this politically
favored few grew an average $1.9 million per day.
That's $240,000 dollars per hour, or 46,602 times the minimum wage.
Good work if you can get it. Or if you can lease the loyalties of
lawmakers willing to work at passing laws that get it for you, sticking us
with the fiscal tab for policies that swelled the ranks of billionaires from
13 in 1982 to 274 by 2000, all the while crowding out the fiscal resources
needed for healthcare, education, foreign aid, intelligence-gathering,
environmental clean-up and such.
We Get The Mortgage, They Got The House
From 1992 to 2000, the income of the top 400 taxpayers grew at 15 times
the rate of the bottom 90 percent. By 2000, America's deficit-subsidized
few were pocketing an average annual income of $174 million ($87,000
per hour), nearly quadruple their $46.8 million average in 1992. At every
turn, both parties piled on more debt to build more wealth and more
income for ever fewer Americans, particularly those who contribute to
their political campaigns (only 0.25 percent of us give more than $200 in
an election cycle).
The Bush II tax cuts enacted in 2001 came with a 10-year fiscal tab of
$1,350,000,000,000 ($1.35 trillion). Since, then, additional tax cuts and
spending commitments guarantee that deficits will never fall below $325
billion as far as the eye can see ($456 billion in 2003), and will top $500
billion by 2013. Interest payments on the debt amassed by then could cost
us $350 billion per year. Let's call this what it is: transgenerational
financial terrorism.
Now that the private fortunes of the few are far larger – at public
expense – repeal of the estate tax will reduce tax revenues by another
$820 billion from 2014 through 2023, a fiscal disaster endorsed in June
2002 and again in June 2003 by a majority vote in the House.
Though hate-radio hosts assure their listeners that the dreaded "death tax"
devastates small business owners and family farmers, that's another big
lie conveyed by a bought-up and shut-down media. As they know but
dare not tell, a quarter of 1999's estate tax receipts were paid by just 467
estates worth more than $20 million each.
Fully half the benefits of repeal will flow to the topmost one-hundredth of
one percent while ensuring a dramatic drop in charitable bequests that
support hospitals, clinics, colleges, research and such. Deftly combining
fiscal lunacy with political larceny, this latest neoliberal gambit would
create a fiscally induced financial aristocracy just when Baby Boomer
demographics ensure that the nation's fiscal needs will be at their
greatest.
The Radical Redistribution Of Wealth
What does this mean? Even as both parties trumpeted "our" economic
boom, most Americans had roughly the same or even less. Meanwhile,
neoliberal lawmakers leveraged up the national balance sheet with
massive debt while holding us personally liable. Don't pay your taxes to
repay "our" debt and off to jail you go.
To keep up, households leveraged up their personal balance sheets,
helping fund a Wall Street-boosting illusion of shared prosperity as
purchasing power was sustained with home equity loans and massive
credit card debt.
At one end of the "Chicago" food chain, the pace of personal bankruptcies
held steady at 1.4 million for each of the past five years, an average 7,000
per hour, as household debt topped $7.6 trillion in 2001, a record-breaking
73% of GDP, while home mortgage foreclosures reached a 30-year high.
Meanwhile Daimler-Chrysler launched its $300,000 Maybach luxury
sedan and high-end boatyards report continuing strong demand for
super-luxury yachts, 150 feet or longer.
It's difficult to overstate how much of the wealth of the nation's wealthiest
is directly due to rule changes traceable to the bipartisan embrace of
Chicago-nomics. For example, over the past 30 years, Fortune magazine
reports that the average pay of the top-paid 100 executives skyrocketed
from $1.3 million to $37.5 million, or from 39 times the average
employee's pay to 1,000 times. It's easy to forget that these pinstriped
pirates were hired to manage Other People's Money as most of the funds
invested in their firms are pension funds which, by law, are meant to fund
retirement security for a broad base of Americans. Let me explain.
When I became counsel to the Finance Committee in 1980, the nation's
money managers oversaw $1900 billion. Their "funds under management"
now exceed $17,000 billion; 55 percent of that traceable to tax subsidies
for retirement security, my specialty. Those subsidies reduce tax revenues
by $110 billion per year, ranking retirement security second only to
national security ($459 billion) and interest on the debt ($260-plus billion)
as a budget expense.
