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The Financial Elite's War Against the US Economy

Business  (tags: abuse, americans, business, consumers, corporate, corruption, debt, dishonesty, economy, energy, ethics, finance, farming, government, investments, labor, law, lies, marketing, money, politics, oil, society )

- 1935 days ago -
Today's economic warfare is not the kind waged a century ago between labor and its industrial employers. Finance has moved to capture the economy at large, industry and mining, public infrastructure (via privatization) and now even the educational system.

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Kit B (276)
Monday December 31, 2012, 8:28 pm
(photo credit: Common Dreams)

Today’s economic warfare is not the kind waged a century ago between labor and its industrial employers. Finance has moved to capture the economy at large, industry and mining, public infrastructure (via privatization) and now even the educational system. (At over $1 trillion, U.S. student loan debt came to exceed credit-card debt in 2012.) The weapon in this financial warfare is no larger military force. The tactic is to load economies (governments, companies and families) with debt, siphon off their income as debt service and then foreclose when debtors lack the means to pay. Indebting government gives creditors a lever to pry away land, public infrastructure and other property in the public domain. Indebting companies enables creditors to seize employee pension savings. And indebting labor means that it no longer is necessary to hire strikebreakers to attack union organizers and strikers.

Workers have become so deeply indebted on their home mortgages, credit cards and other bank debt that they fear to strike or even to complain about working conditions. Losing work means missing payments on their monthly bills, enabling banks to jack up interest rates to levels that used to be deemed usurious. So debt peonage and unemployment loom on top of the wage slavery that was the main focus of class warfare a century ago. And to cap matters, credit-card bank lobbyists have rewritten the bankruptcy laws to curtail debtor rights, and the referees appointed to adjudicate disputes brought by debtors and consumers are subject to veto from the banks and businesses that are mainly responsible for inflicting injury.

The aim of financial warfare is not merely to acquire land, natural resources and key infrastructure rents as in military warfare; it is to centralize creditor control over society. In contrast to the promise of democratic reform nurturing a middle class a century ago, we are witnessing a regression to a world of special privilege in which one must inherit wealth in order to avoid debt and job dependency.

The emerging financial oligarchy seeks to shift taxes off banks and their major customers (real estate, natural resources and monopolies) onto labor. Given the need to win voter acquiescence, this aim is best achieved by rolling back everyone’s taxes. The easiest way to do this is to shrink government spending, headed by Social Security, Medicare and Medicaid. Yet these are the programs that enjoy the strongest voter support. This fact has inspired what may be called the Big Lie of our epoch: the pretense that governments can only create money to pay the financial sector, and that the beneficiaries of social programs should be entirely responsible for paying for Social Security, Medicare and Medicaid, not the wealthy. This Big Lie is used to reverse the concept of progressive taxation, turning the tax system into a ploy of the financial sector to levy tribute on the economy at large.

Financial lobbyists quickly discovered that the easiest ploy to shift the cost of social programs onto labor is to conceal new taxes as user fees, using the proceeds to cut taxes for the elite 1%. This fiscal sleight-of-hand was the aim of the 1983 Greenspan Commission. It confused people into thinking that government budgets are like family budgets, concealing the fact that governments can finance their spending by creating their own money. They do not have to borrow, or even to tax (at least, not tax mainly the 99%).

The Greenspan tax shift played on the fact that most people see the need to save for their own retirement. The carefully crafted and well-subsidized deception at work is that Social Security requires a similar pre-funding – by raising wage withholding. The trick is to convince wage earners it is fair to tax them more to pay for government social spending, yet not also to ask the banking sector to pay similar a user fee to pre-save for the next time it itself will need bailouts to cover its losses. Also asymmetrical is the fact that nobody suggests that the government set up a fund to pay for future wars, so that future adventures such as Iraq or Afghanistan will not “run a deficit” to burden the budget. So the first deception is to treat only Social Security and medical care as user fees. The second is to aggravate matters by insisting that such fees be paid long in advance, by pre-saving.

