The U.S Economy on FIRE

by MARK GABRISH CONLAN, Editor

Copyright © 2008 by Mark Gabrish Conlan for Zenger’s Newsmagazine • All rights reserved

Ever heard of FIRE? It’s an acronym for Finance, Investment and Real Estate, the sort of economic activity that has become the most important part of the U.S. economy. San Diegans know to their cost how dangerous fires can be — great swaths of this county burned in 2003 and again in 2007 — but the losses of life, property and environment from real fires pale by comparison to the likely result of the conflagration sweeping through the FIRE sector of this country’s economy.

If you read the mainstream media, you’ll be told that today’s U.S. economic crisis started with the collapse of a boom in housing prices fueled by so-called “subprime mortgages,” housing loans given to people who couldn’t really afford to buy houses at low “teaser” interest rates that increased — “reset” — in a few years. The trick was to refinance the loan before it reset — which was built on the assumption that housing prices would always rise. When they stopped rising last year, hundreds of thousands of Americans were faced with foreclosure — and when they lost their homes, the values of their neighbors’ homes also went down and millions of homeowners who’d avoided the pitfall of subprime borrowing nonetheless found themselves owing more on their houses than they were now worth.

But the real roots of today’s crisis stretch back much farther — to the early 1970’s. As a result of reforms instituted to fight the Great Depression of the 1930’s and the successful economic stimulation from the deficit spending that financed America’s participation in World War II, the U.S. had achieved a surprising degree of economic stability for a capitalist country. In the 1950’s, American workers (white male ones, anyway) got high wages, good benefits and seemingly lifelong job security. One-third of the U.S. workforce was represented by labor unions — the highest percentage in this nation’s history — and this helped boost the earnings of nonunion workers as well. Depression-era reforms like the Glass-Steagall Act of 1934, which forbade consumer banks, investment banks and stock brokerages from being parts of the same company, worked to block the kinds of stock manipulations and outright scams that had led to the 1929 stock market crash that sparked the Depression in the first place.

Things started to change in the 1960’s. President Lyndon Johnson’s well-intentioned effort to extend the benefits of the New Deal to the people of color who’d been excluded from it, and the flamboyant “counter-culture” of the white youths of the decade, sparked a racist and cultural backlash that evaporated the New Deal coalition which had made the Democrats the majority party since 1932. At the same time, Johnson’s attempt to finance the Viet Nam war without a permanent tax increase undid the fragile bonds that had held the 1950’s economy together and created the phenomenon known as “stagflation” — in which prices rose (inflation) without boosting economic growth or improving wages (stagnation).

The result was a political revolution in which, between them, Republican Richard Nixon and independent George Wallace won 57 percent of the 1968 presidential vote between them, to 43 percent for Democrat Hubert Humphrey. This was the sign that American politics had “realigned” in a strongly Right-wing direction, confirmed in the 1972 election in which Nixon stigmatized Democrat George McGovern as the candidate of “acid, amnesty and abortion” and demolished him at the polls, 61 to 39 percent. Ever since, American Presidential politics have been dominated by a coalition of the libertarian Right, committed to reversing the New Deal and returning to the unregulated “free-market” economics that brought about the depressions of 1873, 1893 and 1929; and cultural “social conservatives” determined to squash the new career, lifestyle and sexual freedoms women and Queers claimed in the 1960’s and early 1970’s.

In the early 1970’s, America’s corporate ruling elite decided to use these political changes to stop real growth in wages and income for most Americans and grab more resources and profits for themselves. Promoting deregulation and the “free market,” they have successfully driven down real wages for U.S. workers every year since 1973, with just two exceptions: 1999 and 2000, the last years of the Internet boom and the Clinton administration. They have put through so-called “free trade” agreements under which they’ve shipped almost all of America’s once-mighty manufacturing base overseas to countries like Mexico and China, whose governments actively suppress labor organizing and enforce sweatshop conditions. They’ve busted so many unions that the organized share of America’s private-sector workforce has fallen from one-third to less than 8 percent — indeed, if it weren’t for unions’ success in organizing government workers there wouldn’t be a labor movement in this country anymore — and they’ve essentially forced women into the workforce by driving wages so low it’s no longer possible to do the middle-class lifestyle on just one income.

The response of American workers has been to take on more debt. The U.S. now has a negative net savings rate — which means we’re spending more than the total value our economy creates. Much of the borrowing has taken the form of credit cards, but those in the American working class who were lucky enough to buy a home before the corporate elites began their relentless assaults on our incomes saw it as a less dangerous way of leveraging themselves than living on credit. Lulled by the myth that “home prices only go one way — up,” throughout the 1990’s and 2000’s homeowners essentially used their residences as ATM’s, confident that they could borrow against their equity and be able to refinance whenever the added debt threatened their ability to make their payments.

