Capitalism: A Love Story
I am going to attempt to contextualize the movie from my perspective on the current crisis:
The graph shows the difference between what we make for capital (productivity) and what we get paid (wages) in real terms (adjusted for inflation). The differential between the two is profit, which is income that goes to shareholders, executives. This excess capital is, in large part, reinvested into what Keynes called the 'casino' of finance capitalism. With the progressive deregulation of finance over the past 30 years, culminating in the elimination of Glass-Steagall Act in 1999, the stock market increasingly became the locus of business for global capital. The returns that could be made by 'beating the average' speculation on the markets was far in excess of what could be made in investing in productive investment. Therefore, the amount of capital invested in 'fixed investment'--investment that creates physical capital, and therefore employment--as a percentage of GDP has progressively gone down since the 1980s. Indeed, since the year 2000, the amount of jobs in the United States has not increased, but the amount of people who went onto the market increased by 12 million, which helped to depress wages further and helps explain why 'real unemployment' in the US is reaching 16 percent! Thus, the gap represents the income that goes to the top 1% of our society, which helps explain why inequality in the US is at the highest level since the 1920s, poverty is at alarmingly high levels, wages as a share of GDP is at near historic lows and where so much money came from to inflate the financial markets. The historic 'social compact' of capitalism, that the rich would be frugal and invest for the employment of the workers has obviously broken down. As Paul Krugman states: "Neither the administration, nor our political system in general, is ready to face up to the fact that we’ve become a society in which the big bucks go to bad actors, a society that lavishly rewards those who make us poorer."
Contrary to the explanations of neoclassical economists and other apologetics for neoliberal capitalism, this situation is a choice, a creation of political struggle between financial capital and labour not a 'natural' outcome of the 'free market'. The attack against the union movement in the 1980s by neoliberal governments like Thatcher (breaking the coal miners strike, 1983) and Reagan (breaking the air traffic controllers strike); and with the opening up of capital markets worldwide through free trade agreements and IMF enforced Structural Adjustment Policies (SAPS) that forced developing countries to adopt neoliberal policies at the pain of insolvency; workers in the West could no longer demand higher wages due to the internationalization of capital and the effective expansion of the labour market. What the graph shows is that the neoclassical defense of capitalism, that workers wages reflect their productivity is patently false. Workers get pay commensurate with their productivity by FIGHTING for it, there is nothing 'natural' about the market system.
The myth that 'increasing your skills' will lead to higher wages is to engage in an endless game of chasing your own tail. The fact is that, thanks to IT, skills are increasingly cheap and easy to acquire. This means that more and more people will acquire the skills internationally, undermining the position of a 'skilled' worker unless he goes onto to an even higher level of skills that eventually will not be sufficient, as persons in the Third-World can undercut his labour costs with the same skill set. The only way for workers to have wages to rise in line with their productivity is to threaten capital with strikes and stoppages, to support pro-labour governments, and to make transnational unions that make it increasingly difficult for capital to play one set of workers against other workers.
However, the top 1% have other ways of getting our money apart from pure exploitation. For instance, they have 401k accounts. The 401k is essentially a big swindle as most investors have the faintest idea of what they are investing in and with all those trillions of retirement funds sloshing around the markets, the losses of the average worker's retirement account is a gain for hedge funds and other 'insiders'. These elite group of investors and banks have the institutional power to determine where the markets go, the 'free market' at work. As Peter Gowan argues:
"the New Wall Street System was dominated by just five investment banks, holding over $4 trillion of assets, and able to call upon or move literally trillions more dollars from the institutions behind them, such as the commercial banks, the money-market funds, pension funds, and so on. The system was a far cry from the decentralized market with thousands of players, all slavish price-takers, depicted by neo-classical economics."
Thankfully, Bush's plan to privatize social security--a multi-trillion entitlement--was stopped. Bush's plan amounted to a taxpayer subsidy for the speculative players on the market, essentially the privatization of taxpayers. But, just imagine if it had been privatized; with the implosion of the stock market in the past years, millions of seniors would have been forced to work, or worse.
