Economic Issues

All You Need to Know about Neoliberalism-But Were Afraid to Ask

If you understand neoliberalism, which has been the paradigm for government policy since the Reagan administration, you'll understand the how and the why of just about every single governmental policy stance taken in the last 30 years. Neoliberalism is actually just another name for supply side (trickle down) economics. But before you go running off saying, “Economics is too complicated for me!” rest assured that it's all really quite simple to understand. After all, most of you are students of Steven Grumbine's MMT lessons. I can assure you, this is far less complicated than anything Steve talks about.

All you have to remember is that supply side economics is all about maximizing corporate profits. Yep, that's it. If you can remember that, you'll understand the totality of what has happened to America since the 1980's, and how we have devolved from a country with the highest income equality in the world to a country with the third highest income inequality in the developed world.

So, if you were a government official, what could you do to help private corporations increase profits? You could help them either by increasing revenue or by decreasing expenses. The neoliberal agenda has focused governmental policy on both. According to neoliberal theory, the benefits resulting in increased corporate profits would “trickle down” to the consumer in the form of cheaper consumer products, and thus leading to economic growth. However, in practice, corporations have overlooked their end of the bargain and failed to pass some of their largesse onto the consumer, despite exponentially increasing profits.

Decreasing Labor Costs

At the time when neoliberalism policy commenced in the US, labor costs were high. The unions were powerful and demanded high wages, and expensive benefits. So, in the first year of his first term, Reagan struck a big blow to the unions, as one of his first acts to launch his neoliberal agenda. In August 1980, Reagan went after the air traffic controller's union, and after negotiations failed, he fired all striking air traffic controllers on the spot. This was a small step towards weakening the unions, but it set the stage for a subsequent 20 years of union busting. Since then the political parties have continued to weaken unions and to create “Right to Work” states. As a result, we now have a workforce in which 40% of the workers are part-time or contractual, without negotiating power, and little job security. Real wages (adjusted for inflation) have been essentially flat for the last 20 years.

The next major assault on American wages was Clinton's approval of NAFTA, and government sponsored programs that encouraged American manufacturers to offshore jobs to Mexico and overseas, mainly to China. One example was the Federally-funded Trade Adjustment Assistance program, which was designed to provide Federal subsidies for companies, which were relocating their manufacturing overseas, and for the American workers, who were displaced as a result of offshoring. This program substantiates that the Federal government was complicit in encouraging American companies to export good-paying American jobs overseas. It has been estimated that 5 million American jobs were offshored since the neoliberal agenda commenced.

At the time when American jobs were being transferred to China, the yuan was worth one tenth of a dollar, and Chinese labor was very cheap. When, for example, Nike shipped the manufacturing of its shoes from the US to China, the cost of manufacturing a pair of sneakers dropped from $5 to $.50. In addition, since Nike was now contracting for a manufactured product, it no longer needed to invest capital expenditures in factories, etc. With labor costs dropping by more than one tenth, corporate profits zoomed. At that point, a company such as Nike, had saved hundreds of millions in labor costs alone. Thus, was the beginning of mega salaries of upper management, and super-priced celebrity marketing, such as multi-million dollar contracts with the likes of Michael Jordan.

Corporate De-Regulation

Corporate regulation provides protections for consumers in several ways. For example, FDA and EPA regulations safeguard consumers against the sale of unsafe edible products, as well as air and water pollution. But, these types of regulations are costly for corporations, and diminish the bottom line. A recent UN study concluded that a vast majority of corporations could not turn a profit if they were responsible for environmental clean-up costs. Under the neoliberal agenda, the US Federal government has stripped away much of the funding for government regulatory agencies, repealed many regulations, and relaxed enforcement of others. A prime example is the fact that the fracking industry is exempt from the Clean Water Act regulations, despite the fact that hundreds of toxic chemicals and radioactive materials are added to fracking water, which makes its way to waterways that supply our drinking water.

