Wednesday, May 11, 2011

The Roots of American Decline

The decline of the US economy has its roots in the deregulation of business and finance and automation of complex manufacturing processes. The decline is aggravated when wealth becomes concentrated in the hands of a few who use it to capture control of the government. As control of government by capital interests increases, regulation further decreases.

A good measure of the how far the loss of democratic control of government has progressed is the income and wealth disparity between the owners of capital and the working classes. The more control wealthy elites have over the government, the greater will be the concentration of wealth and income in the their hands.

As democratic control of government is lost to the owners of capital, the rewards of productivity increases through automation go increasingly toward the owners of capital and away from labor. Only if countries retain democratic control of their government can equity be maintained.

Domestic jobs are lost through automation and the opening of financial flows across borders, which allows factories to be moved offshore.  Allowing foreign labor into the country through lax immigration and border control policies and the liberal use of visas to educated foreign workers further exacerbates the problem.  As the labor supply increases relative to the demand for labor, wages are driven down, allowing a further increase in wealth to the owners of capital and a degradation of the living standards of the working class.

As the standard of living of labor falls, the need for income security, health care, and retirement increases, necessitating greater government involvement, setting up a growing battle between labor and capital for control of the government.

The recent collapse of the economy has demonstrated that the financial industry does not police itself and will go to extreme lengths for its own short term interest at the expense of the national interest.

To sustain domestic demand when working and spending class incomes are decreasing, requires spending from borrowing. This was enabled by the creation of a housing bubble, allowing workers to spend from the ever increasing equity in their homes. The financial sector drove the bubble higher and higher with leverage, derivatives, and liar loans, reaping short term riches at the expense of long term calamity.

When the bubble burst, homeowners and savers lost trillions, causing a severe drop in demand as they turned to saving instead of spending. With millions of bad mortgages on their balance sheets, banks stopped lending. Heavily leveraged, many found themselves bankrupt if loans were marked to market.

In steps the government, itself now starved for tax revenue, but the only entity large enough to rescue the economy. Instead of restructuring many banks that could be restructured, and making those who made bad investments take some of the losses, they allowed the banks to keep the loans on their books at face value and bailed out all but one bank, Lehman Brothers, some at 100 cents on the dollar. This put the government in deficit and further in debt, while working people faced heavy unemployment and depletion of their savings, and while banks were still heavily in debt with bad loans on their books.

Now we face losing the working class safety net and sustained unemployment, while the government provides banks with nearly free money to work off their bad debts buying treasuries and speculating in foreign currencies.

With diminished domestic demand and tax revenue from the working class it is doubtful whether government deficits can ever be eliminated through taxation of this sector, particularly if their safety net is destroyed. The only source of revenue that can be tapped to do this is the income from investors and corporations who are prospering with their factories in developing nations. That’s where the growth will be. But, these are the very people that have control of the government and refuse to impose such taxes.

You may ask, how can this be, when capitalist elites are only a minority of the populace? The answer is propaganda. By keeping enough working people hood-winked regarding where their real interests lie, and by keeping the press in the their elite circle this is easily accomplished.

The politics of special interests and values is a convenient tool to do this. By keeping the electorate distracted with wedge issues like religion, ethic and sexual preference, and demonizing people on welfare, the elites can convince enough people that these are the real problems, while they pay the bills of politicians to get them elected and do their bidding.

By allowing a professional working class, and their retirees, to have sufficiently high incomes to be comfortable, they can keep them in a state of concern for only their personal affairs and a lack of concern for what is happening politically and economically in the country. By promoting the identification of this group with the controlling elites, rather than with the struggling masses they can keep them voting for the candidates they put up.

Businesses organizations like the National Chamber of Commerce and private business owners like the Koch brothers contribute heavily to conservative think tanks to generate such propaganda based on ideology rather than practical considerations. Such propaganda over the last several decades has brought the country back to where it was prior to the Great Depression and there is no sign that things will change until more and more people are pushed into poverty, to the point where the hurt causes them to wake up and vote their real interests. Only when most people identify with the plight of their fellow citizens, rather than aspiring to join the elite oligarchy, will things change.

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