Baylor University
AMERICA CHALLENGED
From:
How the West Was Lost: Fifty Years of Economic Folly--and the Stark Choices Ahead, by Dambisa Moyo (2011)
Winner Take All Politics: How Washington Made the Rich Richer and Turned Its Back on the Middle Class, by Paul Pierson and Jacob Hacker (2010)
Miscellaneous other books, news articles, internet sites, editorials, and class material
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1. AMERICAN DEFICITS AND DEBT
“Not long ago in America, it was pretty easy to decipher who was financially rich and who was poor, the haves and the have-nots. The family who had a new car, the latest toys and the most advanced gadgets, were unreservedly rich. And those that didn’t weren’t. Now the picture is much more blurred. Nearly everyone can go on fancy vacations, buy a new car and live in an enviable house; but the mountains of debt they need to do these things show the true state of their finances. And like the U.S. economy itself, millions of families have become more adroit at maintaining the façade of being much wealthier than they really are. What these Americans don’t understand, in actual fact, is that when it comes down to it, they don’t own anything. Instead of workers increasing their purchasing power from higher wages, they have done so through straight debt accumulation. Wage earners borrowed heavily to purchase homes and finance consumer consumption, neither of which went to fundamental growth improvements in the economy.”
The 8 years of the Reagan administration + the first 4 years of the George W. Bush administration quadrupled the national debt from $1T to $4T. The federal debt was $909 billion in 1980. At the close of the Reagan-Bush era, the debt was $4,202 billion. It currently hovers around $5,700 billion. “Deficits and debts skyrocketed via increased defense spending without adequate revenues to fund it, along with massive tax cuts (benefiting the rich much more than the middle class) without corresponding cuts in government services.”
American Social Security and pension plans led to a decline in savings by those who felt the future would take care of itself. As a result, the youngest generation faces double taxation: paying for their own future financial needs while financing the near bankrupt Social Security program for retiring Americans.
“The U.S. is on a path to creating the worst and most venal form of welfare state (poorly developed and poorly designed) born of desperation from many years of flawed economic policies and a society that rapaciously feeds on itself. What is rapidly emerging over the horizon for Western nations is a tsunami of healthcare needs. As people live longer and longer, the associated costs of age-related afflictions are bound to be economically debilitating. A McKinsey report forecasts that by 2065, U.S. health costs will equal 100% of the nation GDP, with Japan and Europe achieving the same numbing statistic soon after. Lifestyle-related disease, especially Type II diabetes and obesity, are well-on-the way of becoming health epidemics, especially in the U.S., where is estimated that 40% of first graders are obese.”
America‘s debt is currently 96% of annual GDP, a real warning flag. According to reliable economic research, 90% debt has historically been the tipping point for for stagnant economic growth experienced by many other heavily indebted nations.
“China has very masterfully provided the world—especially America -- with consumer goods while plying it with debt, thus keeping the world in hock to China. By feeding the West’s seemingly insatiable appetite for debt, the Chinese have masterfully manufactured the West’s goods and provided them with the very cash (in the form of loans) with which to buy them; they have locked the West into a stranglehold of debt and dependence from which it will be very difficult to escape. It is after all America that is drowning in debt, and whose citizens are consumed by consumption. It would have been a different matter had America borrowed domestically and used the cash to make goods that kept Americans (and not the Chinese) in employment. But it didn’t. America let China in the door.”
“In 2009 China had a savings rate of 51% of GDP compared to just 13% of America’s GDP. Chinese household savings, for example, were a lofty 30 percent of household income. Compare this against a negative (after-tax) savings rate of 0.4 percent of US households, which indicates that the average American household was not saving at all.
The two major players in the global economy, the US and China, are operating at different ends of the saving spectrum. Thrifty Chinese have taken savings to excess, while profligate Americans have spent their way into debt. The problem for the US is that the rise in consumption as a percentage of GDP was not offset by investment or by a change in the government percentage, but by the trade balance growing. Much of the subsequent increase in income leaked offshore.”
U.S. Debt as a percent of Annual GDP
• 2001: 33%
• 2002: 34%
• 2003: 35%
• 2004: 37%
• 2005: 37.5%
• 2006: 37%
• 2007: 37%
• 2008: 41%
• 2009: 60%
• 2010: 67%
• 2011: 96%
American household debt now = 18% of disposable income. This amounts to $1 in interest payments for every $5 of disposable income. Americans now save only 1% of their income ($1 for every $100 earned), by far the lowest in history and the lowest of any industrialized nation in the world.
America’s finance sector (banks, consumer finance companies, brokers, etc.) accounts for a much larger share of annual corporate profits (44%) than all of manufacturing (10% profit share). A large portion of the finance industry's profits comes from financing corporate and consumer debt. Debt is one of America’s largest industries.
For the first time ever, Asian investors in America are beginning to hedge their bets due to America’s debt skyscraper. Because a growing number of Asians fear a long-term declining dollar and don’t want to be paid off in depreciated assets, Asian credit to America could begin to dry up over the next decade.
2. AMERICA’S DECLINING QUALITY OF LIFE
“Western policymaking has placed an unbearable burden of unsustainable mounting costs on future generations, the full extent of which the Western world has just begun to experience. America’s roads and bridges, schools and hospitals, airports and roadways, ports and dams, water lines and air control systems—the country’s entire infrastructure is rapidly and dangerously deteriorating. The question that must be asked is, where is the money going to come from to remedy this situation, and remedy it fast? Indeed money for infrastructure—certainly private cash—seems targeted towards vanity projects, such as in New York, where residents are hard pressed to name the last time Manhattan or any of the five New York boroughs had a new bridge or tunnel. Yet the city’s sports teams—the Mets, the Giants and the Yankees—have each recently built new stadiums worth billions of dollars.” Jerry Jones’ Dallas Cowboys stadium in Texas cost more than a billion.
