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Smoke and Mirrors:
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By John Ripton |
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"If liberal economics and its supporting institutions continue to resist transformation, the world community is likely to enter a prolonged period of gross instability marked by naked competition for resources."
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I: The Politics of National Debt and Economic Recession and Recovery The Congress' and the U.S. business community's preoccupation with the national debt - not the debt itself - demonstrates how conventional market ideology and institutional investment can bankrupt the very political will and imagination needed to address the challenges facing the nation. On the surface the clamor for debt reduction is compelling. At $14 trillion the U.S. debt is roughly equal to the nation's GNP, or the $15 trillion representing the total value the nation produces in a year. Moreover, the Congressional Budget Office projects that the 2011 budget deficit will add another $1.5 trillion to the national debt. [1] So why not address the debt directly and swiftly, cutting entitlement and other social programs to balance the budget and eventually retire the debt, as so many in Congress advise? The reason is complex yet quite evident: historically, national debt-reduction in the global economy has been destructive, a set of smoke-and-mirror strategies ostensibly designed to expand the availability of capital for investment and economic growth but actually shifting the debt from those who can and should pay onto those who cannot pay. Since those with the least financial resources have relatively weak economic and political presence at the center of government, cuts in social spending typically become the first steps toward reducing the national debt. Over all, debt-reduction plans have facilitated the privatization of public resources, broken down social services provided by the state and increased the vulnerability of poor to average income households to the vagaries of the global economy. It is a politically convenient but reckless way to approach the problem of national debt. Even in the case of rich nations such budget balancing and debt reductions weaken the financial health of vast numbers of their citizens. Entitlement programs like Social Security and Medicare that provide benefits to them in retirement and illness. Along with home purchases they represent the social capital and modest equity workers and most professionals have acquired through a lifetime of payroll deductions and mortgage payments. The striking disparity between rich and poor in the U.S., for example, suggests how financially debilitating and unjust loss of entitlement programs alone is. The bottom 60% shares less than 10% of the nation's total wealth and has 65% of that wealth in its homes. Moreover, households in the U.S. lost 35% of their homes' equity between 2007 and 2009. [2] Accordingly, the net worth of family households headed by an individual aged 50 or older declined by 35%, or an average loss of $175,000, deteriorating home values also exacerbated by income loss for millions of Americans. [3] Raiding social programs will likely transform that debt into a less tractable, more insidious impending crisis: declining income and decreasing educational and job opportunities for the majority of Americans. In the long run a poorer and less productive populace is a greater threat to economic health and national security than the national debt. Early in the economic recession - in February 2009 - the federal government seemed to recognize the need for a sizeable economic stimulus program to spur employment, improve and retool the nation's infrastructure, promote energy efficiency, and provide relief for struggling businesses, the poor and unemployed. Most economists contend that this broad infusion of capital, a $787 billion economic stimulus, helped the country avert an even deeper recession. Again, in December 2009, the Obama administration worked out an $858 billion tax plan that included extension of unemployment benefits and a one-year payroll tax holiday. [4] The mix of these and other economic stimulus programs (from improving roads and building bridges to tax credits for home buyers and cash incentives for trading in older cars) saved about 2.5 million jobs, according to the Congressional Budget Office and several well-known research firms including Global Insight, Macroeconomic Advisers and Moody's Economy.com. [5] Despite its critics, the so-called 'cash for clunkers' program in the summer of 2009 indicates how effective economic stimulus programs can be, especially when the government puts public dollars directly into the hands of its citizens, in this case incentives to trade in older automobiles for newer more energy-efficient ones. The multiplier effect in the economy is very significant. The Department of Transportation estimated the disbursement of $3 billion from the public treasury added $3.8 to $6.8 billion to the gross domestic product and saved about 60,000 jobs, strengthening third quarter economic growth. [6] In addition, by trading older models for newer models the program presumably had a beneficial environmental impact. Though there is historical and contemporary evidence that stimulus packages can work, especially when judiciously targeted for maximum economic and ecological benefits, opponents of government spending successfully discredited government intervention for public benefit in the mid-term elections of 2010. Republicans generally and 'tea party' candidates most aggressively ran against the Obama administration's economic stimulus and healthcare plan, tagging them as "job killing" and "budget busting." Fiscal conservatives and libertarian-minded ideologues focused attention on the national debt and made social spending a politically radioactive issue. As might be expected, they framed the debt in essentially two traditionally specious ways. First, the populist 'tea party' argued that government is too big. Second, the fiscal conservatives warned that the debt is too big. Moreover, each of these arguments fits within the neoliberal (conservative) economic mantra of limited government and minimal taxes. The first fears government encroachment on individual liberties. The second assumes that unencumbered or free markets (i.e. very limited government regulation) encourage economic growth and wellbeing. These arguments echo the political and economic objectives of the political right since the election of Ronald Reagan in 1980 and neither of them fits the recent historical record very well. Since 1980 the rhetoric of smaller government, deregulation and transferring federal power to state and local authority - all in the name of greater freedom, opportunity and prosperity for the individual - has significantly worsened the economic inequality in the United States. It has blinded most Americans to the troublesome reality that incomes (adjusted for inflation) for 89% of them