There is no inherent need to single out any particular area of public spending as causing a budget deficit if it is not pre-funded. It is a travesty of progressive tax policy to only oblige workers whose wages are less than (at present) $105,000 to pay this FICA wage withholding, exempting higher earnings, capital gains, rental income and profits. The raison d’être for taxing the 99% for Social Security and Medicare is simply to avoid taxing wealth, by falling on low wage income at a much higher rate than that of the wealthy. This is not how the original U.S. income tax was created at its inception in 1913. During its early years only the wealthiest 1% of the population had to file a return. There were few loopholes, and capital gains were taxed at the same rate as earned income.

The government’s seashore insurance program, for instance, recently incurred a $1 trillion liability to rebuild the private beaches and homes that Hurricane Sandy washed out. Why should this insurance subsidy at below-commercial rates for the wealthy minority who live in this scenic high-risk property be treated as normal spending, but not Social Security? Why save in advance by a special wage tax to pay for these programs that benefit the general population, but not levy a similar “user fee” tax to pay for flood insurance for beachfront homes or war? And while we are at it, why not save another $13 trillion in advance to pay for the next bailout of Wall Street when debt deflation causes another crisis to drain the budget?

But on whom should we levy these taxes? To impose user fees for the beachfront reconstruction would require a tax falling mainly on the wealthy owners of such properties. Their dominant role in funding the election campaigns of the Congressmen and Senators who draw up the tax code suggests why they are able to avoid prepaying for the cost of rebuilding their seashore property. Such taxation is only for wage earners on their retirement income, not the 1% on their own vacation and retirement homes.

By not raising taxes on the wealthy or using the central bank to monetize spending on anything except bailing out the banks and subsidizing the financial sector, the government follows a pro-creditor policy. Tax favoritism for the wealthy deepens the budget deficit, forcing governments to borrow more. Paying interest on this debt diverts revenue from being spent on goods and services. This fiscal austerity shrinks markets, reducing tax revenue to the brink of default. This enables bondholders to treat the government in the same way that banks treat a bankrupt family, forcing the debtor to sell off assets – in this case the public domain as if it were the family silver, as Britain’s Prime Minister Harold MacMillan characterized Margaret Thatcher’s privatization sell-offs.

In an Orwellian doublethink twist this privatization is done in the name of free markets, despite being imposed by global financial institutions whose administrators are not democratically elected. The International Monetary Fund (IMF), European Central Bank (ECB) and EU bureaucracy treat governments like banks treat homeowners unable to pay their mortgage: by foreclosing. Greece, for example, has been told to start selling off prime tourist sites, ports, islands, offshore gas rights, water and sewer systems, roads and other property.

Sovereign governments are, in principle, free of such pressure. That is what makes them sovereign. They are not obliged to settle public debts and budget deficits by asset selloffs. They do not need to borrow more domestic currency; they can create it. This self-financing keeps the national patrimony in public hands rather than turning assets over to private buyers, or having to borrow from banks and bondholders.

By: Michael Hudson | Common Dreams

Michael Hudson

Michael Hudson is a research professor of Economics at University of Missouri, Kansas City, and a research associate at the Levy Economics Institute of Bard College. His latest book is “The Bubble and Beyond.”

Nancy M (197)
Tuesday January 1, 2013, 9:11 am
Interesting and I have not yet finished reading. I do note that last year I read the Jungle. It is all there- far more so than just about the meat industry. I have often thought that we were heading back there. This article indicates, however, far more than just The Jungle type scams are going on today. And yet, they will ALWAYS blame the victim. While not every "victim" is truly a victim....