In addition to allowing senior managers to skim an estimated $1 trillion by
2000, pension trustees managed those funds so that the 400 richest
Americans amassed $1,540 billion according to a Forbes 2000 tally. By
1998, the richest one percent were pocketing as much combined income
as the 100 million poorest Americans as this topmost few nearly doubled
their share of after-tax income from 1979 to 1997. Relying on our full
faith and credit, our retirement savings and our tax subsidies meant to
fund our retirement security, their windfall became our shortfall.
The full extent of this theory-facilitated thievery comes more clearly into
focus once you realize that the nation's economic policy is based on full
employment while the largest tax paid by 80 percent of us is a tax on
employment (the Social Security payroll tax). With support from both
parties, the largest tax hike of the past two decades was enacted in 1983
after Alan Greenspan chaired a presidential commission that raised the
payroll tax, a hugely regressive 'flat tax' now levied on the first $80,900 of
income.
Meanwhile, from 1979 to 1997, the average income of the top two-tenths
jumped from nine times to 15 times the income of the poorest two-tenths.
The top fifth of Americans now claim half (49.2 percent) of national
income while the bottom fifth scrapes by on a record-low 3.6 percent.
That lack of widespread purchasing power fuels what the Chicago
cognoscenti call recurrent "overcapacity" recessions as the physical
capacity to produce goods and services outstrips the financial capacity of
people to buy what could be produced. Just prior to 9/11, the economy
was once again sinking into an overcapacity recession, a key reason we
lack the tools to pull us out of this latest morass despite massive
deficit-financed spending on tax cuts, the Pentagon and security for The
Homeland.
Rather than investing pension funds to catalyze the broad-based
purchasing power required for a robust economy, along with the
broad-based ownership required to anticipate future retirement needs, the
Washington-Wall Street consensus saw to it that half the total gain in real
income (47 percent) between 1983 and 1998 flowed to the topmost one
percent while only 12 percent trickled down to the bottom four-fifths.
By 2000, the richest one percent was pocketing 21 percent of national
income. This ongoing pilfering of our pension savings continues to be
papered over by a well-placed cabal of neoliberal nutcases happy to
rationalize the most outrageous heist in history, even as the average pay
of the top 10 CEOs soared from $3.45 million in 1981 to $154 million in
2000.
Beware: Neoliberal Looters Lurking
Now these neoliberal lunatics propose that we partially privatize Social
Security by redirecting $100 billion per year of payroll taxes into financial
markets that, from 1983 to 1998, saw 53 percent of market gains flow to
the top 1 percent. The Wall Street scam is certain to accelerate if these
clowns are given another $100 billion a year in funds to manage. Plus
that's $100 billion in tax revenues that will no longer be available to pay
current Social Security benefits, ensuring more borrowing and more fiscal
crowding out.
These gangsters made Chicago's Al Capone look like a pathetic
pickpocket as they rigged this colossal rip-off with help from both parties.
Advised by an incestuous network of like-minded think tanks (Heritage
Foundation, American Enterprise Institute, Brookings Institution, etc.), this
finance-savvy faction plundered the nation's pension savings, converting
them into a source of funds for financing a new overclass.
That plutocratic process continues to gain momentum, untouched by
post-Enron "reforms." Their reverse Robin Hood model continues to
gather steam, funded with more taxpayer-backed debt, more
taxpayer-paid interest payments, more taxpayer-subsidized investment
subsidies, more deficit-financed tax cuts and more taxpayer-funded
government contracts, including deficit-financed Pentagon spending now
paying for our commitment to Empire in the Middle East.
To keep their lawmaker lackeys in line, Wall Street money managers and
stockbrokers now account for 71 of the nation's top 400 political
contributors. The top-five zip codes for political contributors to both
parties run along the posh upper East Side of Manhattan, home to
America's media and money-management elite. To those who agree that
the public financing of federal elections will solve the problem, I suggest
those elections are already publicly financed, you just can't see it. Wall
Street buys its political influence with funds extracted from the fees
received for mismanaging our retirement savings and from mismanaging
our tax subsidies meant for our retirement.
