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It’s Still The Economy, Stupid!


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Few issues strike as close to home as jobs. A job means a livelihood, a chance to provide for one’s family, and a way to contribute to society. Understandably Americans expect their politicians to take these concerns seriously, and the economy is a perennial election issue. But what if the structure of our economy creates the very problem we want it to solve? Should we still look to politicians in Washington, or is there a need for deeper social reconfigurations than what our two-party system can provide?

What Jobs Used To Be

In the post-World War II era American jobs were golden, comparatively speaking. Unions’ demands for higher wages and increased benefits were so successful that a single bread-winner (often a male) could support an entire family.[1] Working conditions improved with overtime provisions and workplace safety regulations passing as a result of labor organizing[2]. Overall a job was a ticket to steady income, promotion with time, and the means to support a family.

While this picture sounds good it is important to note that racial and gender discrimination were much higher, with women usually economically dependent on men due to wage discrimination and black Americans facing second-class citizenship with few protected civil rights, widespread segregation, and lynchings.[3]

Along with high wages and benefits, corporate taxation was the highest in American history. As a result the rich/poor gap was at an all-time low, with economic growth being shared more evenly among the classes.[4] These corporate taxes helped pay for a variety of social assistance programs including welfare, Medicare, and Social Security. By redistributing income the government provided a safety-net for the unemployed, the sick, and the elderly. Critically this safety net also helped the economy. Those who might otherwise not be economically productive could still contribute to the economic cycle by generating demand through consumption.

What Jobs Are Now

Things today are much worse for the American worker. Unemployment is at 8%, the highest since the Great Depression, with a record number of job-seekers remaining unemployed after 6 months.[5] The rich/poor gap in America has returned to Great Depression levels, with the top 1% of Americans receiving over 20% of pre-tax income nationally, ranking America 93rd in the world for income inequality behind the likes of China and Iran.[6] Predictably social mobility (the likelihood of becoming richer than your parents) is at a historic low with the top 1% of Americans controlling 42% of the nation’s wealth, and the top 5% controlling nearly 70%.[7]

The jobs that are created are overwhelmingly part-time and low-wage, with one-fourth of working Americans making less than two-thirds of the median national hourly wage.[8] Between 1981 and 2008 the richest 10% took home on average 96% of income gains only to capture 100% of income gains between 1997-2008 with the wages of the bottom 90% declining.[9]

The poignant story of Tyree Johnson draws these statistics into sharp focus. Johnson receives $8.25/hour, while the CEO of his employer McDonalds took home $8.75 million this year. Specific strategies are in place to ensure Johnson remains poor. He is transferred between locations, his wage-scale is restarted upon change of ownership to avoid promotion and raises, and he is unable to get a full 40 hours of work each week and thus does not qualify for full-time benefits.[10] After working at McDonalds for 20 years Johnson still makes minimum wage.[11]

At an all time high are third quarter corporate profits this year, reaching a record high of 11.1% of the U.S. economy.[12] Since 1978 CEO pay has increased 27 times faster than worker pay, with outsourcing and the decline of organized labor paving the way for fatter executive bonuses.[13]

Advanced tax dodging schemes continue to allow corporations to get away without paying their fair share, or in some cases paying any taxes at all. Google’s Chairman Eric Schmidt openly defended the practice, saying “It’s called capitalism. We are proudly capitalistic. I’m not confused about this.”[14] According to Citizens for Tax Justice’s “Corporate Taxpayers & Corporate Tax Dodgers 2008-2010″ report, Boeing, DuPont, Capital One, and General Electric all paid a negative effective tax rate in 2010.[15]

How Did We Get Here?

The specific historical reasons are complex and varied, but two large trends stand out. Both are consequences of the same structural flaw of our economy. The flaw has to do with how capitalism creates profit.

Used here, profit refers to “economic profit,” or the return on investment made by investing capital in a specific venture as opposed to any other venture.[16] In other words, calculating economic profit helps someone decide where to invest their capital.