Kit B (276)
Tuesday January 1, 2013, 9:44 am

Thanks for that insightful comment, Nancy. I too have decided that it is time to go back and read again many books from the past. "The Jungle" by Upton Sinclair is but one of many I currently have on my list to read again. I remember also reading that it was J H Heinz that gave a copy of that book to T R, which began the first of the reforms to temper the over indulgence of corporate enterprise to the grave determent to the people. Some may call that Socialism, to interfere in any way with corporate enterprise, but it was never the goal of the founding father of capitalism [Adam Smith] that corporations should have so much free reign and power over the government and the people.

Nancy M (197)
Tuesday January 1, 2013, 9:52 am
The book does ened with quite a long pitch for socialism. But it was enlightening up to that point.

Yes, many other classic like that that I should read too. Many are free on Kindle. I assume the same is true for Nook.

Mary Donnelly (47)
Tuesday January 1, 2013, 3:23 pm
Thanks Kit--another great post and comments.

JL A (281)
Tuesday January 1, 2013, 4:00 pm
Yes Kit--the books reminding of those historical mistakes are worth revisiting as history is repeating itself (those with power never give it up easily and will always strive to get it back).

Jelica R (144)
Tuesday January 1, 2013, 4:03 pm
A bit of relief a middle class got in 1930-ties was a response to communist revolution in USSR. Of course, rallies and union actions were significant, but it won't be enough if Elites were not frightened of a similar revolution knocking at their doors. So, when communism was over, the reason to pacify working masses has gone. Unions and working class were gradually striped of many rights won in hard battles and paid with sacrifices of many. Globalization took it further by exporting middle class professional jobs and slashing wages. A time is ripe to renew a social contract. Alas, I am not aware of any treat to Elite's position now which could match communist 1917. revolution, and I have no idea what is needed to change this grim situation. Luckily, we humans are a resourceful species and, with many people working to find a solution, something will eventually emerge. Usually it does.

Jelica R (144)
Tuesday January 1, 2013, 4:08 pm
Correction: "... *threat* to Elite's position ...", of course.

Phil Hanson (21)
Tuesday January 1, 2013, 4:55 pm
There's no green star for Kit, today, but that's not my fault. :-) Good post, Kit!

Yvonne White (229)
Tuesday January 1, 2013, 5:27 pm
Time to Hugo Chavez their asses & Nationalize!;) We KNOW where they live..thank you Google maps!;)

Jelica R (144)
Tuesday January 1, 2013, 8:42 pm
LOL, Yvonne... yet, if they are subsidized, under-taxed, over-paid... it makes sense to give back - one way or another.


Dorothy N (63)
Tuesday January 1, 2013, 9:30 pm
Thanks, Kit - a truly fabulous find!

The following vividly illustrates points made in the article regarding how the corporations are acting through American government officials - now an entire political party - representing them.

Michigan's Republican Governor Rick Snyder Signs Draconian Bill Into Law
Gov. Rick Snyder signed the much despised emergency financial manager legislation in to law today, giving him far too much power over the people in his state. Even the power to ignore the will of the people and the votes they cast. ...

Michigan's Hostile Takeover
A new "emergency" law backed by right-wing think tanks is turning Michigan cities over to powerful managers who can sell off city hall, break union contracts, privatize services—and even fire elected officials.

—By Paul Abowd, Center for Public Integrity
| Wed Feb. 15, 2012

Updates, 4/26/12: The Michigan Board of State Canvassers has rejected the more than 200,000 signatures collected in support of holding a referendum on the state's emergency manager law. The board's two Republican members said the petitions used the incorrect font size. ...

... When the city of Pontiac, Michigan, shut down its fire department last Christmas Eve, city councilman Kermit Williams learned about it in the morning paper. "Nobody reports to me anymore," Williams says. "It just gets reported in the press." This was just the latest in a series of radical changes in the city, where elected officials such as Williams have been replaced by a single person with unprecedented control over the city's operation and budget.

Gov. Rick Snyder put Louis Schimmel in charge of Pontiac last September, invoking Public Act 4, a recent law that lets the governor name appointees to take over financially troubled cities and enact drastic austerity measures. Under the law, passed last March, these emergency managers can nullify labor contracts, privatize public services, sell off city property, and even dismiss elected officials.

