Tuesday, June 9, 2009

How the Economy Tanked and How It Could Be Saved

In the Good Old Days

How did the American economy go into a nosedive? In the fifties and sixties it was easy for anyone to get a job, a mortgage and to support a family. Just about anything you could see, hear or touch was made in the U.S.A. Manufacturers, buyers and sellers were American. You could make a living just about anywhere in the country, whether you had a small business, practiced a profession, worked in a factory or as a salesclerk. Whatever was produced in factories could be sold in stores or dealerships and there were plenty of buyers for no-matter-what. As almost everybody's credit was good, business kept up a steady pace. Producers could rely on a steady stream of consumers, and consumers were comfortable living within their means.

Mutual Respect and Loyalty

Going into retirement was no problem. Companies large and small had pension plans. Unions had made sure that the employees of large companies would get decent retirement packages, and smaller companies followed suit because they wanted to be competitive. From large corporations down to local businesses, management knew and appreciated their staff. In general those on top respected and valued the loyalty of those at the middle and lower levels. Workers and white collar staff trusted their supervisors, and they were proud of working for their employers whether their company was GM or a local hardware store.

Dog-Eat-Dog Comes into Fashion

Then, what happened? Even though the country began to be polarized through the Vietnam War by the end of the sixties, basic underlying values of decency were still in place in business, social and political arenas until the late seventies. By then a conservative cloud began to settle over the country. By then a steady drumbeat blaming all social ills on the power of the unions filled the airwaves. A dog-eat-dog philosophy became more and more popular. People on welfare were labeled as parasites. And for the first time since the great depression there was ever-increasing homelessness. Where earlier it was considered against the law for someone to sleep on the streets, getting the sleeper arrested for “vagrancy,” for the homeless to sleep on the streets was now considered unfortunate but inevitable. Food and shelter were once considered a right based on American tradition. Everyone could still be fed because of the food stamp program, but shelter could now only be guaranteed if people managed "to measure up." Those who insisted it was only decent to house the homeless were dismissed as "bleeding-heart liberals.”

Getting Rid of Unions

The dog-eat-dog mode also became prevalent in business and industry. Where previously corporate management would at times be annoyed by the ways of unions, management now fought to destroy unions where they already existed and to snuff out anyone who dared to start unions in places that had none. The annihilation of the air traffic controllers' union by the Reagan administration is a key example of the destruction of a union. Wal-Mart's hostility against the formation of a union presents a perfect example of how a corporation prevents employees from having a collective representation in the first place.

Corporate Raiders Take People's Retirements

But dog-eat-dog behavior became commonplace not only between the haves of the corporate world and the have-nots outside of it, it also became the keynote among corporations in dealing with one another. Before the mid-seventies there were few if any hostile corporate takeovers. Such takeovers were no more acceptable than stealing gardening equipment from a neighbor. Now a company would take control of another simply to get the targeted company's assets, and if an employee of the acquired firm lost his retirement as a result, the loss would be recorded as nothing more than a victory for the bottom line of the raiding company. By any standard of decency, before this time taking people's retirement money would have been considered nothing less than an act of theft. In the gangland of corporate competition, however, it was now considered to be nothing more than well-earned spoils going to a well-deserving victor.

Eliminating Cost Factors

Today, the rich and/or famous have become role models for the population on the whole; anyone wealthy is considered more worthy of respect than anyone less so. In the never-ending quest for their version of “greatness,” the world's greediest stop at nothing. And this is the source of America 's economic decline. In an endless pursuit of money, corporate captains look for ways to cut costs benefiting only themselves, their peers and investors. How? By simply acting as if employees, regardless of how long they have been with the company, are nothing more than expenses, and they feel they are doing the world a service as they eliminate these "cost factors” by sending American workers' jobs and equipment to China, India or the Philippines. Having done so, corporate officers take millions and millions in salaries and bonuses. To add insult to injury these executives are treated like stars by business and investment media.

Building Mansions

What does the monied elite do with the cash they save by laying off American workers and replacing them with quasi-slave labor in China ? If they don't use the money to buy up other companies where the same cycle is repeated, they use it to build themselves ever larger mansions, or they place the money in overseas tax shelters, cheating the American public out of much-needed tax revenues.