have remained virtually flat while the incomes of the richest 1% have grown dramatically. By 2007 average family income of the upper 1% was $27,342,212 while the bottom 90% had an average family income of $31,244. [7] Moreover, the present global economic recession, largely a result of unchecked Wall Street manipulation of and speculation on mortgage-backed securities in the first place, casts severe doubt on the market's ability to generate broad social wellbeing on its own. Indeed, the living standards of the bottom 80% of Americans have been under continuous assault by the corporate class since the 1980s. The economic recession intensified this distressing phenomenon. In 2007-2009 Wall Street profits soared 720%, for example, while the unemployment rate rose 102% and, it is worth repeating, Americans' home equity fell 35%. Not surprisingly, the average CEO made 185 times more than the average worker in 2009. [8] One could argue that over the last decade aggressive concentration of wealth in the hands of a very small minority and an accompanying erosion of social capital have done much more than larger government to undermine individual liberty and opportunity for most Americans. Considering the socioeconomic and political ramifications of the recession and threatened reductions in social spending, the national debt is hardly the most critical challenge for the United States. Nevertheless, how the debt is managed will largely determine whether or not Americans successfully address the fundamental weaknesses of the market economic model and provide optimism to young and old Americans alike. The long-term viability of the economy is at stake. It will be severely compromised by the strategies pushed by the political right. A case in point is escalating health care costs, the fastest growing family expenditure at 17% in 2010 and projected to rise to 19.3% by 2019. Doing nothing about health care costs - Obama's enacted health care plan notwithstanding - will seriously impair the spending power of most Americans, causing significant harm to poorer and older Americans. [9] In other words, the conservative program will clearly exacerbate the current disparities in income and wealth, institutionalizing the acceptance of far greater extremes in unemployment, corporate profits, declining wages and incomes. On a global scale, moreover, the market model itself is the source of much social and ecological instability. Wall Street bankers and transnational corporations are global entities often pitting communities and nations against one another to garner greater profits. As wages in the wealthy countries gradually decline and as low-skill workers in may of the poorer countries face long hours under challenging work conditions to make subsistence wages, one wonders about the long-term sustainability of a global economy in which individual firms produce cheaper good to gain greater market shares when the majority of the world's population experiences greater difficulty to make ends meet. Ecological ramifications are also a concern, much of it connected to poverty and precipitous debt reduction programs. Palm oil production in Indonesia is one example. Used for cooking, in cosmetics and as bio-fuel, palm oil plantations in 2009 covered 7 million hectares of Indonesian countryside, mostly lowland tropical forests. [10] Largely due to the carbon dioxide emitted as peaty land is cleared for palm oil production, Indonesia is now the third largest contributor to greenhouse gases behind China and the United States. With Indonesia's debt to GNI (gross national income) at 30.2% today [11] increasing the pressure for greater austerity measures, one cannot expect the Indonesian government to slow the expansion of the palm oil industry. Meanwhile behemoth transnational financial and other commercial corporations openly beg for government assistance when they find themselves threatened or bankrupted by their own strategies and practices. At the same time they aggressively resist government when it comes to regulation of their activities. Indeed the inertia of Wall Street, the drag of institutionalized investments, and the myopia of market-trained economists do much to hold back even a long-term economic recovery. This is reflected at the heart of government and policy-making. When Obama entered office in 2009, he had a team of economic advisers, mostly drawn from Wall Street, led by Henry Paulson, Ben Bernanke, Lawrence Summers and Tim Geithner. Moreover, the core of Obama's economic advisers, including three of the four principal ones, were intimately involved in molding the wild-west, free-wheeling market environment that encouraged phony derivative innovation and the enormous speculation now undermining the very foundations of the global economy. Yet they are the expert macro-economic technicians charged with guiding the U.S. into its putative economic recovery. The appointment of Wall Street economists and business experts to the task of steering a passage through turbulent financial waters of their own making is sensible only to those who believe that liberal economics can push markets beyond the routine secrecy and unbridled greed. Secrecy and greed, however, drive markets, creating the economic instability in which speculation thrives. Since liberal economists intellectually resist broad government intervention in the economy, they are not likely to challenge in any critical way traditional market dynamics. But it was these dynamics that led to the financial debacle of 2009. For example, in the investment chaos leading to the present global recession Goldman Sachs ensured its junk home mortgage securities through dubious 'debt swaps' with American International Group (AIG) and then proceeded to bet against, or short, its own securities. Goldman Sachs was well aware that its home mortgage securities contained many poor mortgage risks that were bundled with solid mortgage investments and rated AAA, the highest rating reserved for the safest investments. When the poor mortgage investments were undermined by numerous mortgage defaults and bankruptcies in 2008, Goldman Sachs demanded its insurance payoff from AIG. At this point the U.S. government was forced to intervene and the very economic advisers that Obama engaged in his administration engineered the bailout that provided tens of billions of public dollars to AIG to pay Goldman Sachs and other creditors. To add further intrigue to the momentous decision undertaken by the advisers, Treasury Secretary Paulson was a former CEO at Goldman Sachs and Geithner was at the time director of the Federal Reserve Bank of New York. As earlier suggested, the seeds of the current global economic troubles were planted in 1980 with the election of Ronald Reagan. President Reagan assembled a team of supply-side economists whose ultimate goal was to disarticulate federal government regulation of industry and allow private investment a freer hand in the marketplace. This represented a tidal shift in economic thinking and policy. The ideas of John Maynard Keynes, John Galbraith and even democratic