Another example of de-regulation is the repeal of the Glass-Steagall Act by the Clinton Administration. This law was originally enacted after the Great Depression to safeguard our banking system. It was designed to protect peoples' money by precluding commercial banks from investing, particularly in high risk investments. As long as the G-S Act was enforced, the banking sector was very stable, there were very few bank failures, and the foreclosure-to-loan ratio was historically low. All that changed after the G-S Act was repealed. Within years after the repeal, the housing industry boomed as a result of low interest rate mortgages and easy money, banks became more and more creative in increasing credit through risky innovative investments. The subprime mortgage back securities industry broadened the base of those qualified to purchase mortgages for home ownership. But, these consumers were a high risk. At one point, they stopped paying, and the whole house of cards collapsed; sending the global economy into the worst financial crisis since the Great Depression.

The subsequent TARP program, which rewarded those banks that defrauded investors through fraudulent investments, was also a component of the government's neoliberal policy of privatized profits and socialized losses. Thus, the banks knew in advance that they could invest for maximum profits with the assurance that, if anything went wrong, the government would indemnify their losses. The fact that 50% of the Congressional members, and 75% of the Senate members voted for TARP is an indication of how deeply embedded neoliberalism is in our political system.

The Sherman Anti-Trust Act, which was passed in 1890, was designed to protect consumers from monopolistic control by corporations. Also known as “competitive law,” it attempts to prevent the artificial raising of prices by restriction of trade or supply through the preservation of the competitive marketplace to protect consumers from abuses. By promoting competition, and therefore lower prices (thus lower profits), the law is the antithesis of the neoliberal paradigm.

In true allegience to the neoliberal agenda, in 2001 the Department of Justice settled a case with Microsoft, which had been accused of violating anti-trust laws when selling Web browser software that was only compatible with the Microsoft product, Windows, and thus stifling competition of other software products. By settling in favor of Microsoft, the DOJ essentially paved the way for future monopolistic corporations. Currently 6 giant multinational media corporations controll all of the media in the country. The much-anticipated merger of Time Warner, which is worth $100B with AT&T, which is worth $360B demonstrates exactly how obsolete the Anti-Sherman Trust Act truly is. The offspring will be a $460B multi-national corporation, which will control much of the country's cable and wireless communications system.

Ending the Progressive Tax System 

From the end of World War II until the Reagan administration, the US had a very progressive tax rate system that discouraged huge salaries, and slowed the accumulation of vast amounts of wealth by the rich. Between 1981 and 1986, Ronald Reagan slashed upper bracket tax rates from 70% to 23%: the largest tax break in U.S. history. The top rate has since crept up to 35%, but is still only one half of the previous top rate on top income brackets. The so-called rationale for cutting taxes on the rich, as espoused by the conservative pundits, such as Rush Limbaugh, was that cutting taxes on the rich would result in the creation of more jobs for the middle class. This is also referred to as "trickle down economics." We all now know that it was all propaganda designed to glorify the rich, and get us to accept the incredible flow of money into the pockets of the rich.

As every astute student of Steven Grumbine's economic class knows, taxes don't fund spending. And, therefore, why would it even matter if a highly progressive tax rate structure were reinstated on the rich? Actually, it matters for two reasons: 1) to reduce the rapid accumulation of wealth by the rich; and 2) to provide a disincentive for mega-salaries. The low progressive tax rate has led to mega-salaries such as the average CEO earning more than 400 times the average worker, which is ten times higher than the ratio was back in the 1960s when the highest tax bracket was 90%. These mega-salaries are directly related to the growing income inequality that continues to plague us today. Taxing high income brackets is one way to discourage mega-incomes, as well as to slow the rapid accumulation of vast wealth. If, for example, income above $1M was taxed at 70% and income greater than $2M was taxed at 80%, there would be little incentive to earn more than $1M.

Privatization of Former Government Functions

The rise of neoliberalism is also related to the unprecedented levels of mass incarceration of the poor in the United States. Sociologist Loïc Wacquant argues that neoliberal policy for dealing with social instability among economically marginalized populations has resulted in the retrenchment of the social welfare state; privatization of public functions; including the prison system, and the rise of an underpaid, and precarious group of wage earners. Essentially, poverty has been criminalized so as to provide the private corporate-owned prisons with slave labor. It is legal because the government has stripped these people of almost all their human rights, and thus private corporations are free to exploit them for essentially free labor.