Fewer and Fewer Jobs

Now what about the employees who are out of work? A small minority is lucky enough to get new jobs. During the past eight years there have been other “lucky” ones who could survive because they could get home equity loans as long as the real estate market continued to go up and up--until it collapsed. Others kept looking for jobs only to find out there is no work because most other companies are also sending jobs out of the country. The result: Fewer and fewer jobs and fewer and fewer houses bought. The job market collapses, so does the real estate market, and people who were living on borrowed money suddenly find that banks are demanding that they pay up. Without cash reserves they either end up with a foreclosure or a bankruptcy or both.

When the Money Runs Out

How do people manage without an income? Some rely on unemployment benefits until they run out. Then they exhaust their cash savings. Next they empty out their 401k retirement accounts, and when these last reserves are gone they move in with friends or sleep on the couch of close or distant family members as long as they are welcome. And in the end they have no choice but to sleep in cardboard boxes on the streets. Can the government help them out? As long as there are funds, federal, state and local governments can create jobs through programs like public works projects or through the improvement of existing services. But governments lack money because the people who were laid off no longer pay taxes, and without taxes government cannot do anything.

So how do we cope with fewer and fewer people having an income? If anybody could help it would be those on top of the pyramid, the rich and the very rich, including the same corporate chieftains who have given themselves eight figure annual salaries while cutting their employees' jobs.

The Rich Give Advice

But when asked, mighty money-men tell politicians that they shouldn't ask the rich to give up money to put the economy back on its feet. Stop government "giveaways" to the poor, they say. Cut "entitlements" like Medicaid, housing for the poor, subsidized bus service etc. They point out that they, the executive class, succeeded in becoming more prosperous by reducing costs by cutting salaries and benefits of lower ranking staff. Government can do the same! All that is needed is to stop "handouts" to the needy, the losers that lost because they did not "measure up?"

The prosperous may mean well, but as misery spreads and more and more become anonymous and homeless, it becomes impossible to take anything from those who have nothing. Maybe you could save money by stopping the food stamp program or by refusing emergency medical care to the uninsured, but could you get enough of the public to accept increasing numbers of people dying of disease and hunger in the streets?

Can the Rich Do with Less?

True, not all of the prosperous are hard-nosed conservatives--there are some "bleeding-heart liberals" among them-- but most may not want the one workable remedy that could put the economy back on its feet. They don't want to see that the only way to turn the economy around is to tax those who have money. You cannot get taxes from the middle and lower strata. They have been squeezed to the limit. True, as those who have plenty always want more, it may be painful for them to have less. While it may hurt everyone to give up anything at all, is it more painful for one with twenty million a year to give up eighteen than for a family with less than ten thousand to lose the roof over their heads?

After the Fire

But it is an illusion for the wealthy to think that the decline in living standards of the general public will not affect them. Once people have given up health-care, police and fire protection, it is doubtful that the privileged, living in their enclaves, will be spared from the worldwide pandemics, rampant crime waves or merciless fires raging out of control that are likely to occur. Dwellers of enclaves may realize they are still part of the larger community. Imagine yourself as one of those dwellers. Imagine you have a home and a major fire has broken out. When the fire has ceased to burn, you learn that all homes but your own were destroyed. Though you are happy your place was saved, would you enjoy looking at the charred remains of your neighbors' houses?


Anonymous said...

Hi Howard,

I enjoyed this entry very much. Depressing but sadly true. I was just reading a news article about how the quality of life in Vienna is so much higher than anything we have here in the states. People are supported by their govt. and generally very happy with their lives, according to a recent analysis. I think Austria is the perfect example of a country that has not chosen the dog-eat-dog mentality and it shows when one visits there. Of course there are a lot of problems there too but I wonder about the possibilities if Obama can get universal healthcare passed. Apparently, 40 percent of all bankruptcies are causes by healthcare costs. That number is shocking to me. I am hopeful that America can change and that Obama's message of living within your means will take hold again.


Anonymous said...

Very thoughtful and depressing. What's the solution? And I am curious, is this somehow cyclical? I mean, were similar phenomena occurring during the Great Depression?
In my latest microeconomics course we learned that the key element of whether people support social welfare programs (other than for self-interest reasons) is the extent to which they believe that effort versus luck drives our outcomes. It is not surprising to me that successful people want to believe they have earned their success through their effort and ability as opposed to owing it largely to luck. As a libertarian colleague of mine once commented, the most compelling case for welfare programs is to ask what policies one would want in place BEFORE one knew what situation one was to end up with. Even Warren Buffett cited this as his reason for being a Democrat. If you knew you had a good chance of being born into a poor family with uneducated parents, would you still believe that you would not need welfare if you simply put in the necessary effort?
Another thought entirely is that I heard recently that 40% of bankruptcies are the result of healthcare costs.