Recent comprehensive studies of America’s highway, transportation, and public services systems concluded that if quick investment actions are not taken, America will have a third-world infrastructure within a few decades. With the nation’s projected 70% increase in freight volume by 2020 and 50% population growth, the next generation of Americans face an investment crisis of sobering proportions. $1.6B will have to be spent just to bring the existing infrastructure into decent repair. “If America leaders do not act boldly, our economic growth and quality of life will be diminished.”
“If there is one thing that has come to define the twentieth century Western mindset it is unfettered consumerism. The story of the American consumer has been one of how he has been encouraged by all and every means possible to increase his insatiable appetite. US household consumption expenditure as a percentage of GDP was, in 2007, 70 percent, compared with about 35 percent in China and 54 percent in India.”
America Ranks…
• 4th on the Human Development Index
• 13th on the Quality of Life Index
• 16th on the Poverty Index
America’s Declining Standard Of Living
• In 2007, the U.S. ranked 19th among industrialized nations in preventable deaths.
• Self-paid family health premiums average $12,106 annually.
• Over the past decade, American insurance premiums increased 87% (not counting increased co-pay and deductibles).
• One in 6 insured American has significant problems paying medical bills; 42% have had their insurance company refuse to pay for a medical bill.
• A generation ago, the average American family spent 54% of its annual income on the basics of housing, health insurance, transportation, and taxes. Today it’s 75%.
• College tuition has risen 175% in the past decade and out-of-pocket healthcare costs have doubled.
• Hourly wages adjusted for inflation are the same today as they were 30 years ago.
• The number of Americans with career-related pension plans fell from 30.4M in 1984 to 23M in 1998.
• One percent of Americans own almost half of all corporate stock and business wealth; 5% of Americans own 70%.
• Median American household income = $43,000; 42% of American homes have 2-wage households
• Housing costs have doubled since 1997
• Health care costs have risen 12% vs. 3% for wages
• Significant rises in the cost of food, energy, entertainment, and college (increased 3-4 times faster than the rate of inflation)
• ”Time poverty”: American have only 16.5 hours of leisure time per week (a decline of one third since the 1970s)
• A 40-hour week at today's minimum wage nets a pre-tax annual income of about $11,000, $5000 below the official poverty line for a family of four.
Ominous Social Trends
• During 2005, 25M Americans (including 9M children and 3M senior citizens) turned to charitable food banks at least once. 12% of American households (13.5M people) had difficulty providing enough food for family members.
• 37M Americans currently live below the poverty line.
• 28% of American families are single parent.
• 1 million children each year have their parents divorce.
• 40-50% of American marriages end in divorce.
• Twenty percent of American men in the prime of life don’t work.
• The suicide rate of the U.S. Army hit a record high in 2007, when 935 (115 in the Middle East) active duty soldiers took their lives. Another 166 American soldiers in the Middle East attempted suicide. Soldier suicides have risen each year of the Middle Eastern war.
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3. AMERICA’S FALLING GLOBAL COMPETITIVENESS
“For the past 500 years, Western economic dominance has been a story of ruthlessness and self-interest. Its military power, its global hold, its influence on the world, has been the history of its trade, or rather the history of this single-minded ability to extract from other countries, continents, and peoples the resources needed to drive Western economic growth forward. From Western empire to empire (Spanish, Portuguese, French, Dutch, German, Danish, British, American), the West maintained its iron grip on global power and riches regardless of the cost.”
But in the 21st century, China and the its growing coalition of developing nations, “have embarked on deliberate, systematic, and highly effective strategies emphasizing saving over consumption, investment in capital goods over military power and global policing, as the West has so often done. While the West was busy devising strategies to dominate the world, exporting its cultural ideology, fighting international wars, and propping up its often-corrupt allies, China and other developing countries were bidding their time, building up their defenses, adopting the West’s economic rules, and preparing to outwit it and emerge as the heirs to the world economic throne. The world’s most important democracies in the developing world (Brazil, India, South Africa, and Turkey) are just as likely to side with China (or even Iran) on 21st century geopolitical issues as with the USA.”
China produces several times more engineers as the U.S. and fourteen times as many as Britain. The lackadaisical attitude towards science and engineering in the West permeates its political culture. Many Western policy makers seem to have been caught unawares that what happened to their manufacturing system is now happening to their service sector as well.
The West’s measure of total factor productivity (TFP), indicates how much of a nation’s output growth is due to factors not related to direct resource inputs (parts, supplies, financing, etc.). The major TFP factors (rule of law, property rights, human rights, free press, technological advancement, etc.) have been declining to uncompetitive levels over the past 20 years. “The West has lost its monopoly in capital, labor, and technology.”
The West’s relatively small private oil companies can’t match the gigantic state-owned oil companies in many parts of the world. Western oil companies produce less than 10% of the world’s production and hold only 3% of world reserves. The 13 largest oil companies in the world are owned by governments. Mixed capitalism (private + government partnerships), clearly has its advantages.
“Europe can be characterized as lacking in capital preservation and being short on labor determination and technological innovation, making its chances of long-term economic domination slim indeed.”
“The share of manufacturing in total employment in industrialized countries fell from 28 percent in 1970 to 18 percent in 1994, leaving less than one worker in six in America in manufacturing, and in Europe one in five.”
“Propensity for high salaries in ostensibly non-productive areas (the credit industry, Wall Street hedge funds, sports, recreation, and entertainment) is another example of the misallocation of labor, further contributing to the economic demise of the West--yet another nail in the West’s economic coffin.”
“Superior know-how should have always given the West a leading edge. But it didn’t. Even when technology has not been stolen, it’s been given away. Western companies fell for the allure of low costs of production and set up shop across the developing world in droves. But what the West had not bargained for was the transfer of their intellectual property, which was tacitly condoned.”
Although the US remains the leader in research and development spending, the federal share of national US expenditures on research and development has been on a steady path of decline.
