Requiem for the American Dream

PRINCIPLE #4

SHIFT THE BURDEN

THE AMERICAN Dream, like many ideals, was partly symbolic, but partly real. In the 1950s and ’60s, say, there was the biggest growth period in American economic history. The Golden Age.

It was pretty egalitarian growth, so the lowest fifth of the population was improving about as much as the upper fifth. And there were some welfare state measures, which improved life for much of the population. It was, for example, possible for a black worker to get a decent job in an auto plant, buy a home, get a car, have his children go to school, and so on. The same was true across the board.

See “Henry Ford on why he doubled the minimum wage he paid his employees”

When the US was primarily a manufacturing center, it had to be concerned with its own consumers—here. Famously, Henry Ford raised the salary of his workers so they’d be able to buy cars.

Recently, there was a publication by Citigroup, one of the biggest banks. They put out a study for investors in which they identify a new category in the world—what they call the “plutonomy”—those who have substantial wealth. The plutonomy are the main drivers of the economy—they’re the main consumers, that’s where all the wealth goes—so Citigroup has a “plutonomy investment portfolio.” They’ve had it since the mid-’80s, when Reagan and Thatcher in England drove forward policies of enriching the very wealthy and letting everyone else suffer. And they point out that their plutonomy investment portfolio has far outperformed the market, and urge investors to concentrate on investing for the plutonomy. So the small percentage of the world’s population that’s gathering together in increasing wealth—that’s what you focus on. The rest you can forget about.

When you’re moving into an international plutonomy, what happens to American consumers is much less of a concern, because most of them aren’t going to be consuming your products anyway, at least not on a major basis. Your goals are profit in the next quarter—even if it’s based on financial manipulations—high salaries, high bonuses, produce overseas if you have to, and produce for the wealthy classes here and their counterparts abroad (mainly in the Anglosphere—the United States, Britain, Canada, and so on). And their market can be anywhere. They can sell their iPhones anywhere. So the concern for the health of the society here has substantially lessened. When the president of General Motors sixty years ago said, “What’s good for GM is good for the country,” that wasn’t totally false. The converse was also true: “what’s good for the country is good for GM.” But that’s much less true in the current increasingly paper economy or overseas economy.

They’ve always, of course, been concerned with their salaries, but that’s become their primary concern—displacing concern about the viability of the firm and, in fact, the viability of the country. It’s been a tendency since the major changes that took place beginning in the late 1970s. Again, those changes are financialization—speculation, complex financial instruments, money manipulations—and offshoring, primarily.

So, it’s a different attitude in general. From the point of view of the policy makers, the long-term future of the country doesn’t matter so much. What matters is just those sectors of the society that sustain concentrated privilege. You have to have a powerful state to subsidize research and development, provide a cushion if you get into trouble and have to be bailed out, have a powerful military force to control the world. These are significant factors. But if, say, three quarters of the population declines into stagnation, it’s much less of a concern—and, in fact, what happens to the next generation is even less of a concern.

Now, the plutonomy is much more rigorously following Adam Smith’s vile maxim: “All for ourselves, nothing for anyone else.” What about the rest? There’s a term coming into use for them, too. They’re called the “precariat,” precarious proletariat—the working people of the world who are living a more and more precarious existence. So we have the precariat living insecure, precarious lives, getting by if they can, many in terrible poverty and suffering in other ways—and the advice of Citigroup (which, by rights, the public ought to own by now, having bailed them out so often—but they’re doing fine, richer than ever) is that they’re asking investors to focus attention on the plutonomy. It’s a really serious problem, and we’re heading toward a cliff. But from the point of view of the masters of mankind, it doesn’t matter much—“as long as we make plenty of profit tomorrow, who cares if our grandchildren won’t have a world to live in?” It’s related to the attitude toward the country altogether.

Well, that’s a division the world over. In China, it’s the same—it has an extremely oppressed labor force, no independent unions, tens of thousands of labor protests every year—and super-wealth. In India it’s even more extreme. In other developing countries it’s changing a little bit, like in Latin America. Take Brazil, a most important country, where there have been significant attempts to deal with the tremendous inequality and overwhelming problem of poverty and starvation in the past ten years. But for the most part I think the Citigroup analysis is pretty accurate—there’s a plutonomy that’s very rich, and the rest get by somehow if they can.

