Capitalism, Socialism, Social Plutocracy: An American Crisis

Capitalism,

Socialism, Social Plutocracy:

An American Crisis

Copyright © 2014 John H. Skinner

Published by John H. Skinner at Smashwords

Smashword Edition, License Notes

This ebook is licensed to you only. It may not be re-sold or given away to other people. If you would like to share this book, please purchase an additional copy for each recipient. If did not purchase this book, or it was not purchased for you only, then please return to Smashwords.com or your favorite retailer and purchase your own cope. Thank you for respecting the hard work of this author.

This publication provides information that may be helpful regarding the topics covered. It is sold, however, with the explicit under-standing that nothing written within should be considered as rendering professional, financial, political, or legal advice. If advice is required it should be sought from the proper source. The author specially disclaims any liability that is incurred through the use or application of any contents of this book.

Contents

Chapter 1: Introduction

Chapter 2: Distribution of Wealth and Power

A Model of Income and Power

The U.S. Middle Class

Class and Privilege

Chapter 3: Technological Change and Jobs

The Rise of Robots and the Loss of Jobs

High Frequency Trading

Technological Threat to Employment

Technology-Here to Stay

Chapter 4: Offshoring, Outsourcing and Job Loss

Short-Term Thinking, Long-Term Effects

Bleak Future

Chapter 5: Jobs and Income Security

Low Interest Rates – A Double Edged Sword

Presidential Policies

Challenges to the Existing System

Unions

Age and Unemployment

Changing Support for Retirement

Social Security and Retirement

Other Sources of Retirement Funds

Job Tenure and Retirement

Government Intervention in the Past

Three Keys

Chapter 6: Labor Force Participation

Age and Labor Force Participation

To be Unemployed

Chpater 7: Income Inequity

Income by Quintile

..Inequitable Distribution of Income

..Income and the 1%

..The Precarious Class

..Tax Transfers and Reducing Inequality

..Poverty Among All Americans

Chapter 8: Credit and Indebtedness

..Debt and Saving

..Home Foreclosures: The Demise of the American Dream

..Middle Class Living Standard

..Consumerism

Chapter 9: Education in a Changing World

..Educational Performance

..Educational Opportunity

..Education Solutions

Chapter 10: U.S. Health System and Access

..Not Just Health Care

..Why U.S. Health Care Costs so Much

..Access to Health Care

..High Cost Prescription Drugs

..A Move Toward Universal Health Care

Chapter 11: Impacts on Minorities and Women

..The Minority Wealth Gap

..Effects of Discrimination

..Lingering Effects of Disadvantage

..Economic Pressures on the Family

..Disproportionate Criminal Justice

Chapter 12: Plutocracy and the Political Economy

..Sold to the Highest Bidder

..Undermining Social Programs

..Plutonomy

..Move to Privatize Government

..Private Contractors

..Control through Fear

..Band-Aid Approach

..Vision of Democracy

..The Need for Mass Political Action

..Obstacles to Democracy

Chapter 13:Government Subsidies to Support Capitalism

..Government Support of Business

..Other Government Interventions in the Free Market

..Free Markets are not so Free

Chapter 14: Addressing the Future

..Sharing the Wealth Held in Common

..Minimum Wage

..Rebuilding the Labor Force

..Reassessing the Role of Employment

..Saving Social Security

..Tax Reform

..Health Reform

..Political Reform

..The U.S. as a Functional Social Plutocracy

..Civil Unrest

..Creating a Positive Future

End Notes

References

Acknowledgements

About the Author

Chapter 1

Introduction

I hope we shall take warning from the example [in England] and crush its birth the aristocracy of our moneyed corporations which dare already to challenge our government to a trial by strength, and bid defiance to the laws of our country.

Thomas Jefferson (1817)

The United States has been the beacon of hope for Americans and for many other countries. It has been the hope of those seeking freedom and opportunity. It has been the hope of becoming well educated, of achieving middle class and above. The U.S. held the hope of building a career, of providing for one's family so the next generation would exceed the success and happiness of the current one. It has been the hope of equal rights, and the promise of participating in a democracy where every vote counts. Living in the U.S. fostered the hope of achieving the American Dream. However, fulfilling the Dream is becoming more and more elusive. Eaves (2007) quoted Azar Nafisi, a professor of Advanced International Studies:

The negative side of the American Dream comes when people pursue success at any cost, which in turn destroys the vision and the dream. … If you come to America in search of the dream … then you realize that many people … don't even dream anymore—how do you suppose that feels?