“On 18 November 2008, the heads of the three American car giants, General Motors, Ford, and Chrysler, lodged a desperate appeal for a bailout package to the US Congress. The three companies—once among the most powerful corporations in America—were reduced to appealing for cash from the government. How could this happen? In large part it boils down to a willful and resolute blindness with regard to technological innovation. These companies had for years seemingly all but ignored market trends and environmental changes and battled against cleaner fuel standards. Yet Americans happily snapped up these cars. America’s big three sleep-walked through the transformational decade while their foreign competitors spent time and money producing cars that catered to the tastes and needs of the twenty-first century. What other explanation, but willful blindness, could there be for car companies marketing the gas-guzzling Hummer, or monstrous SUVs, during a period when much of the world had gone compact and eco-friendly?”
“Patents and licensing activity are considered one of the main indicators of technological development. True, the US lead remains large, but rival countries are catching up. In 1978 there were only thirteen patent applications from South Korean inventors. In 2008 there were 8,731. Patent filings in China increased 33 percent in just one year, between 2004 and 2005, making it the world’s third-largest. And between 1991 and 2001 the number of Chinese patents granted at the United States patent and Trademark Office rose by an amazing 373 percent as compared to 73 percent in the US.”
“Today, Saudi Arabia is the largest oil-producing country in the world, and Russia the second largest; together they produce just over 9 million barrels of oil a day. Yet America imports 20 million.”
“The decline in manufacturing jobs on the shop floor has had much more to do with changes in the West’s negligent attitude towards a future in science, information technology, and engineering disciplines than any of the outside economic factors.”
“The US now lags behind some sixteen countries in Europe and Asia in the proportion of 24-year-olds with bachelor’s degrees in the natural sciences and engineering. In the 1960s, the US had the highest high-school completion rate in the developed world; by 2005, the US ranked twenty-first. In terms of college completion, the US ranked second in 1995; a decade later, in 2005, it ranked fifteenth.”
“In a recent survey, the employers’ assessment of high-school graduate entrants in the US was mournful. In key categories, employer respondents assessed the entrants as follows: 53 percent found high-school entrants deficient in mathematics, 70 percent found them deficient in critical thinking, 70 per cent in work ethics and professionalism, and 81 percent in written communication.”
“What does Western society want? Experts in basketball or experts in astrophysics? More investment bankers, or more scientists and doctors? Take a look at what is happening to graduates of the illustrious Massachusetts Institute of Technology in regard to the careers they choose. The data reveal that of the undergraduate population, 27.2% end up in finance, 15.6 % in software and information services, and 12.9% in management consultancy. Engineering graduates and bio-technicians are all heading to Wall Street.”
“The broad American shift to favor the service sector over productive industries has created a society where exorbitant salaries and rewards are stacked in favor of those whose societal benefits are narrow (sports stars, CEOs, hedge fund managers, etc.), and less toward sectors with arguably broader social gains (health care professionals, teachers, etc.).”
% of American Industries Owned by Foreign Investors
• Sound recording: 97%
• Brokers for commodities: 79%
• Motion picture industry: 64%
• Wineries and distilleries: 64%
• Book publishers: 63%
• Rubber products: 53%
• Glass products: 48%
• Coal mining: 48%
• Sugar and confectionary products: 48%
• Advertising: 41%
• Pharmaceuticals: 40%
• Securities brokerage: 38%
America is Slipping as the World’s Largest Financial Market
• America’s status as the world’s largest capital market is “shrinking fast in almost every area.”
• Bankers and politicians worry that business competition from the developing world (especially China) is draining capital away from America to faster growing foreign financial markets.
• The U.S. has lost its #1 status for initial public corporate stock offerings (IPOs), and America’s stock markets are actually shrinking as foreign companies seek capital outside the American financial market, while an increasing number of American companies are buying back (privatizing) their own stock.
Automobile Miles Per Gallon Comparisons Between Nations:
• Japan: 48 MPG vehicle average
• Europe: 42
• China: 36
• Australia: 32
• Canada: 30
• USA: 25
The Addictions of Western Culture
• Addicted to government deficit financing and hence borrowing money from foreign creditors
• Addicted to imported oil
• Addicted to consumerism lifestyles (financed more than ever before by credit card debt) to stimulate hollow economic growth
• Addicted to off-shoring manufactured products and services to developing nations
• Addicted to under-priced natural resources, because the cost of replacing these finite resources is not added to their market price
• Addicted to tax cuts without corresponding cuts in government spending (thus producing ever-increasing federal government deficits)
• Addicted to quick and easy, sometimes corrupt, profit-making in many deregulated industries
Manufacturing as Percentage of Western Economies
Germany: 24% of economy in manufacturing
Italy: 21%
Japan: 18%
France: 15%
Britain: 14%
Canada: 13%
USA: 9% (80% of Americans are involved in the service sector)
• Since 1983, U.S. corporations cut their workforces by approximately 2.9M and hired 2.4M outside the U.S.
• Since 1992, approximately 760,000 American jobs were outsourced to China and about the same number of Mexico.
• Since 2000, about 400,000 American service jobs (payroll, call centers, MIS) have been outsourced. The number is predicted to rise to 3.3M by 2015.
• About 3M American private-sector jobs have been lost since 2000.
• About 70% of the U.S. economy is not vulnerable to outsourcing.
• Between 1979-1999, only 36% of American workers who had to replace lost jobs found new jobs with equal pay. 25% of these end up with pay cults of 25%-30%.