The Chicago bug has bitten both parties to such an extent that only the
top-earning 20 percent of families are able to keep up financially. Yet
even this highly indebted top fifth live in constant fear of financial
free-fall, a concern worsened by the loss of 2.2 million jobs in just the past
two years, particularly among the bottom four-fifths who find themselves
working more and having little to show for it, including not only less time
for their friends and families but also less time for the civic engagement
required to replace legislators who've long embraced this perilously
anti-democratic model.
The Heist Goes Global
Yet even the profound insecurity their model creates domestically pales in
comparison to the wall-to-wall wreckage it works abroad. Neoliberalism
went full-throttle global when the World Trade Organization joined the
World Bank and the IMF as the Big Three regulating global finance,
ensuring that our stunning concentration of wealth and income would fast
become a worldwide phenomenon. In the four years to 1999, the world's
200 richest people doubled their wealth to a combined $1 trillion. By
comparison, the combined income of the world's 2.5 billion poorest is $1
trillion.
In countries where their brand of economic science is deemed successful
– by Chicago's bizarre standards – the results are reflected in recent
World Bank research showing that 62 percent of Indonesia's stock
market wealth is owned by that nation's 15 richest families. The
comparable figure for the Philippines is 55 percent and 53 percent for
Thailand.
Income patterns are similarly destabilizing and dysfunctional. The richest
fifth worldwide now account for 86 percent of global consumption while
the poorest fifth get by on 1.4 percent, down from 1.7 percent two
decades ago.
By the mid-1990s, the combined income of the topmost one percent (50
million people) equaled the combined income of the poorest 57 percent
(2.7 billion). Since 1985, according to Gus Speth, former head of the UN
Development Program, economic decline or stagnation has affected 100
countries, reducing the incomes of 1.6 billion people. For 70 of those
countries, average incomes are less in the mid-1990s than in 1980, and in
43 of the countries, less than in 1970.
Why do they hate us? Can you spell C-H-I-C-A-G-O? Yet neoliberals in
both parties continue to insist on the global spread of a chronically flawed
model that foreseeably creates divisions more severe than anything the
human family has seen since just before the Great Depression, the last
time such a Great Divide was embraced by those in elective office.
Fixing The Crisis
Given the Chicago model's consistently dysfunctional results, we must
conclude those results are not accidental. As the world's most financially
sophisticated nation, it's inconceivable that these results were not fully
foreseen, even now. To sort beguiling theory from real-world results,
systems theorists coined the acronym "POSIWID" – the purpose of a
system is what it does.
Rather than adopt a sensible development strategy designed to broadly
distribute wealth and income, G-8 leaders announced in 1999 a relief
strategy for heavily indebted poor countries promising to cap debt service
for each of the world's 41 poorest country's at 15-20 percent of their
export earnings. By comparison, when the victors of World War I limited
German war reparations to 13-15 percent of exports, that burden
triggered a recession that led to WWII and the rise of a virulent form of
fascism as Germany morphed into The Fatherland.
Based on experience advising in more than 35 countries, I can state with
full confidence that finance can be designed either for exclusion or
inclusion. Yet we've never asked anyone anywhere, neither here nor
abroad, which alternative they prefer. Economic policy could include both
widespread employment of an economy's labor resources and widespread
ownership of its capital resources. Yet after two centuries of labor-saving
progress, full employment remains this nation's sole economic goal even
as the typical American works 184 hours longer each year than in 1970,
for just nine percent more pay. So much for 200 years of progress, much
of it funded with taxpayer-paid research and development.
Similarly, an "ownership impact report" could be mandated whenever and
wherever public policy impacts finance, including World Bank lending
policies. Instead, U.S. taxpayers guarantee foreign loans to finance
plutocracies abroad while U.S. lawmakers approve $1,140 billion in
deficit-financed supply-side investment subsidies with nary a word about
who will be supplied.
As the world's most financially astute nation, we're forced to conclude the
obvious: The injustice, the inequity and the indignity we now face were
fully anticipated and meticulously planned. Contrary to popular lore, the
malady lies not with Reagan, Bush (I or II), Clinton or Gore; the malady
lies hidden in plain sight, embedded in the model.
Jeff Gates is the author of "The Ownership Solution" (1998) and
"Democracy at Risk: Rescuing Main Street from Wall Street" (2000).
For more information, visit www.sharedcapitalism.org. |
