Transgenerational Financial Terrorism
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if this lack of concern is by design as, over the past two decades, laws favoring community-based broadcasting were repealed.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 billion 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.