The U.S. was built on the principles of free enterprise in a capitalist economy. With a political system of representative democratic ideals, the U.S. became a model for many other nations. Considered the greatest economy in the world, the U.S. offers the most stable source of economic investment. The World Bank (2014) reports the U.S. Gross Domestic Product (GDP) is $16.8 trillion, followed by China at $9.240 trillion. However, looking forward, the World Bank (2014) predicts U.S. economic growth will grow only 1% in 2015, while other high-income countries are predicted to grow over 2%, and the global economy is projected to grow over 3% through 2016. China is predicted to sustain its growth at over 7%.

The U.S., as the only country involved in WWII that did not experience production and infrastructure disruption, became the world leader in many areas.

This has changed. Jones (2005) summarized:

Yet over time Europe and Japan closed the technological productivity gap with the United States. The emergence of a U.S. deficit on its balance of trade in the 1960s, and the devaluation of the U.S. dollar and the end of its convertibility into gold in 1971, provided symbolic signs of the ending of an era.

With a free enterprise system and creative innovation, it seems the U.S. should retain its leadership. New and more expansive ways of using computer technology in banking and finance created investment booms. Technological developments and growth bolstered the economy. The promotion of credit debt enabled individuals to purchase now and pay later. The creation of free trade agreements and the use of offshore production and services have facilitated greater corporate profits.

These successes have had unpredicted and far-reaching side-effects that have disrupted the social and economic fabric of the country. Samuelson (2013) described how airlines and interstate highways had a deleterious impact on railroads in the twenty-five years between 1945 and 1970. He also describes how air conditioning led to the migration of factories and businesses from the Northeast to the South. Additionally, superstores replaced small neighborhood markets. Buses with internal combustion engines took the place of electrified trollies in most cities. The U.S. moved from an industrial economy to a service economy, and from a manufacturing society to a technological information society.

There is evidence that the middle class is shrinking and the American Dream is vanishing. The economy is being reshaped by extant developments and the consequences of those developments. The future of the U.S. is being impacted by several major factors:

Technological changes and jobs

Offshoring of manufacturing and services

Income inequities

Employment opportunities

Effects of unemployment

Credit and indebtedness

Education

Health care

Minority and gender inequities

Plutocracy and the economy

Threats to democracy

Government support of capitalism

The following chapters examine how these major forces are influencing the American Dream. The final chapters offer long term solutions. As George Bernard Shaw (1901) wrote, The worst sin towards our fellow creatures is not to hate them, but to be indifferent to them: that's the essence of humanity.

Chapter 2

Distribution of Wealth and Power

Capitalism has destroyed our belief in any effective power but that of self-interest backed by force.

George Bernard Shaw (n.d.)

The Great Recession of 2008 illustrates a shortcoming of U.S. capitalism. In hindsight, experts blame the recession on a complex mixture of fiscal conditions and policies including the sub-prime mortgage crisis, high-risk lending and borrowing practices begun in the early 2000s, the imbalance in international trade, government fiscal policy, income disparity, and the housing crisis. Fair trade agreements led to offshoring and outsourcing strategies that helped the corporate bottom lines of international corporations while costing jobs. Negative savings schemes allowed consumers to use credit to purchase products and services that could not be purchased otherwise, continue to make payments after the products were no longer relevant. The recession resulted in mortgage foreclosures and job losses. Luhby (2013) reports:

Mid-wage occupations such as office managers and truck drivers accounted for 60% of the job losses during the recession, but only 22% of the gains during the recovery, according to a National Employment Law Project analysis of Labor Department data. Low-wage positions, on the other hand soared 58%. … Uncertainty and insecurity are weighing down the middle class, even those who haven't had a break in employment. More than 40% of those surveyed in a recent Rutgers University study said they were very concerned about job security.

A Model of Income and Power

An examination of the current performance of the free enterprise capitalist system reveals that higher income tends to flow to the few households at the top, while less income flows to the greater number of households at the bottom. Figure 1 is a symbolic representation of this phenomenon. This chart shows that as income increases, the proportion of the population decreases. The highest amount of income is distributed among the smallest proportion of the population. The largest proportion of the population is found at the lower level of income. In between is the middle class, the major engine of production and consumption.

Figure 1

Symbolic Representation of the Income Distribution in the U.S.

Historically, a healthy middle class equaled a healthy economy; as the middle class went, so went the economy. Capitalism rewards a minority who make enormous amounts of income dependent on the large majority who, through their participation in the economy, enable that concentration of wealth. However, when the concentration of wealth at the top does not include a concurrent growth at the lower levels, the perception of fairness is lost. Makers cannot be successful without a large population of consumers of their products or services. The lower income levels of the population do not benefit from the growth of the economy, yet those at the highest levels benefit greatly.

