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August 05, 2010

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There was once an enchanted nation governed by a consensus of opinion bridging left and right. There would be nearly enough jobs for all but in return, the safety net would remain porous. People would be motivated to work harder, move if necessary, and retrain themselves if they must. If reasonably hardworking, they would build financial security through home ownership and prudent savings. This agreement functioned well for nearly 60 years. This agreement is now broken.

In retrospect, we could see the erosion of this bargain in the Reagan years. Wealth creation became the dominant value. Labor was required but only intermittently esteemed. Hucksterism replaced hard work as the divinely ordained plan. Salesmanship in real estate, cars, and financial services created a new class of affluent Americans. Some workers credentialized their labor in health care and education, using the state licensing process to limit their economic competition. Still others used the military and government to secure their lives with pensions and steady pay increases. These strategies paid off well, and made conservatism the dominant political strain in contemporary America.

The conservatism of the "haves" ought to be sorely tested by current events. Alas, the American right has created a mythology so sweeping and so toxic that it will withstand empirical evidence and common sense. The problem, the "haves" have been told, is "liberalism", and in particular, its coddling of feckless minorities.

In this breach the mega-wealthy have detached from the broader community sustaining them. They now function independently of the country that made their wealth possible. Their accountants guide their choices, not their hearts. If that means offshoring the loot, so be it. These people don't hate America - they own it, after all. But they have no allegiance to any particular place or set of values beyond their own wealth. That wealth creates its own dynamic and its own gravity. It exerts custodial control over the people who claim it.

The "community of interests" is, in reality, a delusional belief system. It's like a gold bug that infects the brain and eventually destroys it. The eliminationist tic of the hard right is currently focused on Latinos but it will eventually consume America itself.

In short, there ain't no class warfare any more; the rich won.

Seems to me that we're painting with a pretty broad brush. It would be helpful to this discussion if we had a quantitative definition of the kind of wealth we're targeting.
Do we measure it by net worth?
Is it the super rich upon which we're focused here? Are they worth at least 20 mil? Or do we peg this at income levels over $200,000? I'm all ears!

Perspective: I have retired teacher friends who are living on well-deserved pensions but are"millionaires" because they made good real estate choices many years ago. They live simply and drive a Prius. Surely we can't be targeting those of their ilk?!

I think we are talking about people capable of inducing the government into adopting economic policies that are harmful to the vast majority of Americans because of their individual wealth or corporate power. That's not retired teachers who invested well, even if they are nominal millionaires. It's masters of the universe and their servants in the media. I hate to repeat myself, but for our future look to Russia: collapsed empire, corrupt and crony capitalism, poorly educated and manipulated population.

Great essay, in so many ways.

Mr. Talton wrote:

"It doesn't take a conspiracy to create a community of interests that produces a similar result."

Precisely right. That's why they're called class-interests.

"Somebody pushed for questionable trade agreements, job offshoring, union busting, monopolistic industrial concentration, the shredding of pensions and benefits, a financialized economy, deregulation, big government welfare for corporations and the lowest taxes on the rich in generations. Somebody continued to expand these policies even after their destructiveness was well known. Somebody profited hugely."

Yes, as does anyone whose job can't be outsourced but who derives a substantial portion (even if not a majority) of their income from stocks -- stocks whose value is driven up by increasing profit margins through labor cost-cutting via overseas outsourcing.

They include many of the talking heads in radio and television who convinced America that these policies represented not only progress but unavoidable progress caused by economic forces beyond the control of governments -- a capitalist version of "dialectical materialism".

They weren't the ones at the root of the push for such policies, but they personally benefited and willingly went along, providing valuable (if, perhaps, often unwitting) services as propagandists.

As the Wall Street Journal noted in the article Mr. Talton hyperlinked to: "The total wealth of the world’s millionaires leapt 18.9% to $39 trillion [in 2009]. How did the rich get so much richer in a year when the gross domestic products of countries around the world, including the U.S., sank? Stock markets, largely. Global stock-market capitalization surged to $47.9 trillion from $32.6 trillion, adding more than $15 trillion to the coffers of shareholders (largely, the wealthy)."