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4. AMERICA’S ANTI-MIDDLE CLASS GOVERNMENT
“A generation ago, Democrats and Republicans talked constructively with one another. They engaged in debate and compromise, as our founding fathers intended. This process forged workable public policies out of non-workable ideologies and party agendas. We don’t get any debate or compromise today and haven’t for decades. The ideologies are too strident and too many uninformed Americans believe the propaganda at election time. So the people’s business has not been properly done for a long time, and it’s really starting to show.” (Gary W. Johnson)
Arthur Levitt, former director of the Securities and Exchange Commission in the 1990s, summarizes Washington’s poisonous political climate: “During my seven and a half years in Washington, nothing astonished me more than witnessing the powerful special interest groups in full swing when they thought a proposed piece of legislation or rule might hurt them, giving nary a thought to how the proposal might hurt the investing public. With laser-like precision, groups representing Wall Street firms, mutual funds companies, accounting firms, or corporate managers would quickly set about to defeat even minor efforts. Individual investors, with no one to represent them in Washington, never even knew what hit them.”
Washington’s largely-paralyzed political system stems from the fact that it’s easier to block things legislatively than to get them moving. “The institutional structure of American government allows organized and intense interests—even very narrows causes—to create gridlock and stalemate. Increasingly over the past generation, the political parties, sold out to financial interests who finance most of politics, have retreated from government regulation and the provision of public goods. A twenty year struggle, from the late 1970s to the late 1990s, ended with the decisive victory of economic hard-liners and elites.”
The Libertarian ideological movement (government is bad) has also taken roots since the 1980s, “as personified in the 2000 legislative platform for the state of Texas proposed by George W. Bush, Tom DeLay, Dick Armey and Phil Gramm: (1) return to the gold standard; (2) abolishing the Federal Reserve System, Social Security, the IRS, and the Sixteenth Amendment (which created the federal income tax).”
The Republican party of the past 30 years was not fiscally conservative as Republicans in the past. They increased the national deficit exponentially through large tax cuts favoring the rich with no cuts in government spending. “Everywhere and always the modern GOP saw high end tax cuts as the solution to any and every problem.” Even after the the failure of “trickle down” economics (the mistaken belief that heavy tax cuts for the rich would trickle down to the middle class as a financial stimulus) was established, the new Republicans continued to cling to its erroneous ideology.
The “trickle down” theory was created by quack economists to justify drastic tax cuts for the rich. This fad reasoned that the rich would invest their tax savings in productive job-creating segments of the American economy. Research subsequently demonstrated that very little of these tax savings “trickled down” from the rich to help the economy. Much of the money was put into family trusts which didn’t impact the economy; or into foreign investments; or into speculative financial schemes (such as subprime mortgages) involving financial derivatives (packages of high risk/high return exotic assets that potentially benefited only rich investors). “Overall, data from the past 50 years strongly refutes any arguments that cutting taxes for the richest Americans will improve the economic standing of the lower and middle classes or the nation as a whole. What research does show is that any attempt to stimulate economic growth by cutting taxes for the rich will do nothing.” (Internet articles)
During much of the 2000s, former industry executives were appointed to head federal government regulatory agencies for promoting the profit interests of their former industries rather than overseeing socially responsible business behavior.
Political campaigning in America has never been more corrupt and self-serving. Lobbyists, backed by big corporate and industry money, ensure the election of most of the candidates they financially bankroll (“legal bribes”). Political Action Committees make sure these candidates never discuss the issues, but instead spend all of their campaign financing to buy major television time to launch negative, unbalanced diatribes against their opponents.
“The problems of misallocation of capital, labor, and technology are not helped by political dysfunctions that discourage Americans and most Western policymakers from implementing transformational policies capable of leading the West back into economic and national renewal.”
“Political machinations aside, America has its work cut out for it and needs to put its house in order. Capital: America needs to start living within its means. This implies a reduction in debt-financed consumption—at both the government and the household level. Labor: it needs to invest once again in its people—a high-quality workforce is what built America and it will take a similarly skilled population to get it back on its feet. Technology: the US needs to plough vast sums into new technologies to increase its workers’ productivity, and get serious about protecting its copyrights. All of this requires money—money that the US does not have. It’s also about quality policymaking—fiscal, industrial, regulatory—that together reduces uncertainty, engenders confidence and encourages investment. Radical reform of US fiscal institutions is vital to secure the nation’s economic future. Overhauling their tax systems to encourage savings rather than ravenous consumption, and specifically addressing the three essential ingredients for growth (capital, labor and technology), would make it possible for the West to firmly get back in the race.”
From 2005 to 2007, U.S. House members raised more than $700 million dollars in campaign contributions. Because this figure excludes individual contributions of less than $200, it can be assumed that most of it comes from wealthy donors and corporations. “Fannie Mae” and “Freddie Mac” (federal-government coordinators of mortgage markets) alone have donated over $4.8 million to members of Congress since 1989, and that during the past few years securities and investment firms have donated over $113 million to campaign funds. From 2005 to 2007, 79% percent of campaign funds raised by U.S. house members came from outside of their districts (no doubt to help powerful entities seeking to control US policy-making).
In 2010, the U.S. Supreme Court ruled for the first time that American politicians can accept campaign contributions from any foreign nation, foreign organization, or foreign person.
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5. RISE OF AMERICAN PLUTOCRACY (rule by rich elites),
INCOME INEQUALITY, AND DECLINE OF THE MIDDLE CLASS
Skewed USA Income Distribution for the Period of 1979-2006
Lowest fifth of Americans: 11% rise in income
Second-to-lowest fifth: 18% rise in income
Third-to-lowest fifth: 21% in income
Fourth-to-lowest fifth: 32% rise in income
Highest 80th-99th of Americans: 55% rise in income
Top 1% of Americans: 256% rise in income
Decline in federal income taxes for the richest Americans, 1970-2004
Richest 1%: declined from 48% to 31%.
Richest 0.1%: declined from 65%-34%
Richest .01%: declined from 77% to 34%
“The average after-tax income of the richest 1% of American households rose from $337,100 a year in 1979 to more than $1.2 million in 2006—an increase of 260% (more than triple). During this 30 year period, the government did much less than in the past to reduce inequality through taxes and benefits. Due to legal loopholes, almost 45 percent of Americans do not pay federal taxes.
