A feudal financial state: How the economy was engineered to crush everyone while enriching a few
“Socialism is the fire department saving your house. Capitalism is the insurance company denying your claim…” – Internet Meme, Unknown
The reason everybody is so angst-ridden about the economy is because we all have the wrong idea about what it is supposed to do and how it’s supposed to work. Most of us have a quaint, 19th century idea about free markets and all that up-by-the-bootstraps Horatio Alger stuff. You know, work hard, play by the rules, keep your nose clean, and you will do well. That is certainly the cultural myth our society bathes us in.
But that is not how things actually work. It is the dissonance between how we imagine things work and how they really work that causes our perplexity and angst, and rage. It is also that dissonance that has been so deftly manipulated by Donald Trump and given rise to Trumpism.
Forty years ago, around 1980, the uber-wealthy decided they wanted to get their money out of the economy. There was too much political turmoil (Vietnam, Watergate), too much economic turbulence (Arab oil embargos, stagflation), and too high of a cost of production (high wages, environmental and labor protections).
They wanted to take their money somewhere where they could pay people 1/20th what they paid here – less than $1 an hour, where there were no environmental or labor laws, where the workforce was plentiful, hungry, and docile, and where politicians could be bought cheap. So, they engineered a controlled demolition of the U.S. economy. The plan had two elements.
In the first part, they began systematically de-industrializing what had been the mightiest economy in the history of the world—the same economy that had almost single-handedly won World War II, the greatest industrial enterprise ever undertaken. They dismantled tens of thousands of factories, creating what became known as the “Rust Belt.” They literally sent factory designs to east Asia, rebuilt them, and when they were ready to go, flipped the switch, shut down here, and opened up there. The consequences were devastating.
Tens of millions of white, working-class factory workers were put out of work, losing their high-paying jobs. Forever. With nothing to replace them. Major cities became hollowed out hulks of a once-glorious industrial past, bywords for decline. Think Detroit, Pittsburgh, Cleveland, Cincinnati, Milwaukee, Buffalo, Toledo, and more. The data tell the story.
In 1980, manufacturing accounted for about 22% of the U.S. economy. By 2012, just 30 years later, it contributed only 12%, an astonishingly rapid decline in historical terms, effectively a controlled demolition. The U.S. trade deficit, where we buy more from other countries than we sell, went from $19 billion in 1980—pretty close to a rounding error—to what looks to be almost $1 trillion this year. That is money that is sent directly out of the country to buy other countries’ goods. $1 trillion.
The second element of the controlled demolition of the economy was that the U.S. embarked on a plan to shift massive shares of U.S. income and wealth from the working and middle classes to the already wealthy. This is what was called “supply side economics.” It was Ronald Reagan’s signature economic policy when he ran for president in 1980.
The mythical story was that if we all gave more of our money to the already wealthy, they would invest it for us and the resulting economic boom would more than pay back the transfer, even after taxes and inflation. It sounded too good to be true. It was.
Taxes on the highest income brackets were lowered from 71% to 38%, essentially cut in half. Importantly, there was no requirement that the beneficiaries actually invest their new-found gains in the United States. So, they did not. They invested them in the those east-Asian countries that were the beneficiaries of the deindustrialization.
In the first full year under Reagan’s plan, the economy shrunk by 2.1%, the greatest shrinkage since the Great Depression. Factory workers were out of work, so they were not paying taxes. And, because the wealthy were paying so much fewer taxes, the government didn’t have enough income to cover its expenses. It had to make up the difference by borrowing. That is what is called a “budget deficit.”
Jimmy Carter’s last budget deficit was $78 billion. Reagan’s first full-year budget deficit, after his supply side tax cuts were put in place, was $128 billion, a 64% increase. The next year, 1983, the deficit exploded again, to $208 billion, another 63% increase. By 1992, when Reagan’s vice president, George H.W. Bush finished office, the deficits were running $300 billion a year.
Of course, annual deficits accumulate into the national debt. When Reagan took office in 1981, the national debt (the accumulation of all the annual deficits since the country began) was $1 trillion. In 1993, just 12 years later, when George H.W. Bush left office, it was $4 trillion. Think about that.