In 2007 the top 1 percent (in the income pyramid) owned 38.3 percent of stocks and mutual funds, the next 9 percent owned 42.9 percent, and the bottom 90 percent owned just 18.8 percent. As for financial securities, the contrast is even starker: the top 1 percent owned 60.6 percent, the next 9 percent owned 37.9 percent, and the bottom 90 percent owned just 1.5 percent.

http://sociology.ucsc.edu/whorulesamerica/power/wealth.html

So, there is a definite system of rewards for those willing to play ball rather than buck the system: the capitalist class, at root, pushes these policy changes, and the rest of the top 10 percent (the gatekeeper class who manage most of the levers of power in society on behalf of the capitalist owners) have sound personal incentives to link their lot with that of the owners.

I'm not suggesting bribery, which belongs in the same ash-bin as conspiracy theories: I'm talking about ordinary psychology: when one has a financial incentive toward some behavior or policy, but there are moral or other doubts, one must justify the position before being able to enjoy the riches that it brings: and the riches themselves provide a psychological motivation to accept arguments that support the activity, and reject those that would deny the pleasures of financial reward.

The fact that media pundits and others are constantly being bombarded by studies, position papers, and factoids contrived by the owner class (and their lackeys at the "paper mills" they underwrite) only makes it easier.

Such arguments, being well funded by those who stand to profit most from them, also appear far more often and are broadcast far more broadly. If you hear something 20 times for every time you hear a counter-argument, and you have a personal financial stake in rejecting the counter-argument, which are you likely to believe, especially as it may involve matters you don't possess a good understanding of?

"Cognitive dissonance is an uncomfortable feeling caused by holding contradictory ideas simultaneously. The theory of cognitive dissonance proposes that people have a motivational drive to reduce dissonance. They do this by changing their attitudes, beliefs, and actions. Dissonance is also reduced by justifying, blaming, and denying. It is one of the most influential and extensively studied theories in social psychology." (From Wikipedia.)

The capitalist owner class is a bit more cynical and realistic: they have to be, because their world is dog-eat-dog and only the ruthless survive and prosper -- "prosper" by the standards of the super-rich, that is. Very few, if any, became billionaires by putting social ethics ahead of personal greed. As Vaclav Smil has written about China:

"What a remarkable symbiosis: a Communist government guaranteeing a docile work force that labors without rights and often in military camp conditions in Western-financed factories so that multinational companies can expand their profits, increase Western trade deficits, and shrink non-Asian manufacturing."

Mr. Talton wrote:

"Second are the capital markets themselves, including the big banks, the shadow banking system such as hedge funds and trading markets both regulated and unregulated (about $600 trillion is the "value" of the play money in the unregulated derivatives market). They, many worry, hold America hostage through debt and demands for "austerity."

That's a very good way to describe it -- "play money". It wasn't the result of economic production (except in the very limited sense that financial transactions are a "service") and its value expands or contracts by orders of magnitude without reference to real economic production. In 2009, according to the World Bank, global GDP (PPP) totalled "only" $72 trillion.

http://siteresources.worldbank.org/DATASTATISTICS/Resources/GDP_PPP.pdf

As of December, 2007, according to the Bank for International Settlements, it was nearly twice that much: $1,144 trillion, or $1.144 quadrillion. But has that much really unwound, or are differing definitions at work?

At any rate, see this for a breakdown by main categories, a comparison with other assets (e.g., global real-estate worth "only" $75 trillion), and a discussion of risks -- and note that this is two years old and some of the figures provided have grown quickly:

http://www.siliconvalleywatcher.com/mt/archives/2008/10/the_size_of_der.php

So, these derivatives funds alone are about 16 times larger than the annual productive output of the world. (Maybe more, since the derivatives figure is for 2007 and the global GDP figure is for 2009).

Mr. Talton wrote:

"Third are corporations nominally headquartered in the United States, but have much or most of their operations and jobs overseas (and some have moved their headquarters there, as well)."

