Bell Curve The Law Talking Guy Raised by Republicans U.S. West
Well, he's kind of had it in for me ever since I accidentally ran over his dog. Actually, replace "accidentally" with "repeatedly," and replace "dog" with "son."

Wednesday, March 18, 2009

What is Behind the AIG Backlash

I think what's really happening with the AIG bonuses is not so much about whether AIG got taxpayer money or not. I think the real issue is that most Americans have been quite deluded for some time about the state of the economy, and had no idea of the kind of insane inequities in wealth distribution we have in this country. Most people are shocked to learn that there is a class of corporate executives and financial sector employees for whom $1 million bonuses are part of life. How are we going to keep good people if we don't pay $1m bonuses? - AIG's Liddy asks. The average American is just stunned by the news. Yes, we really do live in a country where high-level executives can destroy the largest insurance company on earth, get paid millions in bonuses nonetheless, while literally hundreds of thousands of middle class employees lose their jobs. Yes, we really live in a country where CEOs get paid not just $1m or $10m but $30-$100m even while their companies slide down the sh*tter on their watch and they have to lay of tens of thousands of people.

The essential political bargain of the mid-late 20th century American capitalism has been that massive inequality in wealth would be tolerated so long as they paid their fair share of taxes and the ordinary people could have a decent life and some measure of job security and could achieve some semblance of the "American dream" - a nice house in which to build up equity to pass on to the next generation, two cars in the garage, 9-5 workday, a small vacation now and again, health insurance and reasonable education for the kids. And so long as some of the spots at the very top were open to the truly ambitious of the middle class.

Ronald Reagan began the process of destroying this bargain. He argued that if business were "set free," a rising tide would lift all boats. He dramatically lowered the tax burden on the wealthiest and placed it on the middle class. As has been said, a rising tide lifted all yachts. Government, he said, was not the solution, but the problem. The result? We lost the 9-5 workday, vacations, health insurance, a lot of good public education, and a lot of social mobility. In so many places, it seemsthat you send your children to private school or face far inferior public schools. 50 million Americans lack health insurance, and tens of millions more have HMO coverage so bad they might as well not have health insurance. We work longer hours. Now the housing too is blowing up. This is a warning, the essential political bargain is finally falling apart. People are beginning to doubt that what's good for GE is really good for America.

President Obama ran for office, more or less, on a promise of undoing Reaganism, although he won't take him on by name. We all know that's what this is about - unwinding the Gordon Gecko path we set upon in the 1980s. President Obama also realizes that this social bargain was created, in part, by progressive government action (GI bill, public spending on universities, federal and state student grants, home mortgage deduction, federal support for first-time homebuyers, medicare and social security for the elderly) and strong labor unions who helped set the standard for working conditions across the country.

To my mind, this is what fundamentally divides Democrats from Republicans, by the way.

There's a reason the GOP - the party that represents that business class - is trying to ride this all very carefully.


Raised By Republicans said...

I think LTG is mostly right about the scope and scale of this. And I think he's dead on about the symbolic importance of the AIG bonuses to Americans who have largely ignored the increasing economic disparities for the last couple of decades (because lots of people's incomes were going up just at much lower rates than the mega rich).

The GOP vision of American political economy in both its Reagan and Bush variants has failed. The problem is that the FDR New Deal (and the Great Society update of it) had already failed by the time Reagan came around - it's failure is what opened the door to Reagan et al.

The challenge facing Obama and the Democrats is to establish a NEW New Deal for the 21st Century that reestablishes something like the social contract embodied in the original New Deal without denying the importance of the new globalized market forces. We need to find a trade friendly way of protecting the weakest among us and providing some kind of safety net for the rest.

This is a daunting task but it is possible. Many countries have experimented with trade and market friendly versions of the welfare state with some success. I'm talking about the Scandinavian countries, the Netherlands and to some extent, Germany. Notice I did not mention the GOP's favorite straw man - France.

Raised By Republicans said...

I could also point out that post-Thatcher and post-Blair Britain has a much more equitable welfare state than do we and are fundamentally pro-trade and pro-market. It is possible even in large economies.

I Love Corporations said...

I will serve Corporations
Even when I say I won't
I have a dream
I want a good life
2.5 kids and a country home

They're in control

tacola321 said...

Please people, before you submit yourselves to the horrible conditions placed upon you by profit hungry capitalists, remember your rights as Americans, remember those of your children as well!

“We the people of the United States, in order to form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity..."