Now that the gravy train of ever-increasing home values has come to a shuddering halt, the reaction of our corporate-dominated government has been to use tax money to bail out the corporate elites, particularly all those people in the FIRE sector who cooked up ever more elaborate investment schemes to fleece ordinary people out of more and more money. The estimated cost of the “bipartisan” bailout currently being proposed by the Bush administration and “debated” by the Congress with the same unseemly haste with which they passed the constitution-destroying USA PATRIOT Act six weeks after 9/11 is $700 billion — about one-third the estimated value of the entire U.S. economy. What’s more, none of that is going to go directly to working people or jeopardized homeowners. Rather, it’s going to go to the giant banking/investment/brokerage firms that formed when Congress repealed the Glass-Steagall Act in 1996 and therefore gave the green light for today’s financiers to pull the same shenanigans their forebears had in the 1920’s, with the same destructive results.

The corporate elites and their handmaidens in both major U.S. political parties (the deregulation frenzy actually began in the late 1970’s, when Democrat Jimmy Carter was president and Democrats had majorities in both houses of Congress) have been able to pull this off because there isn’t an organized mass Left to stop them. In the 1930’s there were large socialist and communist parties in the U.S. as well as populist leaders like Huey Long and Francis Townsend who openly questioned the assumptions of capitalism and attracted mass followings to movements dedicated to redistributing wealth and income to working people. In the 1960’s there was no longer a mass American Left — the persecutions of the McCarthy era had taken care of that — but there were strong civil-rights movements among people of color and a so-called “New Left” incubating on college campuses that showed potential in rebuilding it. When Martin Luther King, Jr. was killed he had planned a giant “Poor People’s Campaign” to use his favorite tactic — massive nonviolent protests — to attack not only racial discrimination but the fundamental injustices of capitalism itself.

With nothing to fear from a mass Left, and with politicians utterly beholden to them for the money to fund their campaigns and stay in office, corporate elites can now order policies from Congress and the state legislatures with the same confidence of getting exactly what they want as fast-food patrons order meals at McDonald’s. They can win so-called “tax relief” from a government willing to sweeten the pot with $600 rebate checks for working taxpayers while the corporations and their wealthy owners rake in millions and decimate the government’s ability to finance real reform. They can deregulate the media industry to ensure that most Americans hear only the pro-capitalist, pro-corporate, pro-“free market” ideas they want them to hear. They can get passage of a draconian bankruptcy bill severely restricting the ability of working people to restart their lives after debts — mostly health-care bills, which are the cause of over half the bankruptcy filings in the U.S. today — sink them. And when they start to lose the game, they can plead that they are “too big to fail” and the government has to bail them out at ordinary taxpayers’ expense.

It would be easy enough to list the economic reforms needed to fix the structural problems that have led to the impending firestorm of the American economy. Among them would be reinstatement of Glass-Steagall; aggressive antitrust action to break up the huge financial conglomerates; passage of the card-check bill so employers would have to recognize a union as soon as a majority of their workers joined one; abolition of complicated so-called “derivative” securities and regulation to ensure transparency in the financial markets; a sweeping reform of global trade agreements so they benefit working people instead of economic elites; a universal single-payer health care system so Americans no longer have to fear that illness will destroy them financially; and, above all, a U.S. industrial policy to ensure that our economy is once again based on the actual creation of value through goods and services, not the socially worthless speculations by which the FIRE crowd make their money.

But none of these are possible in a political system in which both major parties are dependent on corporate contributions to stay in business. Real reform will go beyond economic measures and will probably require amendments to the Constitution to reverse two of the most obnoxious U.S. Supreme Court decisions of all time: the 1886 ruling that declared that corporations are “persons” and therefore have the same civil rights as flesh-and-blood humans; and the 1976 ruling limiting restrictions on political campaign funding on the ground that money is “speech” under the First Amendment. As long as corporations and wealthy individuals have almost unlimited ability to fund American politics — either directly through campaign contributions or indirectly through “soft money” or “independent expenditures” — and as long as there is no mass Left capable of scaring the capitalist elites into believing that their entire system may collapse if it doesn’t reform — U.S. politics will continue to favor the rich and campaigns will continue to be fought over the cultural or “values” issues on which the Republican and Democratic parties still differ.