Profit happens when workers continue to work beyond the cost of their wages. For example, if a factory worker earns the cost of his wages in there hours, but works eight, five of those hours are “surplus value,” or profit for the factory owner. Viewed this way, surplus value is a tax the worker pays the capitalist for the right to have a job. The capitalist collects this tax simply by happening to own the means of production, like the machinery required for a factory to operate. Because the laborer cannot afford to start his own factory, he must pay the capitalist in the form of free work in order to have a job.

For a capitalist seeking to increase profits only two options are available: make workers work longer, or increase the productivity of labor. Union-based labor struggles established maximum working days with overtime laws and worker safety provisions in the United States. This led to the small rich/poor gap of the post-WWII era but also encouraged capitalists to find new ways to extract profit.

Automation provided a means for capitalists to increase worker productivity, thereby extracting the same amount of labor while employing fewer workers and keeping a larger share of production in the form of profit.

The agriculture industry provides a case-in-point example. Agriculture employed roughly 70% of American labor in 1840, 10% in 1950, and employs only 2% today.[17] The manufacturing and service industries will soon follow suit as technological advancements in automation render much of labor irrelevant to the production process. Structurally capitalism attempts to eliminate the worker in order to maximize profits.

Labor, It’s What’s For Dinner

As it eliminates labor from production, capitalism then proceeds to extract profit directly from the fate of the unemployed:

  1. High unemployment keeps wages low, since others can take the place of workers who would organize for higher demands. (Despite this key obstacle Black Friday strikes hit WalMart stores in 100 cities throughout 46 states this year.[18])
  1. Borders keep labor chained to its country of origin but allow goods to move freely to find the highest price. Companies exploit differences in purchasing power to buy labor cheap and sell their goods high. Borders create a literal stock market out of human bodies for corporate exploitation.
  1. The booming prison and mass surveillance industries are worth approximately $8 billion yearly, with secondary industries like domestic arms sales, security systems, and media and advertising likely pushing the total much higher.[19] Each of these industries depends on peddling a discourse of dangerousness that sensationalizes problems and rejects informed discussion about holistic solutions in favor of fear-based purchases and policy. America is roughly 5% of the global population, but one in four prisoners worldwide are American.[20]

Of course one may object that without laborers drawing adequate wages demand cannot sustain the economy. This is why we saw a shift from redistributed income providing demand in the 1950′s-70′s to a debt-based financing model from the 1980′s onwards. This debt model imploded with the subprime mortgage crisis as home values plummeted and credit dried up, triggering a global recession through which we are still suffering today.[21]

And of course, don’t forget the bailout. Crucially it is not the American worker who received substantial economic aid from her taxes, but instead the banks and hedge funds whose predatory lending practices and irresponsible loan repackaging precipitated the crisis in the first place.[22]

Most Americans are aware of the $700 billion Troubled-Assets Relief Program (TARP) the Treasury Department dispensed to banks following the downturn. TARP already represented a kind of socialism in reverse, where profits remained private and losses were borne by the public. Without asking Congress and without telling the public, the Federal Reserve gave an additional $7.7 trillion to the banks.[23]

That number is over half the yearly total economic output of the United States.

How To Move Forward

In the face of such overwhelming capture by financial elites it is difficult to continue calling the United States a democracy. Change through the existing two-party system is politically unimaginable as Democrats, traditionally viewed as the pro-union party, prepare to join Republicans in slashing Social Security.[24]

Even if one of the parties were willing to do an about-face on 30 years of political history and defend effective corporate taxation to support the American Dream, it is unclear that such an economy would present a long-term solution to the structural bias capitalism displays for unemployment. While mixed economies can dampen some of capitalism’s excesses domestically, those problems almost always shift abroad as capital moves to seek the highest return on investment, in turn deflating the domestic economy it leaves.[25]

Instead, those on the far left and far right must join together and build a new coalition that places people above profits. Communists, socialists, anarchists, queer/race/gender activists, libertarians, and those Christians who actually support ministering unto the poor all agree on the core value of self-determination, though they have differing ideas about what this freedom looks like and how to achieve it. Perhaps even more importantly, all these groups demand a basic value (liberty, the common good, or love) takes precedence above profit extraction, and this requires resistance against capitalism. Together this coalition could present a strong force for positive change in our nation.

