I get asked repeatedly by clients and friends, “Pooper, when is the recovery going to happen?”
To which I answer, “Are you referring to the recession, or the actual beginning of the collapse of our economy?” I typically get blank stares.
Allow me to expound. What you are seeing in America today is not a recovery from anything; not from the “recession” (called so because we have to have a label for everything), not from jobs lost, not from jobs outsourced overseas…there has been no recovery and will be no recovery until we undo what Conservatives (and in some cases, Democrats) did to ruin the economy.
Here is where all of my conservative readers (I think there are seven) become belligerent. Be patient. I am going to paint the case of why Conservatives are to blame, and when I am done, you will not be able to refute it. It’s not pretty. I used to be a conservative, and am a small business owner. I’m supposed to be a conservative’s best friend. But I can’t be. Their economic policies need to be lynched, forever.
Conservative economics used to mean reduced government oversight of free enterprise, and tax policies designed to encourage small business growth. In essence, a conservative believed that it was the government’s job only to passively regulate industry from a distance, and that taxation was meant only as a means to secure our liberty and provide a safe environment for enterprise to flourish. Business DID flourish in the United States, with a few rough spots along the way in our first one hundred and twenty-five years. That’s why conservatives are called “conservatives”; they don’t like change. Why fix something that isn’t broke? Just keep the government small, allow business to govern itself, and everything will be alright. Conservatives fought unionization, building codes, the forty hour work week, profit sharing, vacation, higher pay for overtime…the list goes on and on and on. Their track record is a marvel; they literally believe that nothing is ever broken, that no business owner is taking advantage of his employees, and that business can regulate itself.
It was that kind of thinking that caused the first Great Depression. But something happened to Conservatives in the 1930’s; they became irrelevant. A near permanent Democratic majority kept Republicans fuming and on the outside looking in. For decades they were powerless to stop the New Deal, The Great Society, Social Security, Medicare, the forty-hour work week, the minimum wage, building safety codes, OSHA, and on and on and on. Regulation of power companies, telephone companies, banks, investment banks, and overseas commerce all came to pass while Conservatives could only watch and stew.
But in 1981, all of that ended. Reagan ran on a platform of deregulation, limited government, and tax cuts and won. What is amazing in its irony is that during the midst of the recession of 1981, Reagan actually agreed to raise taxes on the profits of corporations, in order to limit the growing deficit. Even at that time, and despite all of the conservative rhetoric that tax cuts for corporations were good for job creation and deficit reduction, the only action Reagan ever took to reduce the growing deficit was to increase taxes on businesses by the largest amount in our history. The Tax Equity and Fiscal Responsibility Act of 1982 instituted a three-year, $100 billion corporate tax hike—the largest tax increase since World War II. That one tax increase proved that not even Ronald Reagan believed in trickle down economics.
But Reagan also succeeded in cutting taxes on the wealthiest Americans from near 70% to 50% in less than a year. Had conservatives left that figure alone, our historical debt would be vastly different. Instead, conservatives continue to use fear for the future as a tool for winning elections based on “fiscal conservatism”, which is the idea that only a conservative knows how to manage the national debt in a way that won’t cripple our grandchildren’s wallets. Poppycock. Their incessant tax cuts for the wealthiest Americans and for corporations who ship jobs overseas is what has created the path to an unsustainable national debt.
Reagan instituted a phrase that conservatives use to this day: Trickle Down (or Supply Side) economics…Reaganomics. It is the philosophy that tax cuts for the top tier of American earners, and for Corporations will increase corporate profits, and create jobs through a trickling down process. This, coupled with President George H.W. Bush’s demand for a fast track on the North American Free Trade Agreement began America on a collapse from which we will never emerge unless drastic measures are taken.
Conservatives believe that by allowing corporatists and wealthy Americans to keep more of the profits, and by encouraging them to trade internationally and build factories over seas, more prosperity than ever will trickle down to the rest of America, creating more, and better, higher paying jobs.
Sounds great! Doesn’t it?
Unfortunately, it doesn’t work.
The first piece of evidence I present should be obvious, even to stubborn conservatives.
1. By allowing large corporations reduced taxes and higher profit margins, the corporate philosophy of America changed. It morphed from a partnership between management and labor to a partnership between management and stockholders. Instead of quality products for a fair price, the old American way of doing business, enterprise became predicated upon profit alone. Demand for greater return on investment drove management to look for new ways to cut labor costs and reduce expenses. What resulted was an increasing call for free trade agreements that allowed corporations to transfer large blocks of their manufacturing overseas where labor was infinitely cheaper, and where regulations were not imposed to protect that cheap labor. President George H.W. Bush started this landslide by ramming NAFTA through, President Clinton continued it, and the most recent President George W. Bush extended it and in all likelihood, drove the final nails into the coffin.