The Arizona Republic carried a typically rosy AP story the other day, claiming that increased profits of companies like Caterpillar, 3M, and UPS could "lead the way" to economic recovery.

http://www.azcentral.com/arizonarepublic/news/articles/2010/07/23/20100723us-economic-recovery.html

The only problem is, all three of those companies' increased profits came from overseas sales. There was a single, brief and incomplete caveat in the story: "There were notes of caution, to be sure. UPS, for example, raised its earnings outlook but said much of its confidence about the rest of this year comes from international shipments."

No mention whatsoever that both Caterpillar and 3M now get the majority of their sales revenues from overseas customers.

Incidentally, let's be clear what "overseas" means:

"By 2025 [China] could be the world’s largest economy; but because of its size, the per capita income level will still be only one quarter of that of the United States. China’s population is aging rapidly (with almost no pensions), and the sex ratio is unfavorable (too few females). Income inequality is quickly increasing, and the degradation of the environment is extreme. With 20 percent of the world’s population in 2005, China had only 9 percent of the world’s farmland and 7 percent of the world’s freshwater. All of the world’s grain exports together would fill less than two-thirds of the country’s projected demand for food. It is already the world’s largest emitter of greenhouse gases."

http://www.americanscientist.org/bookshelf/pub/the-worst-is-yet-to-be

Note that the greenhouse emissions that come from China's current industrialization is nothing compared to what will happen when China's population becomes, not merely manufacturing drones for the west, but consumers on the western model, buying (gasoline burning) cars and all of the other goodies which will require still further ramped-up manufacturing production for its domestic market.

China, though investing admirably in alternative energy sources, still relies largely on relatively cheap and dirty energy sources such as coal and oil, and has made clear that it regards such pollution as the inevitable consequence of industrialization. It will not sacrifice its economy for "green" policy goals.

The introduction of punitive tariffs on Chinese imports would not only change the financial incentive for capitalist investment there, but might be the only thing that can save the planet from the extreme consequences of global warming.

A clarification. I wrote:

"As of December, 2007, according to the Bank for International Settlements, it was nearly twice that much: $1,144 trillion, or $1.144 quadrillion. But has that much really unwound, or are differing definitions at work?"

By "it" I meant, of course, the global derivatives market. I moved that paragraph and now it inadvertently appears to refer to global GDP.

Sorry, but it's very difficult to compose and post something from a computer giving only 15 minute sessions. I have to compose offline, and transferring to Rogue Columnist's comment editor creates some formatting problems that must be edited by hand, so that by the time I manage that, I don't even have time for a full read-through to catch typos, much less a leisurely one likely to catch errors of contextual placement.

It's also important when discussing power in America to distinguish between the dynamics of the national power structure and those of the local power structure. Mr. Talton has described both with flair and accuracy, but it's worth making the distinction explicit:

"Power structures at the city level are different from the national power structure. They are not junior editions of the national corporate community. That's because local power structures are land-based growth coalitions. . . Although the growth coalition is based in land ownership, it includes all those interests that profit from the intensification of land use. Thus, executives from the local bank, the savings and loan, the telephone company, the gas and electric company, and the local department store are often quite prominent as well. As in the case of the corporate community, the underlying unity within the growth coalition is most visibly expressed in the intertwining boards of directors among local companies. And, as with the corporate community, the central meeting points are most often the banks, where executives from the utilities companies and the department stores meet with the largest landlords and developers.

"There is one other important component of the local growth coalition: the daily newspaper. The newspaper is deeply committed to local growth so that its circulation and, even more important, its pages of advertising, will continue to rise. No better expression of this commitment can be found than a statement by the publisher of the San Jose Mercury News in the 1950s. When asked why he had consistently favored development on beautiful orchard lands that turned San Jose into one of the largest cities in California within a period of two decades, he replied, "Trees do not read newspapers" (Downie, 1970, p. 112). However, the unique feature of the newspaper is that it is not committed to growth on any particular piece of land or in any one area of the city, so it often attains the role of "growth statesman" among any competing interests within the growth coalition."

http://sociology.ucsc.edu/whorulesamerica/local/growth_coalition_theory.html

Incidentally, that website "Who Rules America?" is not to be confused with a neo-Nazi site of the same name: so watch out when you go Googling for information.

Thanks Jon for another tremendously insightful blog.

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