socialist Michael Harrington - all sharing a belief that the state can play a central role in improving and maintaining the welfare of its citizens - were eclipsed by the classic liberal ideas espoused by economist Milton Friedman in Capitalism and Freedom (1962). Yet the American public knows little of the assumptions, postulates and economic strategies that have driven them into the current economic quagmire. Most citizens do not have enough critical information to evaluate the efficacy of the administration's economic recovery approach but they would be appalled if they understood the crude remedy that the U.S. government is employing to bludgeon the national budget in the vain conviction that drastic cuts in public expenditure and privatization of all industry and social programs are the only way out of the current economic meltdown. It is the same strategy the IMF formalized - structural adjustment programs - over several decades in other indebted nations, especially in the developing world. Naomi Klein captured the essence of the strategy in the title of her thoroughly documented treatise The Shock Doctrine: The Rise of Disaster Capitalism, published in September 2007. As the book title implies, economic crises such as the present one bring opportunities to free-market partisans and engineers to tear apart government protections and guarantees to its citizens in order to increase capital available in private markets. Do it swiftly and broadly, counsels Nobel Laureate Friedman. The result is tantamount to a private takeover of the government, a deep compromise of the expected social contract established in the modern republic between a citizenry and its government. It is a strategy that reflects the inner logic of laissez-faire economics, what is commonly referred to as free trade, the very core of capitalist theory. Little wonder that when BP Deepwater Horizon's oil spill threatened the environment and economy in the Gulf of Mexico in the winter and spring of 2010, BP routinely referred inquiries about oil spillage volume to the federal government. Yet how many Americans, indeed how many in the American media, were alarmed that an embattled gargantuan corporation had such confidence in a government whose officials are sworn to uphold the interest of the nation as a whole, including presumably the strict regulation of any industry's impact on the environment and livelihoods of millions of Americans? One reason such questions are not often asked and the market model is seldom debated is obvious: capitalist economics has penetrated to the marrow of Americans' bones. Few question it because it has acquired the status of 'common sense' in the popular imagination. Every waking hour Americans are inundated with its disarming, debilitating consumerist propaganda. Very few institutions of higher education in the U.S., even at this time of looming global economic and environmental crises, seriously advance through their course of instruction a thorough critique of capitalism. An awakened public, however, could easily recognize the corrosive market logic in the popular commercial jargon that enters the vernacular: winners and losers; bottom line; dog-eat-dog; rat race; consumers; too big to fail; race to the bottom; at the end of the day, etc. Such terminology reflects the triumphalism, exploitation and, ultimately, moral debasement borne within the relationships constructed by uncontrolled economic competition. Moreover, virtually every innovation of the electronic age increases the exploitation of people and the natural environment, pushes the carrying capacity of ecosystems beyond its limits, and foments deeper global crises. Under these circumstances, one is compelled to ask again, is the national debt actually the problem? II: Anatomy of the National Debt and Economic Recession The 21,000 documents the Federal Reserve released in December 2010 provide astounding insight to the role of government in stimulating economic revival along free market lines. [12] In the light of these documents the conventional interpretation of the national debt acquires a wholly different character. In brief, these documents reveal how aggressively the government intervened in the private national and global economy to stem economic recession and how closely its decisions hewed toward conservative market ideology. Ironically but predictably the dominant rhetoric of the 'Reagan Revolution' with its emphasis on laissez-faire economics and deregulation so successfully pushed the politics of the nation to the right in the last three decades that Republicans and Democrats alike effectively allowed U.S. transnational corporations to police themselves. These documents show just how insidious the speculation and market manipulation driven by the financial industry have hamstrung public policy. Even with the knowledge that the financial industry had created the crisis through a reckless thirst for profits, the decisions of elected and appointed public officials - in order to save the financial industry from collapse - promoted a process of increased financial consolidation that will be extremely difficult to regulate even if the government earnestly tries to do so. In its efforts to stabilize Wall Street the U.S. Federal Reserve and the Treasury Department placed nearly $10 trillion at the behest of financial institutions and other corporations at incredibly preferred interest rates. [13] Moreover, the U.S. government literally turned into the banker for any private scheme that might sustain jobs and offer potential for freeing up credit, even if the loans they made contained potential contradictory consequences. Money was loaned to competitors of GM and Chrysler though the latter two received government funding in large measure due to lack of innovation in the face of foreign competition. Auto-manufacturing Toyota and Mitsubishi, for example, received $5 billion at cheap interest rates and the Fed invested in securities to support BMW, Volkswagen, Honda, Mitsubishi and Nissan as well. [14] Most distressingly, GM and Chrysler, instead of requesting the funds for retraining U.S. workers to produce efficient "green" automobiles, simply used taxpayer dollars to lay off thousands of workers and relocate overseas dozens of its American plants. [15] Banks from around the world also received U.S. government bailout funds. The Central Bank of Mexico received $9.6 billion. The Korea Development Bank gathered in $2.2 billion of U.S. taxpayer dollars. Most interesting, the Arab Bank of Bahrain, in which the Central Bank of Libya has a 59% interest, acquired a $3.5 billion loan from the Fed at the customary favorable bailout rate. The list of banks, national and foreign, that received federal bailout money is enormous. [16] Comparatively, the government put a relative pittance into the hands of the average American citizen, though when it did, as in the case of the federal program "cash for clunkers," it generated far more economic activity for each dollar invested than the bailout of the banks. Nevertheless, the Fed also provided billions of