Also occurring simultaneously was the increased demand for executive talent that could manage multi-national companies. Along with that demand came vastly increased pay for executives, while manual labor pools in America shrunk and lost wage leverage. That lost leverage has never been recovered, and has infiltrated even into the white collar world of lower management. Where once there was a large enough pool of opportunity for American workers, there grew in its place an increasing number of unemployed or underemployed laborers, which exacerbated the lost leverage problem. A worker today only has leverage if he has an opportunity to move from his current employer to a different one offering higher wages. That possibility has all but evaporated with trickle down economics. As more and more jobs left American shores, the opportunity for leverage disappeared. All of the leverage belongs with corporations today; exactly what conservatives, or should I say, corporatists, wanted.
By allowing corporations to manage based on profit alone, and enabling their greed for profit by removing traditional protectionist regulations on international trade, conservatives ushered in this new era of lost jobs, wages, and hope. The jobs can’t return until American companies can compete without hiring labor overseas.
2. I call this the Mega-Corp effect. Consider the competition between large corporations hiring cheap labor overseas against smaller companies trying to compete while paying higher American wages. Who will win? It’s a no-brainer. Large corporations have become much larger, morphing into mega-multi-national corporations against whom the much smaller American companies simply cannot compete. As those smaller companies lost, the larger corporations bought them, forced mergers, or outright stole their technology and ideas, moving every bit of the manufacturing from the older, smaller company, overseas.
By allowing corporations to manage according to profit and greed alone, conservatives tilted the playing field heavily in favor of America’s largest corporations. Smaller manufacturers simply could not compete, and were swallowed up. Start-up manufacturers have only one chance to compete; they need to hold the patent on a completely new product, and typically, large corporations are buying up the rights to those patents from the inventors, from the profits that conservatives are so desperate that they have. What happens to the jobs that those new patents might have created? They go overseas, merged with the large corporation’s other overseas interests.
That’s why when I hear President Obama talk about America becoming the Clean Energy supplier of the world, I nearly choke. Unless the free trade agreements are altered or torn up, every new patent for a clean energy product will be controlled by a large corporation, and it’s manufacture will occur overseas, where labor is cheaper and regulations cost less. Large corporations simply have no incentive to manufacture or produce goods in America. On the contrary, conservatives have created incentives for them to continue shipping American jobs overseas. It’s a cycle that can only be ended by legislation that either reduces or destroys these free trade agreements. But don’t hold your breath for President Obama to change the course of American business. He is already rushing headlong into a new free trade agreement with South Korea.
The larger these big corporations become, the more impossible it is to compete with them; which vastly reduces choice and quality, while concentrating the greatest proportion of wealth in the hands of the few Mega Corps. The same phenomenon has occurred in our Financial Industries. The repealing of the Glass Steagall act of 1934 allowed commercial banks, investment banks, and insurance companies to merge and sell each other’s products. The result was the formation of Banks-too-big-to-fail, and the most recent collapse of Wall Street. Local community banks cannot compete with these mammoths, and are bought up one by one, eliminating choice and quality, along with providing these huge corporations with more and more money that they use to influence legislation in their favor.
3. Profits that the wealthy and the corporations keep do not trickle down to America. Where is the job creation occurring in this world? In developing countries and in the East; namely China. And why are American companies there? Because free trade agreements removed the tarrifs and protections that enabled American workers to compete. There is simply no way around this one, primeval fact. It all began with tax cuts for corporations, higher and higher and higher demand for profit in lieu of quality and tradition, and removed protections for American workers. That is Pandora’s box. That is the legacy of Supply-side Economics and Free Trade.
4.The Race To The Bottom. If you are a business owner who regularly deals with consumers (in my case, clients), you’ll recognize this one immediately. Conservative economics dictate that the government deregulate, or to use Sarah Palin’s terminology, “Jus’ git outta our way!” The philosophy behind this is that free enterprise can regulate itself much better than government can. On the surface, that sounds almost right…almost true…almost sensible.
But if you own a business, in a field where there isn’t much regulation, I’ll bet you can name four or five competitors who are “snakes”. These “snakes” are business owners whose sole purpose for enterprise is to take as much money as they can from their customer for the cheapest possible investment. Whether that investment be materials, labor, information, or whatever, we all know who the snakes are. For some of us, it’s an amazement they are allowed to be in business at all. You know that if you are competing directly against them, they will “lowball” your perspective client to get the business, and then jack up their profit in after-the-sale charges or change orders. It never fails; and these snakes rarely lose.
It’s the ultimate race to the bottom; spawned from a mentality of profit at any cost, even if that means cheating your client. Even as you are reading this post, you know the names of businesses who did this as well as I do. Goldman Sachs. BP. Exxon. Haliburton. AIG. More? Of course…too many to count. That’s what happens when you deregulate. You cannot trust EVERY business person to believe in providing a fair product for a fair price. In fact, on Wall Street, that “fair price for a fair product” mentality is actually a minority, as it is amongst the Ultra Banks. When the largest amount of money you can conceive of is up for grabs; and when the business sector in which this money resides is deregulated, the only thing you can be certain of is the race to the bottom of the ethics ladder. People and entire corporations will sell their very souls to grab the largest piece of the pie, or be the biggest fish in the ocean. In fact, they justify their greed by saying that if they don’t “strive” to be number one, they’ll be swallowed up by a bigger fish. Easy mergers, easy derivatives, easy, cheap, overseas labor…all breed the race to the bottom of the ethics ladder.
