Screwed the Undeclared War Against the Middle Class (5 page)

BOOK: Screwed the Undeclared War Against the Middle Class

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To bring back the middle class, we must reinstitute common-sense classical economics: we must pay a living wage to working people, protect U.S. industries, and reinstate progressive taxation so the very wealthy pay a share of their income that reflects their heavier use of the commons and their increased access to the engines of wealth generation.

Government-spending Stimulus

Our annual savings rate in the United States has recently hit a low of –0.5.
¹³You don't usually see a number like that in a book about the modern U.S. economy. That negative number means not only that people aren't saving but that they're spending what savings they have. The last time we saw an annual savings rate in negative numbers like that was in 1933—the trough of the Great Depression.

The unemployment rate has hovered at 4.9 percent, but the government figures don't include "discouraged workers" who want jobs but have stopped looking. When you add that category, you get an unemployment rate of 8.3 percent.
¹⁴That's creeping into dangerous territory. If you considered underemployment in the same category, we'd be back in the Great Depression right now.

So what's keeping the U.S. economy afloat? Turns out, not much.

First, there's personal debt. The American middle class is more in debt than ever before in the history of this nation. While cons like to say "more people own their homes than ever before,"
that's only true if by "own their homes" you mean "are massively in debt to a bank instead of having a rental contract." Ditto for people "owning their own cars." Add to that the average credit card debt per household, which is now more than 2004's record of $9,312—up a whopping 116 percent over the past 10 years.
¹⁵

In large part this personal debt has been sustained by a single force—the steady increase in the "value" of housing, particularly since Alan Greenspan threw interest rates into negative territory in 2003–2004 to help George W. Bush get reelected. People refinanced their homes, "extracted equity," and spent it as if it were income—fueling consumer demand and keeping the economy afloat. But as a result, Americans are now deeper in debt than ever, and many with adjustable-rate or interest-only mortgages are being wiped out as interest rates rise back up into normal territory.

While increasing personal debt has accounted for some of the appearance of a stable American economy, a much larger factor has been government borrowing and war spending. In 2005 the Bush administration was borrowing more than $2 billion per day—and spending nearly all of it back into the U.S. economy. This spending—a good chunk of it going to cronies of Bush and Cheney for rebuilding Iraq and New Orleans—provided a cosmetic stimulus that helped make the economy appear to be working. It was similar to how the family next door might seem like they're living large—until you discover they're $60,000 in debt on twenty different credit cards. In the case of our nation, Bush Jr.'s credit card bill is for more than $4,000 billion ($4,000,000,000,000), on top of Reagan's and Bush Sr.'s $3 trillion debt—a bill that will be paid by our children and our grandchildren.

One of the most tragic parts of Bush Jr.'s borrowed-money government-spending stimulus was that it was for defense spending. Although FDR used deficit spending (albeit a fraction of what Reagan or Bush has done) to finance such New Deal enterprises as the Works Projects Administration (WPA), he used that money to build core parts of America's infrastructure—roads, bridges,
dams, reforestation, urban reconstruction, and water and sewage systems. Much of it is still producing a return on investment more than seventy years later. Bush's spending, however, leaves only soldiers with post-traumatic stress disorder, a depleted-uranium-contaminated wasteland in the Middle East, and a few dozen fat cats in the defense industry.

Government spending can be used to rebuild the middle class. When government builds a bridge or a school or a water treatment plant, that infrastructure strengthens communities and lasts for generations, providing a continuous and growing return on the initial investment. Government can invest in jobs, providing workers with good wages that they will reinvest in consumer goods. Government can provide workers with a social safety net and with high-quality public education that will help them climb out of poverty and into the middle class. Government can regulate business, creating a level playing field for workers. It worked well between 1935 and 1981, and it could work again.

Along with increasing personal debt and a deepening government-spending deficit, the American economy has been pushed by a growing trade deficit (also known as the "balance of payments" debt). In 2005 we bought more than $700 billion more in goods and services from other countries than we sold (and more than $200 billion of that was just with China!). We've been doing this pretty constantly ever since the mid-Reagan years, when he began hollowing out the core of American manufacturing, a process that kicked into warp speed when Bill Clinton pushed through and signed NAFTA and the General Agreement on Tariffs and Trade (GATT).

The result is that countries all over the world are sitting on dollars we've paid them for things we bought, but they don't want to buy anything back from us because we no longer manufacture TVs or computers or shoes or much of anything. So what do they do with the money? They buy us. They buy our remaining manufacturing companies, our ports, our banks, our forests, our landmark buildings, and our real estate. Chrysler is gone, as is John
Hancock Insurance. Ditto for Wells Fargo Bank and what was the Helmsley Building in New York.

Reagan, Bush Sr., Clinton, and Bush Jr.—and twenty-five years of a largely "conservative" (that is, "con") Congress—have quite literally sold off America in exchange for enough money to keep on buying consumer junk to stock the shelves of Wal-Mart and other "value" retailers of foreign goods.

The nonprofit
www.EconomyInCrisis.org
offers figures compiled from IRS tax returns that show that large chunks of "America" are no longer owned by Americans (see the list on pages 23–24).

Cons call this "insourcing" and tell us it's a good thing. "Toyota is giving Americans jobs by building factories here!" they shout with a smile as they give Toyota another huge tax break (paid for by its workers) to site a factory. "Your company has been bought by the Saudis and the ports are owned by the British, but your paycheck is still just as good!" they reassure us.

But there's a reason why companies do business: to make a profit. And when the company is an American company, that profit typically stays in America, where it's used to build more factories or buy more advertising or pay better salaries. It contributes to economic growth. It keeps going around and around in our economy, getting taxed in each cycle and thus providing for good schools, safer roads, and decent salaries for our cops and firefighters.

When foreign-owned companies do business in America, however, they do so with the express purpose of taking their profits home. Paine Webber's profits now go to Switzerland, Amoco's go to the United Kingdom, and Transamerica's go to the Netherlands. Chrysler's profits go to Germany; ditto for Random House's and Westinghouse's.

The con has gone global and is even now starting to hit some western European countries that have been seduced by the so-called free-trade sales pitch for increased corporate power and decreased citizens' rights.

Percentage of Foreign Ownership of Specific U.S. Industries

Sound-recording industries 97%