Anyhow, as you can see, I found this a very thought-provoking entry and thank you for posting it. I hope more people will think about these fundamental issues.



Anonymous said...

Very interesting. Were the policies of the 50's brought about by the great depression? Some say there is no true altruism, and until recently our system had great support partly I think because most believed they too could reach the top - mansions, beautiful cars. Why have public programs - health care, welfare worked in european countries? Expectations must be vastly different there, and why is our mindset so different? Just wondering... -IR

Anonymous said...


You put your finger on the core of the problem. Successful people claiming they have "earned" what they have gives them greater happiness through enhanced self-esteem. It's a familiar mechanism: you become worth more as you depreciate the value of others. This is especially true for people who underneath it all know they are not worth all that much, so to hide the truth from themselves they vilify others, and believing their vilifying assumptions about others they feel themselves lifted in turn. --Howard

Anonymous said...

Yes, I believe the depression influenced the policies of the fifties. Any traumatic experience will give rise to prevent the repetition of it by both those who experienced it directly and those who merely witnessed it. World War II did the same thing for Europe.

No, I don't agree there is no true altruism. I believe the denial of altruism is a myth perpetrated by those who don't see the needs of others (aka sociopaths). It is in the interest of the world's narcissists to deny the existence of altruism, so that they will never be measured by standards of compassionate behavior. As to our mindsets being different from that of the Europeans, it's probably the result of right-wing radio and TV talk show hosts and their messages of contempt and hatred, which, to the best of my information, does not play as much of a role in Europe. --Howard

Anonymous said...

Hey howard, Jonathan, I really enjoyed this, though happy endings or lights at the end of the tunnel must not have been your aim, which is why I think the word 'depressing' has been scattered in the comments. Probably for very good reason too. The whole concept of the 'material force' becomes very real in these circumstances, where greed knows no limits, people unawares of our common humanity, and that we're all 'swimming to the other side,' hopefully justice will take place before we get to that point.

Anonymous said...

I enjoyed your entry, and that of others’, as well. Interestingly, here in Central Eastern Europe there is a completely different setting of roles – if I may say so. The explanation of the recent crises situation brought about by a change in morals and business ethics you hear by right wing, and first of all by extreme right political forces. The left wing, Socialistparties, and the leftist Liberals do not dare to explain the recent crises with moral issues as the opposition would accuse them with communist legacy. Thus, interestingly they are the most fierce defendants of capitalist values and they share the belief that only very tight austerity measures can save the country from collapse. Very odd, I believe, but there is no choice, these countries are now at the mercy of international markets and financial institutions.


Karen said...

Well-written and thought-provoking article. You make some interesting points. I was living in Wash., D.C. when St. Elizabeth's hospital was closed during the Reagan administration, and suddenly it seemed the term "homeless" was born. (When I was growing up it was the less pejorative "hobo"; I remember dressing as a hobo for Halloween as a kid--can you imagine having a "homeless" costume today?). But I don't agree entirely with your depiction of life in the "good old days", or even that the "old days" were really that good. It's been shown that historically people refer back to past days as better than those today, that generations going back many centuries have generally fondly believed that life in the past was better--it's human nature.
Not to say you haven't illuminated some important truisms, particularly about America's manufacturing past and todays changed workplace. BTW, don't know if you read about the recent Supreme Ct decision--Clarence Thomas, to thank, of course--that now makes it almost impossible to prove age discrimination? As if corporations needed more knives to continue whittling away worker's rights (maybe that Young Worker's Liberation League I joined briefly in college wasn't so misdirected after all...). Yes, things are getting worse today on many fronts as you aptly point out, even though conspicuous consumption (Veblen) preceded the 80's Reagan/Gordon Gekko days. Anyway, you and those commenting may wish to read an incredible book, "Field Notes on the Compassionate Life: A Search for the Soul of Kindness," by Marc Ian Barasch. I'm about to read it a second time. Thanks again for your good thoughts!
Karen Joy

Anonymous said...

Karen, Thank you for your insightful commentary. I won't deny that in many ways I am oversimplifying. For one thing I did not point to the incredibly important contributions on the part of the unions in setting work place standards throughout the twentieth century. Yes, I am familiar with Veblen and conspicuous consumption. An interesting series on the topic is the BBC series "Century of the Self," which shows how big PR firms use the findings of Freud to get people to consume to benefit the corporations. You can watch it free on youtube.