Kenneth Rogoff, a highly regarded international economist comments on America’s dysfunctional income tax system that favors the rich over the middle class: “The current tax system should be scrapped in favor of some form of a flat tax, with a very high deductible for low-income earners. Under this system, the very wealthy would pay more. They pay less under the current system because there are these smoke and mirrors they can hide behind, all these deductions, all these ways of avoiding taxes.”
Between 1980-2003, American legislation for social benefits drifted in a 2-stage process: In stage 1, escalating national economic and social problems would make existing social legislation obsolete and ineffective. In stage 2, political leaders in the majority of both parties did nothing or little on behalf of the middle class “in the face of powerful interest groups working to benefit the wealthiest Americans (“oligarchs”). The most noticeable political trend was directing benefits not just to the well-to-do, but to the superrich.”
“Over multiple generations and different U.S. governments conservative and liberal, public policy has misallocated capital by urging unrealistic universal home ownership, unsustainable social security and pension plans, and bailing out uncompetitive and often corrupt industries. Western corporations have set up shop in the cost-competitive emerging world (helping vast swathes of their workers), but the benefits have accrued to only a handful of already affluent stockholders.”
Between 1994 and 2007, executive pay increased $90 for every dollar gained by lower level workers. Today, the U.S. top-to-bottom pay gap is at least 10 times greater than the differential in other industrial nations where tax laws and cultural norms have blocked huge increases in executive pay.
Since 1975, almost all household income gains went to the richest 20% of American households.
From 1973 to 1993, wages of low income laborers (janitors, etc.) went down 15%. Wages of production workers went down 20%. Wages of young male high school grads went down 30%. Wages of middle-age men with 4 years of college went down 24%. And the total wages of those earning a million dollars or more a year shot up an average of 243% per year. In the same year (1998) when one American (Bill Gates) amassed more wealth than the combined net worth of the poorest 45 percent of American households, a record 1.4 million Americans filed for bankruptcy--7,000 bankruptcies per hour, 8 hours a day, 5 days a week. Personal bankruptcy filings topped 1.3 million in 1999. The top one percent pocketed, on average, an annual tax cut of $40,000 since 1977, an amount exceeding the average annual income of the middle fifth of households.
Since the 1970s, an escalating series of revolutionary political and business changes have gradually eroded “grass-roots” American democracy (people’s influence over their individual lives):
1. Large, well-financed special interest groups (especially in politics, organized religion, and the media) advanced their self-serving commercial, social, and ideological agendas.
2. Political action campaigns and lobbyist groups increasingly dominated the selection and election of (often career) politicians.
3. Extensive deregulation of industries (savings and loan, banking, energy, transportation) significantly increased the social power and decreased the social responsibilities of large corporations and fueled industrial concentration (oligopolies).
4. The news media were increasingly controlled by the profit-agendas of parent-company corporations (General Electric, Disney, Rupert Murdoch, etc).
5. Politicians used media ideological image-creation and negative campaigning to evade political debate.
6. Soaring government deficits became an American lifestyle spearheading rapid decline in national self-sufficiency and global influence.
7. American income inequality grew by leaps and bounds, creating a new class of rich “oligarchs” who dominate corporations with limited accountability and often pay little or no income taxes.
8. Public education became increasingly state-operated and controlled.
9. A virtual one-party American government coalesced as Republicans and Democrats forged deleterious policies on most major national issues: fiscal policy, foreign policy, trade, global warming, the military/industrial complex, political campaigning, and taxation.
Between 1983 and 1999, the profits of the top 200 firms grew 362.4 percent, while their number of employees grew by only 14.4 percent.
Household working hours reached 3,149 in 1998, roughly 60 hours a week for the typical family, moving Americans into first place worldwide in the number of hours worked, nudging aside the workaholic Japanese. According to the Bureau of Labor statistics, the typical American now works 350 hours more per year than a typical European -- almost nine full weeks.
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6. AMERICA’S CORPORATE CORRUPTION
“The United States is moving toward an ‘agency society’ in which managers serve themselves,” as their own agents, usually at the expense of financial stockholders and societal stakeholders. In large part this is due to shareholder value maximization, the traditional mission of corporations, being replaced by ‘board capture.’ Corporate boards are typically so beholden to CEOs—who influence the nomination of board members and have substantial influence over their pay and perks—they offer little countervailing authority.”
“Finance rules: heads, I win; tails, you lose. Wages in the financial sector took off in the 1980s and continued to significantly accelerate over the next two decades. In 2002, one had to earn $30 million to make it into the top 25 of hedge fund (investments for the rich by the rich) incomes; in 2004, $100 million; in 2005, $130 million; 2006, $240 million; in 2007, $360 million. That year, five hedge fund managers made a billion or more individually, with the highest three exceeding $3 million. The four largest investment banks paid their employees $65.6 billion in 2006, just two years before the entire industry collapsed due to fraud and mismanagement (eventually costing American taxpayers 2 trillion dollars). This exploitative winner-take-all economy was made largely in Washington.”
“America’s price tag for for two decades of deregulatory excess and enrichment of the thinnest sector of American society will be unconscionably high.”
In the Enron era of business scandals (late 1990s-2003), 642 business defendants in 290 separate cases of federal white-collar crime produced 250 guilty verdicts of top level executives, including the CEOs of 25 major corporations. Fifty-nine suits were filed against Wall Street brokerage firms due to alleged conflict of interest research opinions. All of the “Big 6” accounting firms were directly or indirectly involved in serious financial fraud. From 1997-2001, 1,089 corporations fraudulently “restated” the numbers in their financial statements. All told, these transactions cost investors billions of dollars. “It increasingly appears that the economic boom and continued financial deregulation of the 1990s was a house of cards built on fraud. The Pied Piper of the bull market and the elusive dream of endless profits put the economy and the culture into an addictive state of financial irresponsibility.”