No industry can truly regulate itself. Business owners who believe in the fair market and in providing the best of their service for a fair price know that when the mongooses of regulation are removed, the snakes multiply. That deregulation is a Basic Conservative Tenet is an undisputed fact. That snakes breed, multiply, and create serious and oftentimes catastrophic financial disasters when deregulation occurs is unarguable.
5. What Conservative Deregulation Really Means. Historically, Conservatives have been against some of the pillars of American Economics. For example, Conservatives fought against Social Security insurance, Medicare, the minimum wage, the forty hour work week, the banning of asbestos in building materials and the right of a citizen to sue an asbestos manufacturer for liability in asbestos-health related cases.
But what does deregulation really mean? In my industry, it meant repealing Glass-Steagall, the implosion of Wall Street, and the collapse of the American economy. In another industry that I worked for in the 1990’s, it would mean reduced building-safety codes, reduction of power for OSHA, reduced fire codes, and fewer protections for construction workers, all things that Conservatives can really get their arms around. After all, these industries can police themselves, according to Republicans like Palin and Newt Gingrich, and libertarians like John “I think unemployment benefits discourages people from looking for jobs” Stossel.
Ahhh yes…the race to the bottom in all of its glory. Do you have any idea how much it costs to install a fire alarm in every room of every building, or emergency, battery powered lighting in every hallway? Conservatives roll over in their graves for years at all of the “wasted” money. And why bother removing asbestos insulation from a building when you can ignore it? Besides, health effects from asbestos take years to develop, and by that time, the manufacturer will be out of business so…problem solved…no one to sue equals an equitable result for all parties, according to a conservative.
6. The money goes to the top and stays there. “Supply Side” economics is a policy that concentrates money at the top (corporations) in order for it to “trickle” down to the masses. The more money there is at the top, the more money that trickles down…or so they say. Something happened to that ,money, though, on the way to the bottom. In 1980, executive pay was only forty times greater than the average American salary. Today, executive pay is more than five hundred times greater, meaning all that money concentrated at the top is staying at the top; not trickling down. For most people, this would have been a no-brainer; but for conservatives (even the rank and file) it is the stuff of life. I can talk to any conservative today, and he will tell me that trickle down economics not only works, but has been proven to work by the stats. He’ll continue that line of reasoning until I show him the real stats; especially the fact that his boss is making five hundred times more than he is. He’ll defend that stat by telling me that there are more, higher paying jobs available now that at any time in our history; until I show him that the Bush-era lost three million jobs and they’ve never come back, that wages have been stagnant at best for the last fifteen years, and are diminishing when compared to inflation at worst.
The facts do not lie; conservatism, or as I called it earlier, Corporatism, does not work. It’s not just one part of it that isn’t working, it’s all of it put together. In truth, some conservative principles would work fine with our system of free enterprise. I believe that there really does need to be incentive for businesses to hire in economic downturns, and sometimes, tax cuts help. I believe that small businesses should receive greater tax breaks than large corporations, considering the fact that it is the small business sector that historically creates sixty percent of the new jobs coming out of a recession. But conservatives want to extend the Bush tax cuts for the wealthy, who over the last ten years, have created zero jobs. Yes, you read that correctly; job growth since the Bush tax cuts has been negative, not positive; so the tax cuts have had a zero, or negative impact on American job creation. Since they didn’t work, and cost our country trillions in new debt due to lost revenue, it’s time to do the smart thing, and end them.
From supply side to deregulation, from tax cuts for corporations that ship American jobs overseas to the race to the bottom, conservatism does not work. It’s not real conservatism, anyway. Real conservatism looks more like the Libertarian party. The brand of Republicans calling themselves fiscal conservatives today aren’t conservatives at all; they’re Corporatists, and their every word and act reveals this. Against extending unemployment benefits that add $30 Billion to the deficit, but for extending the Bush tax cuts that add nearly $1 Trillion to the deficit..every year. That’s right; if we ended the Bush tax cuts today, our actual deficit would be somewhere around $600 Billion, and all of the Bush years would have seen budget surplusses.
How’s that for conservative economics?
America needs to reverse this corporatist-conservative train immediately. Free trade needs to end. Regulation needs to force the snakes into the open where they can be stomped on. The Bush tax cuts need to be allowed to sunset. Small businesses need to be able to get decent credit on decent terms instead of allowing the Mega Banks to deny them access. Tax tarriffs on American companies who ship jobs overseas need to be implemented, and protections that allow the American worker to compete with the rest of the world must be re-implemented. Economic growth happens from the bottom up. That’s an undisputed fact. No one spends more moeny than middle-class America, who are no where near the top of the “trickle-down” pyramid.
In the end, that’s what corporatist-conservatism became; a giant pyramid scheme. It’s time to nuke that pyramid. We don’t have much time. Ω