During the period of great growth of the economy—the ’50s and the ’60s but, in fact, even earlier—taxes on the wealthy were far higher. Corporate taxes were much higher—taxes on dividends were much higher—simply taxes on wealth were much higher. Well, that’s been modified, and now the shift is toward reducing taxes for those who are quite wealthy. The tax system has been redesigned so that the taxes that are paid by the very wealthy are reduced and, correspondingly, the tax burden on the rest of the population’s increased. Now the shift is toward trying to keep taxes just on wages and on consumption—which everyone has to do—not, say, on dividends, which only go to the rich. And that’s shifted the burden enormously. The numbers are pretty striking.

Now, there’s a pretext—of course, there’s always a pretext. The pretext in this case is, “well, that increases investment and increases jobs.” But there isn’t any evidence for that. If you want to increase jobs, if you want to increase investment, what you do is increase demand. If there’s demand, investors will invest to meet it. If you want to increase investment, give money to the poor and the working people who spend it, not on expensive yachts and vacations in the Caribbean, but on goods. They have to keep alive, so they spend their incomes. That stimulates production, stimulates investment, leads to job growth, and so on.

If you’re an ideologue for the masters, you have a different line. Even if there’s no evidence for it, even if it makes no economic sense. In fact, right now it’s almost absurd—corporations have money coming out of their pockets. It’s not that they’re short of money. Goldman Sachs, one of the main perpetrators of the financial crisis, is now so wealthy—thanks to government bailouts, taxpayer bailouts—that they’re preparing for the next crisis. There’s no shortage of cash in their hands. Pouring more cash into their hands is not in order to increase investment, or, as the term that’s used, “jobs”—that’s just a euphemism—it’s simply in order to increase the extraordinary concentration of wealth and with it stagnation for the rest of the population. Well, that’s exactly what you expect to happen when you put power in the hands of those who are going to follow the vile maxim—to maximize profit and power for themselves. “All for themselves, nothing for everyone else.”

In fact, General Electric is paying zero taxes and they have enormous profits. This lets them take the profit somewhere else, or defer it, but not pay taxes—and this is common. The major American corporations shifted the burden of sustaining the society onto the rest of the population.

The issue of raising taxes on the rich has, typically, been strongly supported even by the likes of those who backed Donald Trump in 2016—voters who pretty often have kind of social democratic attitudes, when you look. You know, “down with the government, but more spending on education, and health, and aid for women with dependent children.” Not welfare, that was demonized—if you remember Ronald Reagan’s tales, welfare means some black man stealing your money at the state office. Nobody wants that, but you want what welfare does. People are in favor of that.

Take the 2016 Bernie Sanders campaign—across the board, his views and positions had substantial, if not majority, public support, and were pretty mainstream not long ago. The “political revolution” that Bernie Sanders called for, rightly, would not have greatly surprised Dwight Eisenhower. What that means is the spectrum has shifted so far to the right that what the population wants, and what was once mainstream, now looks radical and extremist. Well, it’s up to us to shift it back. Today’s Democrats are pretty much what used to be called moderate Republicans, you know, Nelson Rockefeller Republicans. That’s the mainstream of the Democratic Party. The Republicans are just off the spectrum—they’re not even a political party anymore.

The Republicans have moved so far toward a dedication to the wealthy and the corporate sector that they can-not hope to get votes on their actual programs, and have turned to mobilizing sectors of the population that have always been there, but not as an organized coalitional political force: evangelicals, nativists, racists, and the victims of the forms of globalization designed to set working people around the world in competition with one another while protecting the privileged. This modus operandi undermines the legal and other measures that provided working people with some protection, and with ways to influence decision making in the closely linked public and private sectors, notably with effective labor unions.

So the core question is, can that mass popular mobilization be continued and extended, and become a functioning force that’ll beat back the regressive tendencies that have created a pretty ugly situation in the country?

“The owner, the employees, and the buying public are all one and the same, and unless an industry can so manage itself as to keep wages high and prices low it destroys itself, for otherwise it limits the number of its customers. One’s own employees ought to be one’s own best customers.”