Another way that workers are being swindled is credit. This crisis is essentially a crisis of underconsumption, meaning that what is being produced is unable to bought by those who produce it. The graph is a visual representation of that crisis; however, this crisis of underconsumption had, until now, been avoided for three decades due to an ever expanding line of credit to consumers to the point where you could buy a house without having to present a name or income: the infamous NINJA loan. However, with the increase in interest rates in 2007, consumers were no longer able to afford the payments and the entire financial system was thrown under the bus. The banks, in order to lend more and reduce individual risk collateralized the debt, throwing good debt with bad into CDOs and other financial 'innovation'--the justification for the 'liberalization' of financial markets was so that 'innovation' would lead to greater access to credit and lower cost to consumers. In so doing, the financial industry essentially reduced individual risk and lower costs for consumers, but massively increased systemic risk, which in the end was the immediate cause of the crisis. The inability to determine the value of the financial asset, due to the mixing of good and bad debt, lead to the de facto insolvency of the banks. Therefore, the real cost to the average consumer is in the trillions,largely in the form of interest bearing debt that will have to be paid by future generations, due to the bank and shareholder bailouts.
Here is the problem that Michael Moore will probably deal with, that the bailouts did not come with any real strings. The result is that the financial industry is making profits again, but in the same way they made them before. As Paul Krugman stated in a recent op-ed;
"The American economy remains in dire straits, with one worker in six unemployed or underemployed. Yet Goldman Sachs just reported record quarterly profits — and it’s preparing to hand out huge bonuses, comparable to what it was paying before the crisis. What does this contrast tell us?...it shows that Wall Street’s bad habits — above all, the system of compensation that helped cause the financial crisis — have not gone away...it shows that by rescuing the financial system without reforming it, Washington has done nothing to protect us from a new crisis, and, in fact, has made another crisis more likely...What’s clear is that Wall Street in general, Goldman very much included, benefited hugely from the government’s provision of a financial backstop — an assurance that it will rescue major financial players whenever things go wrong...You can argue that such rescues are necessary if we’re to avoid a replay of the Great Depression. In fact, I agree. But the result is that the financial system’s liabilities are now backed by an implicit government guarantee.If these lobbying efforts succeed, we’ll have set the stage for an even bigger financial disaster a few years down the road. The next crisis could look something like the savings-and-loan mess of the 1980s, in which deregulated banks gambled with, or in some cases stole, taxpayers’ money — except that it would involve the financial industry as a whole."
Back to consumer credit. Credit amounts to another way that income is filtered back to the top 1%. The logic is simple, you are paid insufficient wages, therefore you require credit to maintain a decent standard of living. The payments you make go to who? The banks and credit card companies and those profits go to the owners of the institutions. But it gets even more perverse, banks and other financial institutions are increasingly making more and more of their profits BECAUSE workers are broke, as Jon Stewart said recently on The Daily Show, "they are making BECAUSE the customers are broke". They are making much of their profits on overdraft fees and other fees based on people's inability to pay!
How does one get trapped into the credit crunch? The credit is given to you at attractive rates, we all get those 'limited time offers' to induce you to get into the trap of debt. This has a historical parallel with the beginnings of capitalism with the 'wage advance'. As Stephen A. Marglin argues, "Wage advances were to the capitalist what free samples of heroin are to the pusher; a means of creating dependence...Wage advances legally bound the worker to his master" (79); and credit legally binds the consumer to finance capital in a embrace that can only be broken through self-imposed poverty--since, as we have seen, wages are insufficient to cover more than the most basic of costs--, bankruptcy or the accumulation of even more debt to pay off the older debt. A friend of mine who works for a credit card company once told me what her boss stated, and I paraphrase "we want them pay until they die". The intention is for an individual to basically only pay the interest and the fees, because if someone actually pays their principle, then they don't make money.
Peter Gowan puts it best:
"The stock-market bubble of the 1990s raised the paper value of the private pensions of the mass of Americans, thus giving them a sense that they were becoming richer and could spend (and indebt themselves) more. The housing bubble had a double effect: it not only made American consumers feel confident that the value of their house was rising, enabling them to spend more; it was reinforced by a strong campaign from the banks, as we have seen, urging them to take out second mortgages and use the new money for consumption spending...This Anglo-Saxon model was based upon the accumulation of consumer debt: it was growth today, paid for by hoped-for growth tomorrow. It was not based upon strengthening the means of value-generation in the economies concerned. In short, it was a bluff, buttressed by some creative national accounting practices which exaggerated the extent of the American boom and productivity gains in the us economy.36"
Trickle-up economics continues...
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