cheap credit to Wall Street hedge funds that use Cayman Island shelters to escape the IRS. [17] An outline of the secret deal Geithner and Paulson struck with Wall Street 2008 came to light, opening slightly a window into the inner-workings of decisions that transferred enormous taxpayer funds to huge Wall Street institutions. Apparently in 2008 New York Fed director Tim Geithner and U.S. Treasury Secretary Henry Paulson as well as Ben Bernanke of the Federal Reserve negotiated in one week the transfer of scores of billions of dollars from the federal government to Wall Street banks through AIG. Among those Wall Street banks for whom AIG had insured CDOs (collateralized debt obligations - investment-grade securities backed, in this case, by highly questionable subprime mortgages) were Goldman Sachs and Merrill Lynch, Paris-based Societe Generale and Frankfurt-based Deutsche Bank. Geithner instructed AIG to pay these mega-banks par, or 100 cents on the dollar, even though the value of the CDOs was unknown and certainly much lower. The U.S. taxpayer paid $13 billion, or 40% of the $32.5 billion AIG was forced to pay the banks. In addition, under the agreement the U.S. government assumed responsibility for the dubious CDOs whose face value was $62 billion though AIG had paid only $29.6 billion for them in the first place. Yet transcripts of these meetings were never revealed, even though they put the public in the very risky position of holding suspect investment instruments and acquiring three-quarters interest in AIG. [18] The total U.S. commitment to AIG alone ultimately added up to $182.3 billion. [19] Far from rooting out the cause of the economic meltdown, especially since at the time the main Wall Street players and instigators were communicating with the government's key economic advisers and most prominent financial officers, Geithner, Paulson and Bernanke in effect rewarded fraudulent speculation of historic magnitude. Furthermore, this same team continued to oversee the U.S. government's bailout of Wall Street ostensibly en route to national and international economic recovery. However, they required little accountability of the unprecedented public funds they were disbursing to private corporations, even individuals. Perhaps it is the arrogance of power or a reflection of the coziness of Wall Street and federal authorities, but the latter's conduct during the bailout negotiations seemed as single-minded and unfettered as the huge banks' behavior prior to the financial catastrophe of 2008. Perhaps the most transparent example of the federal authorities' loose oversight of public bailout funds is a low-interest loan of $220 million given to Christy Mack and Susan Karches, the wives of two Wall Street executives of Morgan Stanley. [20] This loan illustrates just how little control of the dispersal of public funds the U.S. government exercised. It shows how bankrupt public policy had become when faced with a systemic economic crisis partially due to the lack of public oversight of the private market. In this case two well-connected women, with little or no business experience, obtained enormous funds for personal investment from a special bail-out program (TALF – Term Asset-Backed Securities Loan Facility) that permitted them to keep any profits the loans generated and, if they lost money, the government would assume up to 90% of the original loan. [21] In other words, the wives of these millionaire Wall Street executives risked virtually nothing and received nearly a quarter-billion dollars of taxpayer money to invest as they wished. The most immediately threatening of the bailout's impact in the global economy is the commodity speculation it may generate. Companies and banks now flush with cash are fueling speculation in commodities such as oil, natural gas, even food. [22] Investment banks and hedge funds have speculated in oil futures over the past decade, reportedly driving up the price of gasoline. Approximately 70% of oil futures in now purchased by huge banks and fund speculators; only 30% is bought by airlines and other companies that actually use the commodity. Speculators, however, merely wish to flip the futures contracts for profit. Former director of the Commodity Futures Trading Commission in the 19990s and current law professor at the University of Maryland, Michael Greenberger recently remarked in reference to commodity speculation: "I'm convinced...that speculators are actively manipulating (prices)." [23] Moreover, speculation in oil can drive up the prices of many essential commodities including food. Fortunes can be made in such perfidious speculation. Goldman Sachs reportedly made very significant profits for its investors through speculation on cacao futures. [24] Rapacious speculation will inevitably drive up prices for basic goods throughout the global economy. This is irrational economic calculus. It places the stability of the global economy in the hands of a relative few private investment institutions operating in virtual secrecy with no other intent than to make money. Thus the private market eclipses governmental planning and in doing so threatens the very existence of representative government. Coupled with decreased consumer spending due to high unemployment and/or inflated prices, increased insecurity and uncertainty about the future, further exacerbated by relatively low economic growth rates, such conditions are a harbinger of economic disaster. Of course the poor throughout the world, in rich and poor countries, already experience the global market's actual volatility though the potential for deeper systemic breakdown that has been drastically multiplied by the most recent global recession. On the global scale the bail-out of the financial industry has led to some very troublesome, even threatening developments. Companies and banks now flush with cash are fueling speculation in commodities such as oil, natural gas, even food. Corporations, for example, are buying up land in developing countries to produce foodstuffs for export as the local populations endure perennial food shortages and endemic nutritive deficits. This rapacious speculation will inevitably drive up prices for basic goods throughout the global economy. Coupled with decreased consumer spending due to high unemployment, loss of income and insecurity about the economy, further exacerbated by low economic growth rates, this is another recipe for economic disaster. At this point the U.S. government's overall response to the global economic calamity has, as it turns out, facilitated concentration of wealth in the hands of a relatively small international corporate class that seeks private profits with little apparent concern for social stability and security. In the process the U.S. taxpayer has through its government's policies and practices become the insurance agency for the financial sector of the global economy. Nobel Laureate economist Joseph Stiglitz believes that the global economic recession has actually fractured the American economy into two, an echo of the dual economy argument liberal economists