Right on the heels of the Enron debacle was the subprime mortgage meltdown, arguably the largest business/government scandal in human history. An accumulation of nearly three decades of exploitative U.S. economic policy, industry deregulation, and Wall Street greed nearly toppled the U.S./Western banking industry in 2008 (resulting in a global bail-out of nearly $3 trillion). Never before had disregard of ethical professionalism and community welfare been so flagrant. The consequences of these “lost decades” of economic health and wealth will be paid for by a new generation who were not at fault. “The extraordinary combination of circumstances that led to the global financial crisis included blatant capitalistic greed in the mortgage investment industry; irresponsibly low interest rates; massive “gambling” in pseudo-fraudulent financial derivatives; misguided institutional securities ratings; abusive mortgage marketing practices; excessive use of speculative debt by virtually all investment banks; and turning over federal government financial oversight agencies to former Wall-Street executives.” (The Rise of the Rogue Executive: How Good Companies Go Bad and How to Stop the Destruction, by Leonard Sayles and Cynthia J. Smith)
Just a few of the major perpetrators in the “Enron era” accounting fraud scandals (early 2000s) were: Enron; Arthur Anderson; KPMG; Deloitte and Touche; Ernst and Young; PRICEWATERHOUSECOOPERS; WorldCom (MCI); J.P. Morgan Chase; Citigroup; Merrill Lynch; Tyco; Adelphia Communications; IMClone; Qwest; Global Crossing; HealthSouth; “Freddy Mac”; Parmalat; Krispy Kreme Doughnuts; Dynergy; Rite Aid; Peregrine Systems; Adecco; TXU; Computer Associates; Global Crossing; Shell Petroleum; and Royal Ahold (Europe).
Prime perpetrators of the mutual funds industry/Wall Street investment banks: financial manipulation/ stock sell-off backdating/trade through rules fraud (mid-2000s): Bear Stearns; Goldman, Sachs; Lehman Brothers; Morgan Stanley; J.P. Morgan; Merrill Lynch; Janus Capital; Citigroup; Credit Suisse; Apple Computer; Monster Worldwide; United Health Group; UBS Securities; Alliance Capital; Bank of America; Bank One; Charles Schwab; Citigroup; Federated Investors; Prudential Securities; Putnam Securities; Strong Capital Management; Baxter and Associates; UBS; AIG; Societe Generale; Dresdner Kleinwort Wasswestein; LaBranche and Co.; Spear, Leeds, and Kellogg; Flett Specialist; Van der Moolen Specialist; Bear Waagner Specialists; Pilgram, Baxter and Associates; Franklin Resources; Canadian Imperial Bank; Federated Investors; Security Trust; Security Trust; Pimco Advisors; Fred Alger and Co.; Invesco; Prudential Securities; Charles Schwab; Citigroup Smith Barney; A.G Edwards; Bank On; Ally Financial (formerly GMAC); First Horizon; General Electric; Nomura Holding America; Societe Generale
Ponzi schemes, late 2000s (last names of perpetrators): Madoff ($50B); Petters Group Worldwide ($37B); Stanford (BU grad, $7B); Rothstein ($1.2B); Melbye, Coughlin, Harrison ($485M); Kiley ($190M); Vassallo and Kenitzer ($40M); Bledt ($32M); Pimstein ($30M); Elkinson ($29M); Ossie ($25M); Wady ($25M); Russo ($20M); Pacheco ($15M); Hernandez ($11M); Morgan et. al ($11M); Regan ($9M)
Savings and loan industry deregulation (mid-1980s): “Between 1980 and 1994 more than 1,600 banks insured by the Federal Deposit Insurance Corporation (FDIC) were closed or received FDIC financial assistance. From 1986 to 1995, the number of US federally insured savings and loans in the United States declined from 3,234 to 1,645. This was primarily, but not exclusively, due to unsound real estate lending enabled by industry deregulated. From 1986 to 1995, the number of US federally insured savings and loans in the United States declined from 3,234 to 1,645. The US government ultimately appropriated 105 billion dollars to resolve the crisis. After banks repaid loans through various procedures, there was a net loss to taxpayers of approximately $124 billion dollars by the end of 1999. Between 1986 and 1991, the number of new homes constructed dropped from 1.8 to 1 million, the lowest rate since World War II.”
Leaders of the subprime mortgage derivatives global scandal (late 2000s): Bear Stearns; Goldman, Sachs; Lehman Brothers; Morgan Stanley; J.P. Morgan; Merrill Lynch; Citigroup; Credit Suisse; “Fannie Mae”; “Freddie Mac”; Countrywide; Deutsche Bank; RBS Green; approximately insolvent 200 banks who participated in hyper-risky subprime mortgage derivatives.
Costs of bailing out (with taxpayer money) these subprime mortgage loan program fraudulent corporations/banks/weak U.S. companies to avoid a meltdown of the U.S. and global economy:
• $29 billion for Bear Stearns
• $143.8 billion for AIG
• $100 billion for Fannie Mae
• $100 billion for Freddie Mac
• $700 billion for Wall Street, including Bank of America (Merrill Lynch),
Citigroup, JP Morgan (WaMu), Wells Fargo (Wachovia), Morgan Stanley, Goldman
Sachs, and a lot more
• $25 billion for the Big Three in Detroit
• $8 billion for IndyMac
• $150 billion stimulus package (from January)
• $50 billion for money market funds
• $138 billion for Lehman Bros. (post bankruptcy) through JP Morgan
• $620 billion for general currency swaps from the Fed
Rough Total: over $2 trillion dollars ($6,800 for every American man, woman, and child) [pic]
7. ECOLOGICAL ABUSE
How much the ecological consumption of deficit nations has exceeded their ecological “footprint” (per capita share of nature) 1 hectare= 2.47 acres
• Britain: 205,000 hectares
• Germany: 300,000 hectares
• India: 320,000 hectares
• Russian Fed: 350,000 hectares
• Japan: 420,000 hectares
• China: 460,000 hectares
• USA: 970,000 hectares (3,745 square mile excessive footprint)
Per capita carbon emissions (chief cause of global warming)
• India: Half ton per person annually
• China: 1.1 tons
• Japan: 2.5 tons
• Britain: 2.5 tons
• Germany: 2.8 tons
• USA: 5.2 tons per American
Total CO2 emissions in millions of tons, 2005
• USA: 5817 million tons
• China: 5101
• Japan: 1214
• India: 1147
• Germany: 813
• Canada: 549
• UK: 530
• Italy: 454
• South Korea: 449
• France: 38
Americans (5% of the world population) consume over half of all the goods and services of the world, spending over $10 billion annually on pet food alone. The three richest Americans have assets exceeding the combined gross domestic product of the 48 least developed nations.