While plotting a program for cooperation in advance remains unlikely, one thing is clear. Sustained dialogue across ideological enclaves will be necessary to invent a new language that abandons hardened dogmas in favor of practical steps to reorient our society and our economy towards justice.

The title of this article is a play on the uber-successful Clinton election catchphrase “It’s the economy, stupid!” Under President Clinton effective corporate taxation fell precipitously.

Lead image courtesy of Steven Damron.

Bobo is a writer, artist, and aspiring business owner. He currently researches human-machine interaction at Duke University.

[1] ^ ”The Postwar Economy: 1945-1960,” and “The Women’s Movement,” Country Studies/Area Handbook Series, Federal Research Division of the Library of Congress in partnership with U.S. Department of the Army 1986-1998, http://countrystudies.us/united-states/history-114.htm and http://countrystudies.us/united-states/history-131.htm

[2] ^ ”The Fair Deal,” Country Studies/Area Handbook Series, Federal Research Division of the Library of Congress in partnership with U.S. Department of the Army 1986-1998, http://countrystudies.us/united-states/history-115.htm

[3] ^ ”Origins of the Civil Rights Movement” and  ”The Women’s Movement,” Country Studies/Area Handbook Series, Federal Research Division of the Library of Congress in partnership with U.S. Department of the Army 1986-1998, http://countrystudies.us/united-states/history-118.htm and http://countrystudies.us/united-states/history-131.htm

[4] ^ ”A few issues with U.S. corporate tax policy,” Between the Balance Sheets, Oct 6 2011, Graph created “by combining the Corporate Profits After Tax data from the NIPA tables with the OMB’s data on the revenue collected by the corporate profit tax. The sum of these two series ought to equal total pre-tax profits (roughly), so from there it is easy to calculate the average effective tax rate.” https://betweenthebalancesheets.wordpress.com/2011/10/06/a-few-issues-with-u-s-corporate-tax-policy/

“A Guide to Statistics on Historical Trends in Income Inequality,” Center for Budget and Policy Priorities, Chad Stone, Danilo Trisi, and Arloc Sherman,  Oct 23 2012,  http://www.cbpp.org/cms/index.cfm?fa=view&id=3629

[5] ^ ”DEAR AMERICA: You Should Be Mad As Hell About This [CHARTS]” Business Insider, Henry Blodget, Jun 7 2012, http://www.businessinsider.com/dear-america-you-should-be-mad-as-hell-about-this-charts-2012-6?op=1

[6] ^ ”DEAR AMERICA: You Should Be Mad As Hell About This [CHARTS]“ Business Insider, Henry Blodget, Jun 7 2012, http://www.businessinsider.com/dear-america-you-should-be-mad-as-hell-about-this-charts-2012-6?op=1

[7] ^ ”DEAR AMERICA: You Should Be Mad As Hell About This [CHARTS]“ Business Insider, Henry Blodget, Jun 7 2012, http://www.businessinsider.com/dear-america-you-should-be-mad-as-hell-about-this-charts-2012-6?op=1

[8] ^ “U.S. Has Highest Share Working In Low-Wage Jobs, OECD Says,” Huffington Post, Bonnie Kavoussi, Apr 16 2012, http://www.huffingtonpost.com/2012/04/16/oecd-low-wage-work_n_1424343.html

[9] ^  ”DEAR AMERICA: You Should Be Mad As Hell About This [CHARTS]“ Business Insider, Henry Blodget, Jun 7 2012, http://www.businessinsider.com/dear-america-you-should-be-mad-as-hell-about-this-charts-2012-6?op=1

[10] ^ ”McDonalds Employee Benefits,” Job-Applications.com, http://www.job-applications.com/mcdonalds-benefits/

[11] ^ ”McDonald’s $8.25 Man and $8.75 Million CEO Shows Pay Gap,” Bloomberg, Leslie Patton, http://www.bloomberg.com/news/2012-12-12/mcdonald-s-8-25-man-and-8-75-million-ceo-shows-pay-gap.html