“It is this thought of enlarging buying power by paying high wages and selling at low prices that is behind the prosperity of this country.”

[T]he world is dividing into two blocs—the plutonomies, where economic growth is powered by and largely consumed by the wealthy few, and the rest. Plutonomies have occurred before in sixteenth century Spain, in seventeenth century Holland, the Gilded Age and the Roaring Twenties in the U.S. What are the common drivers of Plutonomy? Disruptive technology-driven productivity gains, creative financial innovation, capitalist-friendly cooperative governments, an international dimension of immigrants and overseas conquests invigorating wealth creation, the rule of law, and patenting inventions. Often these wealth waves involve great complexity, exploited best by the rich and educated of the time.

... We project that the plutonomies (the U.S., UK, and Canada) will likely see even more income inequality, disproportionately feeding off a further rise in the profit share in their economies, capitalist-friendly governments, more technology-driven productivity, and globalization ...

In a plutonomy there is no such animal as “the U.S. consumer” or “the UK consumer”, or indeed the “Russian consumer”. There are rich consumers, few in number, but disproportionate in the gigantic slice of income and consumption they take. There are the rest, the “non-rich”, the multitudinous many, but only accounting for surprisingly small bites of the national pie ...

In addition, the emerging market entrepreneur/plutocrats (Russian oligarchs, Chinese real estate/manufacturing tycoons, Indian software moguls, Latin American oil/agriculture barons), benefiting disproportionately from globalization are logically diversifying into the asset markets of the developed plutonomies ... Just as misery loves company, we posit that the “plutos” like to hang out together.

... Concentration of wealth and spending in the hands of a few, probably has its limits. What might cause the elastic to snap back? ...

A... threat comes from the potential social backlash... the invisible hand stops working. Perhaps one reason that societies allow plutonomy, is because enough of the electorate believe they have a chance of becoming a Pluto-participant. Why kill it off, if you can join it? In a sense this is the embodiment of the “American dream”. But if voters feel they cannot participate, they are more likely to divide up the wealth pie, rather than aspire to being truly rich.

Could the plutonomies die because the dream is dead, because enough of society does not believe they can participate? The answer is of course yes.

... Our overall conclusion is that a backlash against plutonomy is probable at some point. However, that point is not now.

SENATOR HENDRICKSON. Well now, I am interested to know whether if a situation did arise where you had to make a decision which was extremely adverse to the interests of your stock and General Motors Corp. or any of these other companies, or extremely adverse to the company, in the interests of the United States Government, could you make that decision?

MR. WILSON. Yes, sir; I could. I cannot conceive of one because for years I thought what was good for our country was good for General Motors, and vice versa. The difference did not exist.

The topic of income inequality and its effects has been the subject of countless analyses stretching back generations and crossing geopolitical boundaries. Despite the tendency to speak about this issue in moral terms, the central questions are economic ones: Would the U.S. economy be better off with a narrower income gap? And, if an unequal distribution of income hinders growth, which solutions could do more harm than good, and which could make the economic pie bigger for all?

Given the decades—indeed, centuries—of debate on this subject, it comes as no surprise that the answers are complex. A degree of inequality is to be expected in any market economy. It can keep the economy functioning effectively, incentivizing investment and expansion—but too much inequality can undermine growth.

Higher levels of income inequality increase political pressures, discouraging trade, investment, and hiring. Keynes first showed that income inequality can lead affluent households (Americans included) to increase savings and decrease consumption, while those with less means increase consumer borrowing to sustain consumption... until those options run out. When these imbalances can no longer be sustained, we see a boom/bust cycle such as the one that culminated in the Great Recession.

Aside from the extreme economic swings, such income imbalances tend to dampen social mobility and produce a less-educated workforce that can’t compete in a changing global economy. This diminishes future income prospects and potential long-term growth, becoming entrenched as political repercussions extend the problems...

Our review of the data, as well as a wealth of research on this matter, leads us to conclude that the current level of income inequality in the U.S. is dampening GDP growth, at a time when the world’s biggest economy is struggling to recover from the Great Recession and the government is in need of funds to support an aging population.