used in the 1960s to explain the grave disparity in living standards in developing countries. Stiglitz recently pointed to the lack of credit for individuals and small businesses - credit that was expected from the bailout of the banks - as evidence that the U.S. government has helped establish two economies in America. One is bloated with capital resources and using it in speculative ways; the other is saddled with little credit, foreclosures, and high unemployment. [25] As noted above however, the stagnant economic scenario observed by Stiglitz is not new. It has been building globally for centuries. What is new, nevertheless, is the market reach and technological sophistication of capitalism, and that has permitted the crude realities of neocolonialism to expand and intensify. Historically, the poor in the developing nations have endured the brunt of exploitation and material deprivation. In the electronically driven neocolonialist world of the 21st century, however, capital romps throughout the world, deploying one community against another, grinding against economic fault lines, undermining large swaths of livelihoods and forging significant structural unemployment even in the wealthiest nations. The U.S government's bailout of the financial system merely hastens this recent global development. But this time the global economic devastation has reached into the middle class of the developed nations. It is an economic earthquake of global proportions and now the race to the bottom is on in earnest everywhere. In explaining the nature of the new global economy former U.S. Secretary of Labor Robert Reich points to General Electric. He asserts that GE is a bellwether transnational corporation of the new global economy. Today, according to Reich, overseas markets account for 60% of GE's sales and GE has 54% of its employees outside of the United States. [26] For one, this trend in markets and labor suggests that the U.S. economic recovery will be much slower than predicted, especially for wage earners and the unemployed. The middle class is inevitably affected as high-paying jobs are lost and the resulting loss of economic vitality spirals farther downward over time. The gradual economic slide is foreshadowed by the loss of higher-paying jobs during the economic recession. Reportedly 40% of the 8.84 million private sector jobs lost were from high-wage industries. [27] Reich's point is also reflected in the value of trade conducted by foreign subsidiaries of American corporations. This trade now accounts for 29.2% of U.S. exports and 48.6% of U.S. consumption imports. Moreover, related-party trades - "trade by U.S. companies with their subsidiaries abroad as well as trade by U.S. subsidiaries of foreign companies with their parent companies" - grew 23.6% between 2009 and 2010 while total trade increased by 21.9% in the same period, according to the U.S. Department of Commerce. [28] At the same time high unemployment and lower wages, at least at the moment, do not seem to affect transnational corporate earnings. In the first quarter of 2011 Fortune 500 companies posted a 17% growth in profits. It was the sixth straight quarter of higher earnings. [29] Moreover, profits reached and exceeded pre-recession levels in 2010 as American companies collectively earned about $1.68 trillion. [30] Today U.S. companies sit on a record $940 billion in cash but little is being invested in the recovery. It is little wonder that Americans' 2011 incomes rose by only 0.4% in March and April [31] and unemployment remained high at 9% in April and 9.1% in May. [32] Meanwhile, in late April, General Electric reported $3.4 billion in earnings for the first quarter of 2011, up 48% from a year earlier. GE also reported that its banking division, GE Capital, earned $1.8 billion, three times what it earned a year ago. [33] If retiring the national debt were, after all, a mere preoccupation of a misguided political right in the U.S., perhaps enough political opposition could be mounted to advance a genuine, probing public debate on the subject. But, as might be already surmised by the direction of this argument, the furor over the national debt is a smokescreen obscuring more profound crises in the global capitalist economy. If the U.S. were actually determined to retire the national debt it would turn its attention to rampant corporate manipulation, evasion, corruption and waste. Kimberly A. Clausing, an economics professor at Reed College in Portland, Oregon, calculates that "transfer pricing" - the practice of corporations with subsidiaries in multiple countries shifting earnings and losses from one set of books to another in order to obtain the least tax exposure and gain the greatest tax credits and exemptions - alone costs the U.S. $60 billion annually. [34] The Obama administration, to its modest credit, has proposed a plan to recoup $12 billion of this lost tax revenue over the next decade. If the U.S. government actually collected the estimated $3 trillion bail-out loans in full, repealed the Bush tax cuts, tightened tax laws to minimize "pricing transfer," outlawed other accounting schemes, and closed all counterproductive loopholes, nearly one-third of the national debt could be retired immediately. Alternatively, if the government were to obtain only half of the tax revenue lost annually, over the next 10 years it could build a fast-train mass transit system of 16,000 miles, something China is in the midst of accomplishing. This would generate new construction employment without much outlay for retraining workers. And wouldn't such investment accomplish just what the fiscal conservatives are looking for: the freeing up of capital so that investments can expand job opportunities, generate greater prosperity and broaden the future tax base of the country? Yet preoccupation with national debt and a fixation on cutting social spending ignore critical systemic analyses, prevent the launch of radical restructuring needed to meet the present economic and environmental exigencies, and thus prolong the uncertain economic future of the vast majority in the U.S. and elsewhere. One primary concern in any systemic analysis on which to plan an economic recovery is the relationship between labor and technology. Many analysts regard investment in technology as an unqualified improvement, a step toward greater productivity and therefore economic growth. But investment in technology with minimal human employment can actually slow economic recovery. Such investment will likely do little for local employment and cause costly economic dislocations to be borne by local, state and/or federal governments. Thus the public has an important stake in critical economic planning and decisions normally reserved for private boardrooms in a market economy. The managing director of Vista Technologies in Vadnais Heights, Minnesota, reflected typical corporate investment priorities when recently quoted in the New York Times: "I want to have as few people touching our products as possible. Everything should be as automated as it can be. We just can't afford