Figure 1 also has an analogous interpretation: as income increases with an associated smaller population, so does political power – the minority in the upper income bracket (ten percent and fewer) holds the political power, leaving the lower income groups (the 90%) with less political power. Thomas Jefferson (1825) warned, The end of democracy ... will occur when government falls into the hands of lending institutions and moneyed corporations.

The U.S. Middle Class

In the past, the U.S. economy has been successful in protecting the ten percent hegemony by maintaining a relatively large middle class. The middle class has served as a buffer for the upper-class ten percent of the population. As long as there was a relatively large middle class, public attention was diverted from the economic gains of the upper tenth. The majority of Americans strived to achieve middle class, and hopefully to even become upper-middle class. The success of the very wealthy served as a point of aspiration for the middle and lower classes. The hope of achieving economic success and upward mobility fueled the American Dream. At the same time, those at the top diverted attention away from themselves by promoting disparaging opinions about the poor and near-poor.

The U.S. population has historically considered itself middle class. The ethos of the 20th century was to build a strong middle class with a lower class aspiring to become middle class. The perception of the American Dream has been an affective illusion that stabilized the population. As long as the majority of the population perceived itself as middle class or at least aspired to be middle class, the upper-class could feel secure. Young (2013) reported:

Americans living in middle class neighborhoods in the 117 largest metropolitan areas have declined in numbers. In 1970, they comprised 65% of the population; now, it's 44%. Over those 43 years, Americans living in the poor neighborhoods grew from 15% of residents to 30%, while Americans living in the rich neighborhoods (increasingly exurbs) grew from 7% to 14%.

While no single definition of the middle class exists, one approach is to consider those with household incomes at or around the median. The following figure uses those household incomes that are within 50% of the median income. Figure 2 shows the middle class comprised 50.3% of household incomes in 1970. Since then, there

Figure 2

Decline of Size of Middle Class 1970-2010

Year

has been a continuing contraction of the middle class: 47.3% in the 1980, 45.6 % in 1990, 44.2% in 2000, and 42.2% in 2010, for a total decline of 8.1% over the last forty years. This decline in the number of the middle class households occurred while the incomes of the highest income households (five percent of households) continued to grow.

Horn (2013) offers another definition of the term middle class:

Economists often start with the middle 20% of the country – people between $39,000 and $63,000 a year – and work their way out. Some then stretch the definition to include the middle 60%, which has an income range of $20,000 to $102,000. Because that's a wide range, other factors come into play: home ownership, savings, a college education.

For many citizens, the middle class is more than just income level. It represents a standard of living: home ownership in a nice neighborhood with good schools, a career rather than a job, and advanced education opportunities. As the U.S. is increasingly a technological and service economy, education remains essential to growing the middle class.

Rohe and Watson (2007) examined the importance of land ownership and the right to vote as early as the 18th century. They state home ownership has long been central to participating in the American Dream. As early as the birth of the nation through the nineteenth-century the right to vote was based on land ownership. Levin (2013) expounds:

Today, more Americans dream not of affluence, but of basic financial stability. That's what both retirement and freedom from debt have in common. When Americans dream of retirement and freedom from debt, they dream of being able to exhale. Homeownership is a little different. Rohe and Watson frame it as an aspirational component of American citizenship. Others believe that you haven't really made it until you own a home. However, the failure to own a home is generally not a source of stress in the same way drowning in debt and the inability to retire are.

The number of Americans living in poverty has also increased. HartLandsberg (2014) summarized annual data from The Annie E. Casey Foundation on the status of American children ages 18 and under. In 2012, 23% lived in poverty, up from 19% in 2009. Thirty percent of all children lived in households where no one had full-time, year-round employment. He summarized a Los Angeles Times study of the Federal Reserve: four out of 10 American households were straining financially five years after the Great Recession of 2008 – many struggling with tight credit, education debt and retirement issues.

Class and Privilege

Historically the upper class has used the middle and lower classes as cannon fodder to fight for causes primarily benefiting the rich. Zinn (1999, p. 60) wrote that in the years leading up to the American Revolution the lower classes were manipulated into aiding the causes of the rich. The educated and landed gentry needed to do something to persuade the lower orders to join the revolutionary cause. It was necessary to shift anger toward England, away from the educated gentry. The elite ruling class was made more secure from internal problems through war. In the days prior to the hostilities with England, there had been considerable disruptions, riots, and insurrections among the lower class colonists, white indentured servants, and free Negroes directed against the colonial landholding rich. Class privilege in the colonies was well-entrenched. For example, in Boston, Philadelphia, and New York, court records show that a small minority controlled almost half the taxable assets in the cities.

Zinn (1999, p. 90) wrote of Charles Beard, a historian who published a controversial book in 1935, exposing the