Over 204 years, paying off the costs of the American Revolution, the War of 1812, the Civil War, building out the entire continent, fighting World War I, surviving the Great Depression, fighting and winning World War II, and winning the better part of the Cold War, the country only had to borrow $1 trillion. Then, in the next 12 years, years of peace and prosperity, that debt quadrupled, to $4 trillion.
These deficits and this debt benefit the very wealthy, because it is they who fund them, who loan the money to the government, at interest, that it has to borrow because it cannot pay its bills from the taxes it was no longer bringing in. As with the deindustrializing of the economy, this was exactly the plan: to benefit the wealthiest people in the world.
Today, average working-class wages, adjusted for taxes and inflation, are the same as they were in the 1970s. For a stark comparison, average incomes in China are up more than 10 FOLD over the same period. This is why the U.S. has massive civil tension among its people and record distrust of the government while the people of China are ferociously loyal to their government.
The annual trade deficit—that money we ship out of the country to buy things we do not make anymore—is on track to exceed $1 trillion this year. That was $1 trillion taken straight off the top of what would otherwise be available national income, and shipped abroad. The national debt has exploded beyond belief, to over $27 trillion. This year’s increment, the annual budget deficit, will exceed $4 trillion. That was four times as much as was incurred in the first 204 years of the country, combined. This is not a picture of economic vibrancy.
For the past forty years, the government has had to run average budget deficits of $675 billion a year just to keep the holes in the economy plugged. Otherwise, it would have fallen into recession, or depression. And the borrowing is going vertical.
This is a tremendous boon to the very wealthy because, as mentioned above, it is they who loan the government all that money. And importantly, they do so at higher interest rates because when anything is in higher demand, in this case, borrowed money, its price goes up. The price of borrowed money is the interest rate. But wait, it gets better—or worse—depending on whether you are a borrower or a lender.
Higher interest rates in one part of the economy mean higher rates in all of the economy, because the pool of loanable funds is essentially the same pool for all. That means that when budget deficits rise, the interest rates on mortgages, credit cards, automobiles, student loans—anything bought on borrowed money—goes up, too. This is a stealth way for the government to transfer still more money to the already wealthy, but with the appearance that it was an arms-length private transaction, between borrowers and lenders, involving interest rates.
For the four decades between 1940 and 1980, the share of national income that went to the top 10% of income earners was remarkably stable, around 34%. This included those decades that are generally regarded as “the golden age of capitalism”
But in the four decades since 1980, the share of the same top 10% has skyrocketed to 47%, a breathtaking upward shift in national income to those who are already the richest. The upward distribution of wealth over the same period is actually even greater.
It is a cliché, but like so many cliches, it is grounded in reality. The rich are getting richer and everyone else is getting poorer. That is exactly the plan, and the plan is working exactly as intended. In fact, it is accelerating, as every new crisis becomes a new pretext for ladling more and more and more of the nation’s wealth into the coffers of the already wealthy.
Inequality is reaching feudal proportions, where very few own almost everything, and everyone else is crushed under the wheel of engineered destitution. This directly degrades democracy, because since it costs so much to run for office, office seekers pay attention to those who can write big checks. Have you written a $50,000 check to an office seeker lately? No? Again, that is exactly the plan. They do not want to hear from you because you cannot help fund their expensive campaigns. But write a big check and you would be amazed at how fast the doors fly open.
Donald Trump has been stunningly successful for the very wealthy which is part of the reason they have backed him. He passed massive tax cuts that accelerated the upward transfer of wealth. But that is actually the lesser part of what makes him so valuable to the wealthy.
The far greater part is that he has re-directed the rage of the dispossessed, downwardly-mobile working class from the economic system that has caused their distress — those intentional policies mentioned above — to the altogether bogus factor of race. This has shielded the wealthy from being held accountable for having engineered and built an economy that has intentionally shafted the vast majority of its own citizens.
The mainstream media has been altogether complicit in this deception, focusing, laser-like, on the racist dimensions of Trump’s issuances, but almost never on the much more legitimate economic origins of his base’s rage. This is perfectly understandable because the mainstream media is owned by the very wealthy. They use it to condition cultural awareness of vital issues in ways that benefit them, like when they laundered the idiocy of supply side economics as some kind of divination come down from the mountain on stone tablets that would save the country.
The economy is working exactly as it is intended to work, the way it has been designed to work, to benefit the wealthy and to crush everybody else. The problem for the mass of the rest of us is that we did not get the memo.