to compete with countries like China on labor costs, especially when workers are getting even more expensive." [35] Accordingly, last year plastics manufacturer Vista spent $160,000 hiring two new employees and $450,000 in new technology. Nationwide this is a corporate investment trend. Since 2009, now two years into Obama's recovery plan, the economy produces as much as it did prior to the economic recession but there are seven million fewer jobs. The Commerce Department reports that since 2009 business spending on technology rose 26% while spending on employees rose only 2%, as reported in the New York Times on June 10, 2011. [36] Thus public decisions and measures to stimulate a sustainable economic recovery must take account of the global investment climate. Legitimate and illegitimate corporate investment strategies move capital with relative ease throughout the world. An effective economic recovery strategy in the U.S. must account for greater capital fluidity in the global economy. Cutting taxes on the wealthiest Americans to stimulate domestic economic growth - the conventional argument from the political right in the U.S. - may not lead to domestic economic growth even if wealthy Americans decide to reinvest their tax savings. Capital flight, downsizing and outsourcing are common practices in today's global economic environment. As in developing countries, the U.S. now sees a sizeable portion of its real and potential gross domestic product value accrue in other nations with lower wages and generally less restriction on capital. These realities alone raise important questions for engineering an investment climate conducive to domestic economic recovery. At the same time it is just as clear that domestic recovery of the U.S. and other nations can only be accomplished within the framework of a more stable global economy. The era of private domination in the global economy has put humankind and the global ecosystem at jeopardy. A concerted international effort by governments must bring rationality and introduce integrated planning to the global economy. At the moment scores of policy-makers in Washington, DC support stricter control of corporate behavior. Corporate lobbies are already gearing up to blunt government efforts to limit their investment activities even though it was the very lack of government oversight that facilitated the furious speculation that destabilized the global economy. The New York Times, as recent as June 12, 2011, reported that mutual funds, other investment management companies, securities insurance firms, even New York hedge funds have launched campaigns at the U.S. Treasury, the Federal Reserve and other federal regulatory agencies to convince potential regulators that they should not be considered "too big to fail" or "systemically important," the government's new operative phrase for those companies and industries that need stiffer federal regulation. Of course the nation's largest banks - Bank of America, Goldman Sachs, Citigroup, Wells Fargo and their financial peers - cannot plausibly deny their "systemically important" status though they lobby heavily to do so. In addition to other major commercial lenders such as GE, Boeing, Caterpillar and I.B.M. as well as student lenders like Sallie Mae, some automobile finance firms and quasi-public funders such as the Federal Home Loan Banks are also gathering in line to resist proposed regulations of financial market practices. Reportedly at least two giant insurance companies - Allstate and Hartford Financial Services Group - earlier divested of their savings banks to avoid tougher federal regulation. Skeptical anonymous regulators described the disingenuous corporate lobbyists as "Sisters of the Charity." These unidentified regulators explained: "They present themselves as if they don't do anything complicated. They are playing a very interesting strategy game that nobody believes." [37] Yet tougher regulations, if they are instituted at all, will not be determined until mid-2012 and only after the finance corporations have a last chance to argue against them. If the government is to succeed in establishing effective regulation of these resourceful financial behemoths, however, government legislators and regulators will surely need an effectively articulated, prime time televised and online presidential outreach effort to educate the public on the issues and garner broad support for stronger finance regulation. Such an outreach would be a powerfully instructive way to engage the American public in participatory democracy, to transform consumers into citizens, and to balance the legislative advantage corporate lobbies hold in Washington. The ability to reach and teach the American public through electronic media has hardly been attempted by any presidency. It could be one of the most effective ways to move the public debate from preoccupation with the national debt to confronting the central challenges of our day: social justice and economic-ecological sustainability. At this moment of crisis in capitalism, the predispositions and decisions of most U.S. public officials are too important to allow secret determinations and strategies devised in corporate boardrooms to be the default basis of American domestic and foreign policy. Several political campaigns are necessary. First, the public must compel federal regulatory agencies to rein in the power they have given to Wall Street. Second, a public debate must clarify how much of the national debt is itself attributable to direct and indirect advantages that the country's largest corporations and the corporate elite have exploited through historically low tax rates, free trade zones and treaties (i.e. NAFTA, CAFTA, etc.), deregulation, outsourcing, innovative accounting practices, and relocation in low-wage, low-tax regions of the world. Third, laissez-faire capitalism must become publicly debated engaging voices from all political spectrums and moving the debate from a national to a global level, from a strict focus on economic growth to consideration of sustainable growth. Ultimately a compelling question will come to the fore: Is the evolution of capitalism connected to the present global economic crisis and, if so, how can its enormous energy and resources be harnessed to an overdue technological and social revolution, one that is ecologically sustainable and engages people in establishing a healthy balance between public welfare and private opportunities? III: Toward a New Revolution in Human Industry As earlier argued, the present challenges of economic recession and concentration of wealth in an American corporate class can be ameliorated. The disastrous course these two economic developments portend can even be reversed if the U.S. government uses its legislative and regulatory powers to move the nation toward a sustainable future, to inspire young people to acquire new skills and enter cutting-edge professions that will power a 'third revolution in human industry,' a greener productive system and global economy based on renewable sources of energy and material along