Schimmel got to work quickly, firing the city clerk, city attorney, and director of public works and outsourcing several city departments. City fire fighters were told that they would be fired if their department was not absorbed by Waterford Township's. Schimmel has proposed putting nearly every city property up for sale, including city hall, the police station, fire stations, water-pumping stations, the library, the golf course, and two cemeteries.

Williams and his six colleagues on city council have been stripped of their salary and official powers. "Nearly the whole city has been privatized," he laments.

Michigan's emergency-manager law is the centerpiece of the fiscal program enacted by state Republicans after they took over the Legislature and governor's mansion in early 2011. The law's supporters say it allows for a more efficient and nimble response to the budget crisis confronting local governments in the wake of the housing crash and near collapse of the auto industry. Critics are seeking to block and repeal what they call an illegal power grab meant to usurp local governments and break up public-sector unions.

"We haven't seen anything this severe anywhere else in the country," says Charles Monaco, a spokesman for the Progressive States Network, a New York-based advocacy group. "There's been nothing in other states where a budget measure overturns the democratic vote." ...

It seems that Michigan is in debt because of Republican policies like this:

Tax the POOR! – Michigan’s tax time bomb begins to explode
By Eclectablog on December 21, 2012

The impact of new Republican taxes in Michigan is about to get very real

Back in February, I wrote piece titled “The tax timebomb that explodes in Michigan in 2012 is MUCH worse than you thought”. The piece got a lot of attention, primarily because it was a big news flash that in order to pay for the billions in giveaways to Michigan corporations, Michigan Republicans raised taxes on over half of the people in Michigan. And, make no mistake, true to (Republican) form, the impact was far greater on lower income Michiganders than on our wealthiest citizens. ...

The Republicans maintained their stranglehold on the country and Federal budget - thereby controlling policy and pretty much everything else - by keeping a Congressional majority, despite receiving fewer votes.

Michigan Republicans move to consolidate their power & exploit their criminal 2010 gerrymandering
By Eclectablog on December 18, 2012

Maintaining a permanent Republican majority the easy way

Yesterday, delegates to the Michigan Electoral College cast Michigan’s 16 votes for Barack Obama. The President won Michigan handily, beating Mitt Romney by nearly 10 points. However, Republicans still maintain control over our state legislature and hour Congressional caucus. How is this possible?

Gerrymandering. ...

... [Chart via The Maddow Blog]

Despite having gotten 52.7% of the votes cast in for state House seats in the 2012 election in November, Democrats still only have 5 of the 14 seats in the U.S. Congress. And they are also still in the minority in the state House of Representatives and the state Senate. This outrageous impact of gerrymandering isn’t confined to Michigan either. As Will Femia’s piece at The Maddow Blog and another, equally important piece at Mother Jones show, there are other states reeling from the criminal level of gerrymandering that took place in 2010.

Well, as you might imagine, Republicans are going to let this artificial majority go
unexploited. They are now working to change how several states including award their
electoral votes in presidential elections...

The degree of manipulation used by the corporate-owned media is shown in the right-wing hysteria over the 'tyrant Obama who stole the election' and against whose administration, it's claimed, the people must be armed with assault weapons for their own protection ...

Lois Jordan (63)
Wednesday January 2, 2013, 3:06 pm
Excellent article. Much thanks for posting, Kit. Just further explains the new, "Trickle-Up" economy that began with the Bush Regime, but hasn't yet been cut off at the knees. This is helpful in explaining why the wealthiest aren't "job creators," but are in fact, Job Destroyers.

Quanta Kiran (67)
Wednesday January 2, 2013, 10:26 pm

Suzanne L (98)
Thursday January 3, 2013, 1:51 pm
TY Kit. Good article.

Stephen King (0)
Friday November 29, 2013, 1:24 am
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