Americans use 20M barrels of oil a day—7B barrels annually. Without importing foreign oil, American oil reserves would last only 4 years. Americans drive on third of the world’s 700M vehicles but contribute almost half of greenhouse gases emitted by vehicles worldwide. This is because American cars get lower mileage compared to the rest of the world, drive farther distances, and use fuel with higher carbon content.
• Greenland’s glaciers (10% of the world’s ice) are melting 3 times faster than a decade ago.
• Over the past 30 years, the earth’s temperature has been rising .36F degrees annually.
• The average temperature in the U.S. is expected to rise 9 degrees over the next century.
• Oceanic “dead zones” (where there is little aquatic life due to low or no oxygen caused by crop fertilizer residues) have been doubling every decade since the 1960s.
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8. GLOBAL ECONOMIC REALITIES
Income equality comparisons between rich nations (the lower the score, the greater the degree of income equality)
1. Denmark (22) Highest income equality in the world
2. Sweden (23)
3. Netherlands (25)
4. Switzerland (26)
5. France (27)
6. Germany (28)
7. Australia (31)
8. Japan (32)
9. Britain (33)
10. Italy ((34)
11. USA (41) Higher income inequality than all of the above 10 nations
• Eighty percent of the world's people live in developing countries.
• Ninety-five percent of the next generation's children will be born to women there.
• Seventy percent of those women live on less than $1 per day.
• Of the 100 largest economies in the world, 51 are corporations; only 49 are countries (based on a comparison of corporate sales and country GDPs).
The richest 2% of adults in the world own more than half of global household wealth. The most comprehensive study of personal wealth ever undertaken also reports that the richest 1% of adults alone owned 40% of global assets in the year 2000, and that the richest 10% of adults accounted for 85% of the world total. The bottom half of the world adult population owned barely 1% of global wealth.
The top 200 corporations' sales are growing at a faster rate than overall global economic activity. Between 1983 and 1999, their combined sales grew from the equivalent of 25.0 percent to 27.5 percent of world GDP. The top 200 corporations' combined sales are bigger than the combined economies of all countries, except for the biggest 10. The top 200s combined sales are 18 times the size of the combined annual income of the 1.2 billion people (24 percent of the total world population) living in severe poverty. While the sales of the top 200 are the equivalent of 27.5 percent of world economic activity, they employ only 0.78 percent of the world's workforce.
Wealth is heavily concentrated in North America, Europe, and high income Asia-Pacific countries. People in these areas collectively hold almost 90% of total world wealth. Although North America has only 6% of the world adult population, it accounts for 34% of household wealth.
Percentage of their national wealth given away in foreign aid
• Denmark 0.96%
• Norway 0.89
• Sweden 0.83
• Netherlands 0.81
• Luxembourg 0.77
• Belgium 0.43
• Ireland 0.40
• France 0.38
• Japan 0.23
• United States 0.13
Sixty countries have been growing steadily poorer since 1980. Three billion people live on less than $2 per day, while 1.3 billion of those get by on less than $1 per day. In 1960, the income gap between the fifth of the world's people living in the richest countries and the fifth in the poorest countries was 30 to 1. By 1990, the gap had widened to 60 to 1. By 1998, it had grown to 74 to 1.
• In Indonesia, 61.7 percent of the stock market's value is held by the nation's 15 richest families. The comparable figure for the Philippines is 55.1 percent and 53.3 percent for Thailand.
• The world's 200 largest corporations account for 28 percent of global economic activity while employing less than one-quarter of one percent of the global workforce.
• Every jet fighter sold by a developed country to a developing country costs the schooling of three million children.
• The cost of a submarine denies safe drinking water to 60 million people.
• Experts report that the well-to-do have hidden at least $8 trillion in tax havens.
Wages of clothing workers in developing nations
• Cambodia: 32 cents/hour
• India: 38 cents/hour
• Pakistan: 41 cents/hour
• Sri Lanka: 48 cents/hour
• China: 68 cents/hour
• Jordan: 81 cents/hour
• Thailand: 91 cents/hour
• Honduras: $1.48/hour
• El Salvador: $1.59
• Mexico: $2.45/hour
National per capita GDP comparisons
Algeria $1,592
Argentina $8,810
Australia $21,750
Austria $26,740
Belgium $25,670
Brazil $3,280
Bulgaria $1,530
Canada $22,394
Chile $4,950
China $790
Colombia $1,795
Czech Republic $5,580
DENMARK $32,576 (fourth)
Egypt $1,499
Estonia $3,778
Finland $27,979
France $24,956
Germany $27,337
Greece $11,860
Hong Kong $18,400
Hungary $ 5,180
India $ 540
Indonesia $840
Iran $1,050
Iraq $313
Ireland $26,510
Israel $16,100
Italy $21,393
JAPAN $30,720 (fifth)
Jordan $1,229
Kazakhstan $1,020
Kenya $292
Latvia $2,794
Lebanon $5,769
Lithuania $2,865
Malaysia $3,808
Mexico $5,040
Netherlands $27,200
New Zealand $14,310
Nigeria $450
NORWAY $35,853 (second)
Pakistan $430
Philippines $1,033
Poland $4,290
Portugal $11,621
Romania $1,480
Russia $1,410
Saudi Arabia $ 6,560
Singapore $17,870
Slovakia $3,920
South Africa $3,150
South Korea $9,040
Spain $14,623
Sweden $28,417
SWITZERLAND $36,166 (first)
Taiwan $13,832
Thailand $2,140
Turkey $3,120
Ukraine $590
United Kingdom $23,947
UNITED STATES $33,946 (third)
[pic]
From The Fifteen Biggest Lies About the Economy, by Joshua Holland, 2010.