It is your right as an American to secure justice and tranqueility in your own country! is economic depression and capitalistic slavery what you want for your children after you are dead and gone?

Fight for them, you have the right! as Karl Marx's once said "workers of the world unite! you have nothing to lose but your chains!"

Anonymous said...

congrats on the blog. I wish you luck. You have a nice writing style and make good points.

Jonny said...

I was watching CNBC last night (???) and they had this program about how rich hedge fund managers have got over the last 8 years... It's insane. These guys are making close to a billion dollars a year. BILLION. The whole system is outrageously corrupt.

I'm hoping that everyday Americans finally realize that the Republicans are not on their side.

(That's not to say I hold the Democrats not accountable... certainly many are.)

Anonymous said...

This is an unsustainable system. The minority in America are the rich, they don't spend enough to allow the trickle down effect to displace the wage vacuum created by these hyper inflated incomes.

There are no incentives to be a responsible, fair investor anymore. It seems that either people are sleeping through the corporate ethics class, or now they are teaching how to make as much money as possible and shrug off the horrible collateral damages of such uninhibited greed. I mean, who cares about sustaining a reputation when you can make billions and retire after 4-5 years of theft and fraud?

I believe that people will slowly come around and sober up. Demanding more transparency and a standardized system for reporting business conduct to the general public. If people want to get outraged over anything, it should be the lack of oversight exhibited by both the government, investors, and news medias shoddy reporting.

We can only hope to figure this out before we slide to a second rate nation making cheap plastic goods for export to China and India. Hope you guys are investing in these emerging nations, because you'll stand a much better chance to gamble on a newly forming economy super power, than hoping greedy Americans aren't robbing you blind and getting off scot-free.

P.S. This isn't just a Democrat vs Republican thing. It's exactly what news media would like to cultivate to direct attention away from actual reform.

The Law Talking Guy said...

What's sad is that the real culprits in all this rarely suffer. Sure, a few will suffer publicly, but most will just take their winnings and move on. The real sufferers are always the powerless people, the people at the bottom. The real pain is not in the financial sector, but in the towns and cities across the rest of the country where economic activity is grinding to a halt because businesses cannot get their operating credit anymore.

It is the same lesson that can be drawn from any political or economic revolution. The poor and powerless suffer. It doesn't matter if the end result is better for more people, the pain is still great and it can be hard to argue that the ends justify the means. This is the lesson of trade liberalization too, even if - eventually - more people benefit in the long run. The midwest is littered with the remains of the dramatic economic changes in the 1980s and 1990s that ultimately made the coasts very rich and increased GDP alot. Major political changes come at a huge price.

To my mind, this is why we must be vigilant about preventing these excesses, because doing reform later always hurts those least able to help themselves.

And when we contemplate major changes, as we are being forced to contemplate now, policymakers must begin by thinking in the first instance, how to mitigate the harm done to the poor and powerless. That is too often just an afterthought, if at all.

The Obama administration will restore some of the economic regulation and control that existed a generation ago. The cost will not just be that the lure of get-rich-quick schemes in houses or dot-com stocks or derivatives trading will be gone. The cost is that economic recovery will be slower and unemployment will linger. The cost is that huge debts we must now repay will be a significant burden on the next forty years of taxpayers, weighing us down perhaps, we hope, not as much as WWII debt destroyed Britain. Middle class dreams will have to be scaled back. At least Obama understands the need to plan ahead. This is why education and health care reform (read: government subsidization) continues to be his number one agenda. That will be needed if the next generation of Americans, the one toddling around now, can experience the social mobility and open horizons available to the boomers in the 1960s.

Raised By Republicans said...

LTG, do you mean to imply that de-industrialization was a political decision in the sense that the government could have chosen NOT to have the factories close down?

Or are you making a more nuanced argument about government responses to deindustrialization which is something that was not directly the government's doing?

The Law Talking Guy said...

Deindustrialization resulted from many economic forces, but it also resulted from political decisions to lower tariff barriers, to destabilize foreign governments that were hostile to US multinationals setting up businesses there, and the new relationship with China. Other decisions could have been made that would certainly have delayed deindustrialization for a good long while, perhaps even allowing transitions rather than pure creative destruction,

Raised By Republicans said...

Please elaborate on what decisions you mean and what kinds of transitions you imagined.

Do you think continuing the policies in place from the Great Society would have made the recession we were suffering in the late 1970s and early 1980s less severe or go away sooner?

It's easy to say "an open economic relationship with China is bad" and "lowering tariffs is bad" but what is your proposed alternative?

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