[12] ^ ”3rd Quarter Corporate Profits Reach Record High-Worker Pay Hits Record Low: So How Exactly Is Obama The ‘Anti-Business’ President?”, Forbes, Rick Ungar, http://www.forbes.com/sites/rickungar/2012/12/04/3rd-quarter-corporate-profits-reach-record-high-worker-pay-hits-record-lowso-how-exactly-is-obama-the-anti-business-president/

[13] ^ ”3rd Quarter Corporate Profits Reach Record High-Worker Pay Hits Record Low: So How Exactly Is Obama The ‘Anti-Business’ President?”, Forbes, Rick Ungar, http://www.forbes.com/sites/rickungar/2012/12/04/3rd-quarter-corporate-profits-reach-record-high-worker-pay-hits-record-lowso-how-exactly-is-obama-the-anti-business-president/

[14] ^ ”Google Chairman Eric Schmidt Defends Tax Dodge: ‘It’s Called Capitalism,’” Huffington Post, Bonnie Kavoussi, Dec 13 2012, http://www.huffingtonpost.com/2012/12/13/google-tax-dodge_n_2292077.html

[15] ^ “Corporate Taxpayers & Corporate Tax Dodgers 2008-2010,” Citizens for Tax Justice and Institute on Taxation and Economic Policy, Nov 2011,  http://www.ctj.org/corporatetaxdodgers/CorporateTaxDodgersReport.pdf

[16] ^ Accounting profit measures revenues – costs, which is what we think of when we ask “is a business profitable?” Economic profit is about the return on investment capital can bring. “Economic Profit (or Loss),” Investopedia, http://www.investopedia.com/terms/e/economicprofit.asp

[17] ^ ”History lessons: Understanding the decline in manufacturing,” MINNPOST, Louis D. Johnston, Feb 22 2012, http://www.minnpost.com/macro-micro-minnesota/2012/02/history-lessons-understanding-decline-manufacturing

[18] ^ ”Walmart Strike Hits 100 Cities, But Fails To Distract Black Friday Shoppers,” Huffington Post, Alice Hines and Kathleen Miles, Nov 23 2012, http://www.huffingtonpost.com/2012/11/23/walmart-strike-black-friday_n_2177784.html

[19] ^ The American prison-industrial complex is valued at roughly $2.9 billion in 2010 and the global surveillance industry at $5 billion in 2011. “The Prison Industrial Complex: The Economics of Incarceration in the USA,” INFOWARS.COM, Nile Bowie, Feb 7 2012, http://www.infowars.com/the-prison-industrial-complex-the-economics-of-incarceration-in-the-usa/

Privacy International’s Big Brother Inc., A global investigation into the international trade in surveillance technologies, https://www.privacyinternational.org/projects/big-brother-inc

[20] ^ ”Slammed: Welcome to the Age of Incarceration,” MotherJones, Jennifer Gonnerman, Jul/Aug 2008 Issue, http://www.motherjones.com/politics/2008/07/slammed-welcome-age-incarceration

[21] ^ ”Financial crisis of 2007-2008,” Wikipedia, Accessed Dec 21 2012, https://en.wikipedia.org/wiki/Financial_crisis_of_2007-2008

[22] ^ ”Prosecuting Wall Street,” Al Jazeera, Bob Abeshouse, Sep 14 2012, http://www.aljazeera.com/programmes/peopleandpower/2012/09/2012912134638276495.html

[23] ^ ”Secret Fed Loans Gave Banks $13 Billion Undisclosed to Congress,” Bloomberg, Bob Ivy, Bradley Keoun, and Phil Kuntz, Nov 28 2011, http://www.bloomberg.com/news/2011-11-28/secret-fed-loans-undisclosed-to-congress-gave-banks-13-billion-in-income.html

[24] ^ ”Nancy Pelosi Says Social Security Cut Proposed By Obama Would ‘Strengthen’ Program,” Huffington Post, Michael McAuliff and Sabrina Siddiqui, Dec 19 2012, http://www.huffingtonpost.com/2012/12/19/nancy-pelosi-social-security_n_2333285.html

[25] ^ RSA Animate – Crises of Capitalism,  David Harvey, Distinguished Professor of Anthropology and Geography at CUNY, Jun 28 2010, https://www.youtube.com/watch?v=qOP2V_np2c0