conservationist principles. Debating a dubious national debt crisis prolongs the suffering of the unemployed and poor, imperils public expenditure on people's welfare, and allows a corporate class to raid public coffers for the funds to sustain only its own wealth, whether or not it invests the capital it has purloined of taxpayers' earnings in a greener future. By requiring American corporations and the wealthiest Americans - less than 1% of all taxpayers - to assume their fair share of taxes, the U.S. can make significant progress toward amortizing the national debt while stimulating greener domestic industry. In 2007, for example, the 400 wealthiest Americans with an average adjusted gross income of $345 million paid only 17% of income in taxes, down 26% since 1992, and far less than the rates of 70-90% of the 1950s and 1960s when social programs buoyed the average American and, later in the 1960s, actually reduced the incidence of poverty in the United States. [38] Interestingly, even in the current era of the Bush tax cuts, annual tax revenues still cover roughly two-thirds of the 2011 and the projected 2012 federal budgets. A repeal of the Bush tax cuts alone would yield three trillion dollars over the next decade for debt relief and green economic recovery. [39] A crucial part of the remedy for the severe financial crunch the U.S. public now feels also involves shutting down the spigot of public cash that has flooded banks and other corporations with ample reserves and lifted their profits to historic levels. [40] Of course Department of Defense military appropriation and contracting constitute one of the deepest sinkholes for misappropriated and lost public funds transferred to private companies. Much of the trillions spent on wars in Iraq, Afghanistan and Pakistan has gone to military contractors, from food service vendors to private special operatives and security personnel. Without going into it in this paper, the defense budget obviously accounts for a large part of the national debt. A significant measure of the trillions should be redirected to alleviating poverty in the very areas where conflict exists; this too would contribute to economic wellbeing throughout the world. Moreover, if corruption in this system was seriously investigated, cases successfully prosecuted, and contracting strictly regulated and enforced, the U.S. could save billions more for debt reduction and economic recovery at home and abroad. With the U.S. defense budget for 2011 edging toward $1 trillion, nearly doubled since 2001 and presently amounting to 43% of total global military expenditure, there is plenty of room for cuts. [41] Nevertheless, despite corrupt practices by military contractors widely reported in the media, more than half of the nation's defense budget continues to be spent on contracts with private firms. Closer examination of the national debt reveals not only the extraordinary financial sophistry hidden within public and private ledgers but, as already stated, also diverts attention from the radical systemic changes that are needed at this critical moment in the development of the national and global economy. Today's socioeconomic and environmental crises are inextricably linked. Without international cooperation on a global scale predictable occurrences such as a relatively brief breakdown in a critical commodity chain - food, for example - due to broad speculation or natural disaster could generate destabilizing secondary economic effects, foment fear of another global economic collapse, foster political instability, even escalate to military confrontation. These are fearsome prospects, likely the most daunting humans have ever faced. At the same time, though, the social and political platform for promising alternative investment and new economic thinking already exists. The wide appeal of socialized health care and retirement funds throughout the world is a substantial platform on which a new global paradigm can be constructed. Even in the U.S. surveys consistently reveal substantial popular resistance to cutting Medicare, Medicaid and Social Security. Moreover, the present neoliberal prescription of balancing budgets and reducing national debt by privatizing popular publically-funded social programs is further tangible evidence that conventional economic logic runs counter to addressing critical social and environmental needs. As argued throughout this paper, the capitalist market model is inherently unstable and, without fundamental reform, it is quite incapable of addressing the pressing ecological and social needs of the 21st century. Its insistence on constant economic growth to mobilize and generate new capital combined with its commitment to absolute private control of production and profits is a principal reason the world stands at the precipice of ecological and economic disaster. Years will be needed to adequately reorient the course of this highly productive but environmentally destructive model. But just as social security and national health care programs make sense to those who lived through the Great Depression of the 1930s, national and international cooperation on green initiatives and aggressive regulation of private enterprise will emerge as core values of the 21st century in the U.S. and throughout the world. With the world's largest consumer market and tax base as well as the most sophisticated technological industry, the U.S. is in a prime position to stimulate investment, employment and innovation in green industry. At the same time, however, U.S. institutional investment in nonrenewable resources and ideological resistance to government intervention in the marketplace restrict the necessary public debate that could gain broad public support for an alternative economic vision. As a result, the U.S. government presently invests very modestly in green technology and, perhaps more troubling yet, its strategy for this investment suffers from the same weaknesses that characterized its bailout efforts. The government channels its money to corporations without obtaining clear investment plans from the private sector, demands little or no accountability, and offers no coordinated strategy to achieve a sustained economic recovery based on renewable resources and eco-friendly industry. Examples abound of private companies that have received public economic incentives to produce and market green innovations in the U.S. that have simply moved their operations to other parts of the world. Evergreen Solar, Inc. based in Massachusetts, for example, used $58 million in government assistance to build silicon wafers and cells and assemble solar panels in that state in 2008. By 2009, the company moved its manufacturing to China to take advantage of lower wages and other cheaper operating costs. Still other examples underscore the lack of vision and poor economic planning of the federal government. NatCorp, a company in New Jersey, developed thinner solar panels making them more efficient and less expensive to produce. Since no American company evinced interest in NatCorp's important innovation