by Gregg Robinson (reposted)
Leona Helmsley said it best. Rules, the billionaire real estate investor was famous for saying, are for little people. The last few years have taught us that Ms Helmsley was right about how the American economy works. The rules of the market must be allowed to operate if they punish poor and middle class people, but these same rules must be ignored if they affect the rich and the powerful. That is, ordinary citizens of this country are supposed to bet our jobs, savings, and hopes on the market, and if this bet fails we are supposed to suffer in silence. If on the other hand, billionaires play with money like it was a monopoly game, the government must step in to assure “financial stability.” Thus it is “capitalism for the poor and middle class”, but “socialism for the rich.”
The best example of this is what is currently happening to our financial system. The federal bail out of Bear Stearns is only the latest of the firms the government has stepped in to shore up. Bank of America Mortgage, among others has also felt the need of “government support” for its deal for Country Wide. Lehman Brothers, another one of the slash and burn capital firms, is probably next. Yes, I know that the shares of these companies have been devalued, but the heads of these institutions walk away from them as millionaires, while the rest of the country will have to pony up the billions it will take to bail them out. The Princeton economist and columnist Paul Krugman has estimated tax payers could end up paying as much as three trillion dollars before this bail out is finished.
On the other hand, how are millions of low income home owners treated in this crisis? Many economists, including the advisor to Barak Obama, have warned us there is a “moral hazard” if we bail them out. These working class people have been left to twist in the wind while the Bush administration “encourages” mortgage holders to voluntarily renegotiate the loans of distressed home owners. As a consequence, millions of these working class families will lose their dwellings over the next two years.
Now, how about the war in Iraq? I am not merely talking about the fact the rich and powerful lied us into that conflict (over 920 of them according to a recent expose). There is also the cost of this war. According to Joseph Stiglitz, the Nobel prize winning economist, this was will end up costing us at least three trillion dollars. All past wars have been financed through tax increases, but not this one. No, the Bush administration lowered taxes as we went to war. Now take a guess who got their taxes lowered? This is a war that would make Ms Helmsley proud. After all, not only are rules for little people, so is sacrifice for their country.
Speaking of sacrifice, the cost of this war will be born, according to Stiglitz, by the American middle class. One of the biggest costs, he argues, will be for the disabled soldiers who come home. Roughly forty percent of the combat veterans will return with some form of disability. The most common injury: brain damage. Stiglitz uses the cost of previous wars (particularly the 1990 conflict in the Persian Gulf) to estimate that these healthcare and disability costs will total in the hundreds of billions of dollars. These costs plus the expenses of the war itself produce the three trillion dollar figure. All of these costs, however, have been pushed into the federal deficit. That is something we, our children, and our grandchildren will be paying off through our tax bills over the next fifty years. Thank God the tax code distributes this burden so fairly (for a discussion of how “fair” this burden is, see the recent book by David Cay Johnson).
Finally, there are the costs of our retirement and health systems. The Bush administration began its second term hyping the crisis in Social Security. The last I heard, we baby boomers haven’t gotten any younger since this issue disappeared from the headlines. In the meantime, private sector employers are walking out on their obligations to their retirees, leaving Social Security to pick up the slack. While the Bush administration exaggerated the crisis of this system in order to scare the country into “privatization”, there are real costs here. The Center for Policy Initiatives estimates that long term costs could total as much as four trillion dollars.
Unfortunately, this figure is dwarfed by the cost of Medicare. Here the obligations could be as much as two times what Social Security will cost, according to the CPI. Much of this cost is the result of our economic elite’s choice to provide healthcare through private insurance companies. We have the most costly, bureaucratic, and least efficient healthcare system on earth precisely BECAUSE we choose to deliver much of it through the market (see the January issue of the Annals of Internal Medicine for an excellent cross national comparison).
With these mounting costs, there is a statistic that I don’t think has gotten the attention it deserves. Since the Bush administration has taken office we have seen a business cycle like no other. While we have experienced normal growth of the economy since the end of the last recession in late 2003, the average American household has seen its income decline. The median household income today is about one thousand dollars (adjusted for inflation) below what it was in 1999. This means that the entire benefit of the last four years of economic growth has gone to roughly five per cent of the American population, with everyone else experiencing a decline. There has not been a business cycle like this one since we have kept records. A rising tide no longer lifts all boats in our economy; it is only the yachts that benefit.
Three trillion dollars for a bail out of the financial system, three trillion dollars for Iraq, untold trillions for our retirement and healthcare systems, and average Americans with declining incomes; where is all this money supposed to come from? There is a growing consensus among many economists that our financial crisis will have to be solved by a decline in the standard of living of the country as a whole. Any bet WHOSE standards are most likely to be affected? Wall Street has an answer: bend over America you are about to experience the wonders of the market. The American people will deserve to be kissed in the next few years: when people are screwed this badly the least they deserve is a good kiss. Leona Helmsley couldn’t be happier.