By contrast, the neoliberal system is extremely lenient in dealing with those in the upper echelons of society, in particular when it comes to the economic crimes of the privileged classes and corporations. Thus, the US, with the highest imprisonment rate in the world, did not prosecute any bankers for the 2008 financial crisis that admittedly almost resulted in the collapse of the entire global financial system. The Obama Administration, which has indicted more people under the Espionage Act than all prior administrations combined, gave war criminals, Bush, Cheney, et al., a free pass. Traitor Petraeus walked away with a slap on the wrist and Hillary Clinton skated. Compare this to felony charges against peaceful unarmed water protecters at Standing Rock Sioux Reservation. We officially have a centaur state, with little governmental oversight for those at the top and very strict control of those at the bottom.

The Republicans have been screaming about the Affordable Care Act since its inception. The private health insurance companies actually supported the concept of providing insurance coverage for uninsured with pre-existing conditions, not for altruistic reasons, but because it would expand their consumer base of Medicaid-subsidized patients. In fact, Medicaid expenditures increased 11% the first year alone. In addition, ACA was designed to increase the personal household load of healthcare expenditures through higher deductibles, premiums, and co-pays. These changes were somewhat disguised due to government subsidies. However, in 2017, the chickens will come home to roost. The average plan is slated to increase more than 15%, and in eight states the increases will be closer to 30%. These increases are partially a result of reduced competition in the health insurance marketplace, and because states will have to take on a larger burden of the Medicaid subsidy. 

The TPP, TiPP, and TISA are all the nadir of neoliberalism. If passed, the combination of the three “free trade agreements” would grant private corporations more power than sovereign nations in 51 countries that comprise two thirds of the global GDP. Corporations will continue to steer labor where it is the cheapest, extend patents and copy rights making products more expensive, and invicerate governmental regulations. Noam Chomsky has said the TPP is, “designed to carry forward the neoliberal project to maximize profit and domination, and to set the working people in the world in competition with one another so as to lower wages to increase insecurity.”

Most recently, Trump has postponed the TPP, at least for now. Whether he and the Republican Congress are really opposed tot he TPP remains to be seen. During his campaign, Trump said that he would not support free trade agreements, and may even work to repeal NAFTA. However, some believe that the Republicans are postponing the passage of the TPP for the purpose of expanding it in the future. We've seen from past presidents that campaign promises are meaningless. Thus, the fate of the TPP remains to be seen.

Although Trump ran an anti-establishment populist campaign, anyone with hopes that the neoliberal agenda will die a slow death under his administration, need only look at his cabinet choices, and stated proposals. His healthcare agenda consists of repealing Obamacare and shunting Federal Medicare and Medicaid funds directly to private insurance companies. This is a prototype neoliberal scheme to increase corporate profits through increased government subsidies while cutting services to consumers. His plan also calls for the utilization of personal health care savings plans, which will clearly further increase the burden of health care costs on families. It remains to be seen whether Trump's proposed plan of increasing competition among the health insurers will help reduce health insurance premiums. 

Trump's proposal for building infrastructure is lifted right out of the neoliberal playbook. Trump's plan calls for funneling government money to private corporations already working on infrastructure projects. Specifically, these companies would get tax subsidies of up to 82% of the cost of the project, and would ultimately be granted ownership of the public works project. This is just another scheme of utilizing public funding to maximize private profits. Once private corporations own our public works projects, such as our roadways, bridges, water resources, sewage plants, costs for these essential services will certainly rise. 

In conclusion, neoliberalism has created a monster and the application of its principals is destroying the country. Wages have been driven so low, many Americans can barely afford life's necessities. It is an agenda that the rich have utilized to gain incredible power to feed their endless greed. It is an agenda in which those in power have marginalize 80% of the population. From preventing the poor from voting to forcing the middle class into huge debt-loads to get a college degree just to qualify for a decent job, to imprisoning the poor; the Elite are determined to retain their power to feather their own nests at the expense of the rest of us. If we intend to reverse this process, we must start supporting political candidates who are against all that neoliberalism stands for.

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