To Be Perfectly Clear – Part 2

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Now we’re going trace how the purring machine got out of control and become a destructive beast.  First we must ask:  What if wealthy people, who averaged about 30 times as much income and wealth as the median income during the 35-year period of stable prosperity, decide they want even more?  What could they do to make that happen?

Government action is required.

1.  First they have to get control of government so they can dismantle restraints that hold them back.  Then there are three ways to go about it:

(a) They can devise ways to make their wealth grow more quickly;

(b) They can reduce the rate at which their accumulating wealth is returned to the government, and/or;

(c) They can reduce the degree to which government distributes the wealth back to the balance of society (like sticking a finger in the dyke, preventing money from leaking back down to everyone else);

2.  In 1980, with the beginning of the Reagan Administration, and rich people were at the helm.  They began immediately to implement approaches (a) and (b), while talking more vociferously about wanting to get to (c) as soon as possible.  In this part, we talk about the first approach:

Making wealth grow more quickly.

3.  Capitalists and businesses invest to earn as much as possible, so to make more profits than before 1980 they needed to reduce and eliminate government restraint.

4.  Here’s how they operate:  Corporations borrow money and sell stocks, and the cost is called the “cost of capital.”  Earnings above the cost of capital are “profits” and earnings below are “losses”;

5.  “Profits” had not been allowed for providing essential services like electricity, because it’s a “public necessity,” a “public service.”  My career was in regulating utilities: If government does not itself run a business itself (e.g., as in the case of public authorities providing hydro-power), state law provides for government rate regulation by individuals like me of the private firms that provide service (i.e., the utility companies).

6.  For over 100 years the law has restrained electricity providers to their cost of capital, allowing no extraordinary earnings (profit).  Government and corporations worked together set rates that would allow sufficient capital for good service, and private utilities operated under this social contract for the better part of 100 years.  In order to profit from providing these essential public services, men and women at the helm of these public service companies worked for deregulation, often contending there was sufficient competition to keep their prices in check and ensure service quality;

7.  In addition to regulation, anti-monopoly laws tried to preserve a level playing field for competition in non-regulated industries, so that no one firm or small group of firms could control prices sufficiently to make extraordinary profits.  Without those laws, wealthy people could increase their wealth by trillions of dollars over time by making profits, that is charging above costs, for things like food and gasoline;

8.  With the advent of the Reagan administration in 1980, the corporations ran the government, and enforcement of anti-trust (anti-monopoly) laws was discontinued;

9. Other regulation protected society from corporate excesses, like pollution, or dangerous products, or manipulation of the financial machinery of government by investment firms, and so on.  Laws preventing the abuse of economic power and unfair profiteering, harming people by taking their wealth or reducing the safety and quality of their lives, have been subject to reduced and often lax enforcement since 1980, especially during Republican administrations.  There has been an enormous cost to society;

10.  When they control government, big corporations control how tax dollars are spent.  They grab extra wealth through slack military bidding processes, for example, or by voting themselves subsidies as the oil companies have done;

After 1980, corporations freed themselves of these government restraints, and they’ve made trillions of above-cost dollars since.

11.  Here’s a summary of how corporations in the Reagan Administration and after have increased profits and made their wealth grow more quickly: (a) they stopped enforcing anti-monopoly (anti-trust) laws, and reorganized to gain market power and higher profits; (b) Wall Street increased its control over the banking system; (c) big corporations got bigger taxpayer subsidies; (d) military contractors stepped up their “marketing” and maintained the heftiest slice of the federal budget; (e) they reduced business regulations that limited their profitability; and (f) they reduced regulations requiring corporations to spend money controlling “externalities,” like air and water pollution;

There has been a staggering cost

          12.  Estimating the total amount of wealth taken from the bottom 99% cannot be precise.  For example, the military budget is over $1 trillion per year in today’s dollars.  How much of that is wasted? Even granting validity to spending on war, some estimate that over $300 billion per year is wasted.  Over 30 years, that would be $3 trillion in today’s dollars.   Also, taxpayers have been burdened with extraordinary environmental cleanup costs, and direct costs to local businesses and communities, for things like the BP oil disaster.  Taxes have been take for oil subsidies that big oil did not need and society could have spent more beneficially (i.e., for alternatives to oil).

14.  We cannot isolate an estimate of the total amount of wealth the bottom 99% has lost (in wealth transferred to the top 1%) due to relaxed regulation and pursuing the corporate agenda after 1980.  We know, however, how much the total percentage of wealth held by the top 1% has increased from 1980 to 2007.

And they cut their taxes!

13.  They also immediately stopped returning so much accumulated wealth to government: They cut the marginal income tax rate, among others, down [circuitously] from 70% to 35%.  We talk about that in Part 3.

JMH – 4/19/11

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One Response to To Be Perfectly Clear – Part 2

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