it too sold the rights to manufacture these solar panels in China. Arizona-based First Solar, Inc. also recently reached agreement with China to build the world's largest solar plant in the Gobi Desert. [42] The failure of the U.S. to develop a national green technology plan has concrete, quantifiable ramifications for its economic recovery. A recent report from the Pew Environment Group's Global Warming Campaign warns that the U.S. is not adequately investing in clean energy and risks losing global leadership in this emerging industry. Moreover, it identifies green industry as the core of economic recovery. Phyllis Cuttino, the Pew group's director, reports, "Even in the midst of a global recession, the clean energy market has experienced impressive growth. Countries are jockeying for leadership. They know that investing in clean energy can renew manufacturing bases, and create export opportunities, jobs and businesses." [43] Regardless of the argument for world leadership in green technology, biological sciences and rational economic thinking lead to one conclusion: it is clearly prudent to invest in a greener economy. Indeed, greener energy investment worldwide, while in its initial stages, has outperformed investment in oil and natural gas in the current economic recession. In 2008 the worldwide growth of investment in renewable energy was already 25% greater than the global growth of investment in oil and natural gas, the former increasing by 6.6% and the latter falling by 19%. In 2009 China surpassed the U.S. in investment in renewable energy, investing $34.6 billion in renewable energy projects as the U.S. committed only $18.6 billion. Most of the solar panels and soon most wind turbines bought by U.S. corporate customers and individual buyers will be imported from China. Among the 20 developed nations in the G20 group the U.S. ranks 11th in investment in clean energy with only 0.13% of its gross domestic product invested in green energy products. [44] The political forces dragging on U.S. domestic and international policy constitute a critical threat to humankind. Misplaced priorities and agenda perpetuate the social inequity and economic productive processes that are actually accelerating humankind's collision course with the planet's ecological and geological evolution. The institutional investment born of enormous capital accumulation and production following the 'second industrial revolution' at the turn of the 20th century set humanity on this course. The 'electronic revolution' of the late 20th century dramatically fueled capitalism's growth. If worse afflictions of enormous environmental degradation and social injustice are to be avoided, the era of unquestioned, unchecked liberal economics cannot be countenanced for much longer. Capitalism's aggressively productive, exploitative regime now hastens its own transition into a new global politic and economy. If liberal economics and its supporting institutions continue to resist this transformation, the world community is likely to enter a prolonged period of gross instability marked by naked competition for resources. On the other hand, if social justice and economic sustainability become central to policy-making a reformed and more rational market can play a crucial role in the future. But when global crises redound on themselves, from poverty to retreat into religious fundamentalism with its atavistic violence and political chaos, from global warming to shifts in cultivable land and growing seasons with little to nothing done by leading governments to address their root causes, then political pressure to find alternative ways to address these convoluted and interrelated social and ecological crises will rapidly mount. At that junction in history - and ample signs suggest it is already here - humanity will enter one of its epicyclical periods of dramatic political and social revolution leading to a new, more sustainable economic regime. In this transformative period ideologies and education outside of the recalcitrant states and institutions will bring the critique of capitalism into the public forum. Once liberal economics and the market's inherent instability are illuminated and broadly understood by the common person it will become imperative that the state find ways to temper and balance with social and ecological goals the materialistic greed and economic growth associated with historical capitalist development. The U.S. can engineer an alternative market climate that will generate investment in selected green technology, building new industries engaging the country's technological resources to train and employ American workers in establishing an infrastructure for the 21st century. From constructing fast-trains and improving energy efficiency in urban transit systems to reconstruction of bridges, tunnels and the interstate highway system, from improving shipping ports to upgrading and more efficiently integrating the nation's energy grid, from retrofitting public buildings with the latest green efficiencies to adapting solar, wind and other alternative energy strategies to existing and newly-constructed residential and commercial buildings, a coordinated national green economic campaign to employ the labor and skills of Americans, employed and unemployed, unskilled and professional, can actually revive the American economy. Clearly collective international policy must support and reinforce domestic social and economic goals, lifting many millions from poverty at home and abroad and offering hope to those still impoverished. Neoliberal strategies to use the national debt as an excuse for breaking down social programs is destabilizing, counter-productive, ecologically destructive, and socially regressive. It takes political vision, a deliberate strategy to usher in these changes, to engage and educate the public in the issues surrounding the necessary reforms. It takes political leadership with courage and determination to challenge the corporations and their omnipresent lobbying and campaign contributions, to use public spending for the social good and for the economic and ecological long-term benefits that alternative, greener technologies and participatory democracy promise. It requires an assertive public educational campaign including using mass media to outline the benefits to Americans as well as counter the liberal economic argument that government interference is a drag on growth and that less regulation will enable private businesses to create new jobs and new wealth. Imaginative, responsible leadership will make investment on behalf of future generations instead of succumbing to the institutional forces of corporate profiteering and individual gain at the expense of humankind's very survival. John Ripton is History Chairperson at Gill St. Bernard's School in Gladstone, NJ and adjunct professor at Rutgers University. He participated in meetings with Israelis and Palestinians in Israel in June 2007. He writes for journals, magazines and newspapers on international affairs.
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