Between 2000 and 2005, the number of registered lobbyists in Washington more than doubled to more than 34,750, while the amount that they charge their new clients increased by as much as 100 percent.
In the last quarter of 2008 and the first of 2009, the top 21 recipients of bailout funds spent a whopping $18 million lobbying Congress.
In reality, the United States’ much-ballyhooed upward mobility is a myth, and it appears to be getting farther from reality with each new generation. Contrary to the popular characterization of Americans, several studies released in recent years suggest that they enjoy significantly less upward mobility than do the citizens of a number of other industrialized nations. German workers have 1.5 times the upward movement of Americans, Canada’s economy is nearly 2.5 times as mobile, and Denmark’s is 3 times as mobile. Norway, Finland, Sweden, and France are all more upwardly mobile societies than the United States. Of the countries included in the studies, the United States ranked near the bottom; only in the United Kingdom was it tougher to shake off a low social status that one had been born with.
The United States has one of the lowest total tax rates in the wealthy world. Taxes are used to finance things we want and for which we’d otherwise pay out of pocket. For example, in 2006, Americans paid about 7 percent of their average income on health insurance and out-of-pocket expenses, and the unlucky ones paid much more. Most Europeans don’t pay a single euro for basic, high-quality care. In much of Europe, the cost of a college education is free. In the United Kingdom, tuition is capped by law at a bit more than $5,000. In the United States, a public four-year college charges more than $7,000 a year on average, and private university tuition runs more than $25,000 per year. So, yes, the total tax burden in the EU-15 is around 12 percent higher. But when you factor in costs like health care and education—and job-training programs, public transportation, and on and on—it’s a different picture. It is because these benefits are available to all that European inequality and poverty levels are so much lower than they are here. It also explains why many European economies offer more potential for upward mobility.
Anyone who travels to Europe will immediately note that their infrastructure is modern, their streets are clean, and their government agencies aren’t reminiscent of third world countries.
In 2008, the EU accounted for only 26 percent of the world’s military spending. With an economy that’s around 7 percent smaller, the United States accounted for 46 percent of global military spending.
Those who advocate more law enforcement to tackle the immigration issue often invoke images of the United States descending into anarchy—of a nation losing control of its borders and therefore its sovereignty. There is anarchy in America, there is lawlessness, but you’ll find a lot more of it in the kitchen of your favorite diner than along the Rio Grande.
Unfortunately, there’s not much in the way of nationwide data on workplace violations, but we do have a large body of local and state studies, and all point to the same conclusion: they are simply rampant at the lower end of the economy and among vulnerable populations.
A 2004 study of two hundred workers conducted at multiple sites in Fairfax County, Virginia, found that
• 54.6 percent were paid less than agreed on.
• 53.1 percent reported nonpayment for work done.
• 35.6 percent said they’d been victims of racial discrimination.
• 25.8 percent had been given bad checks.
• 16 percent reported that they’d been subject to violence on the job.
• 14.9 percent said they’d received threats from employers.
A 2002 study of chicken processors found that six in ten plants failed to pay workers overtime.
In a 1998 study of restaurant workers in Los Angeles, only two out of forty-three establishments complied with basic labor laws.
A 2005 study of grape pickers in California’s Central Valley found that half of all workers reported pay stubs that reflected less than the total number of hours worked, and half reported that they had not received all of the overtime pay they were owed.
A 1998 study looking at workers in the restaurant, garment, hotel, and motel industries—all occupations with large numbers of unauthorized workers—found that only one in twenty restaurants complied with minimum wage laws and only a third of hotels and motels were in compliance, as were only four of ten shops in the garment industry.
Study after study reported similar findings. And it bears repeating: although these illegal jobs are clustered in industries in which many unauthorized workers toil, millions of legal immigrants and U.S. citizens work those jobs and are also victims of widespread employer abuses. According to one 2003 study, the percentage of workers being ripped off via minimum wage violations is not that much lower for natives than it is for immigrants—13 percent versus 9 percent among women and 9 percent versus 6 percent among men.
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MORE USA ECONOMIC & SOCIAL STATISTICS
• 1/3 of the federal government budget is borrowed annually
• Our cumulative national debt increases by $1 trillion annually
• 50% of Americans pay no income taxes
• The top 5% of wage earners pay 60% of American income taxes
• In the first quarter of 2011, the U.S. federal government debt = 95% of total national income. This debt-to-income ratio is fifth highest in the world.
• U.S. taxes are low by historical and global standards. Projected total U.S. taxes for 2011 are projected to = 14.4% of gross domestic product, the lowest since 1950. Only Japan and Spain have lower tax rates among the 29 most industrialized nations in the world.
• The cost of U.S. health care = 17.4 of the GDP, by far the highest percentage among all highly industrialized nations.
• The Standard and Poor credit worthiness AA rating for the U.S. drops it below most of the world’s leading economies (which have AAA ratings).
• The main category of the “working poor” in America (3/5 of people under the poverty line)
are people looking for a better job. The U.S. rate has recently climbed fastest for lower skilled adults aged between 18-34.
• 14.3% (43.6 million) of Americans in 2011 had below poverty income ($11,000 for a one person; $22,000 for a family).
• 9 million Americans are underemployed: they have part-time jobs but want full-time jobs. 6.5 million have given up trying to find work.
• The U.S. economy produced an average of 105,000 new jobs monthly, while 282,000 would be needed to lower unemployment.
• There are 4.5 unemployed American workers for every job opening.
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