How the 1% Took America's Wealth--and How to Get It Back
Column by Glen Allport.
Exclusive to STR
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Plundering Wealth vs Producing Wealth
In recent decades, the rich have gathered an increasing share of the total wealth in the United States. As this wealth disparity grows and especially as large numbers of the formerly middle class fall into poverty and even into homelessness, this flow of wealth from main street (from anyone not seriously wealthy) to those who already have extreme wealth, becomes more obvious – and more suspect.
Much of this transfer of wealth to the rich from those of lesser means is either of questionable legality (not to mention ethics) or flatly facilitated by political corruption or cronyism.
"$16,000,000,000,000.00 had been secretly given out to US banks and corporations and foreign banks everywhere from France to Scotland. From the period between December 2007 and June 2010, the Federal Reserve had secretly bailed out many of the world’s banks, corporations, and governments. The Federal Reserve likes to refer to these secret bailouts as an all-inclusive loan program, but virtually none of the money has been returned and it was loaned out at 0% interest."
In many cases, the cronyism and corporatism is happening in plain sight, as when our government pays premium prices to contractors for work that taxpayers are already paying the government to do – outsourcing of military and security work in the Middle East being a well-known example. For instance, the Wikipedia article on XE Services (formerly Blackwater) quotes a Congressional report that alleges "Blackwater charges the government $1,222 per day per guard, 'equivalent to $445,000 per year, or six times more than the cost of an equivalent U.S. soldier'" (Erik Prince, Blackwater's co-founder and CEO at the time, disputed that figure). Either way, given that the U.S. spends almost as much on its military as the rest of the world combined, why are we paying large numbers of private contractors to do what taxpayers already pay the military to do?
The world's top 7 largest military budgets in 2010, courtesy Wikipedia. Figures sourced from SIPRI
Here at home, with more Americans than ever too poor to feed themselves, JP Morgan has found a way to turn that misery into yet another multi-million-dollar income stream. Putting it colorfully, the more children we have on the edge of hunger in America, the more money JP Morgan makes as the largest processor of food stamp benefits in the United States (the food stamp program is now called SNAP). We're not talking small potatoes here: "JP Morgan executive Christopher Paton admits that this is 'a very important business to JP Morgan' and that it is doing very well." The chart below shows why that might be so:
Chart from Zerohedge.com
Question: Why does a huge, well-connected bank need to be involved in a government program designed to feed the poor? The trillions of dollars taxpayers spend on government aren't enough to let some government agency or department handle this themselves? Our Treasury Department certainly knows how to disburse money (as do scads of other government entities); why are we shoveling more of our money to the mega-banks for this?
Much of the growing transfer of wealth to the rich is in fact only possible because of government coercion. Many of today's corporations (some portion of our military contractors, for instance) would not even exist in a free society, and those which did exist would have to be selling something that people (not government) were willing to pay for.
But today, we don't have a free society, and government power is massive enough to make or break any corporation or industry. Government power is now being used to hand billions and even trillions of dollars to failed businessmen (many of whom failed due to serious fraud, as with "liar loans" in the banking industry) and to connected corporations and other groups. Today, government control of various industries (misleadingly called "regulation") enables bad corporate behavior, stifles competition, allows massive pollution to go unpunished, and raises prices to artificial and even absurd levels. Today, corporations and special interest groups pull vast amounts of money from the masses unfairly, using the State's coercive power to their advantage in a hundred different ways – against the rest of us.
It is these people and groups – the ones whose wealth grows because of government action instead of from honest service to others in the market – who have impoverished the great mass of Americans. For the purposes of this essay, then, "the 1%" means "wealthy people whose wealth derives from the use of government coercion."
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The Rich Who Aren't Part of the 1%
The rich whose wealth does NOT derive from use of government coercion are a very different group. These people are helping to enrich their fellow man – monetarily and in other ways, by providing needed or wanted products and services (as defined by the customers themselves) and are thus improving our quality of life.
For example, the late Steve Jobs – although a multi-billionaire – was not part of the 1% as defined above. Jobs amassed his wealth by creating and marketing products that millions of people wanted enough to voluntarily pay for. Those who did not want to buy his products were not forced to pay for them – anyone could say "no" to Apple (or to other companies Jobs was associated with, like NeXT and Pixar) by simply not buying what those companies sold. Nor was government involved in crushing Jobs' competition, paying massive subsidies to him or his companies, using the military to provide Apple any advantage overseas, or otherwise using taxpayer-provided resources to give Jobs or his companies unfair advantages or benefits.*
* As Apple has grown, this has begun to change; the stunningly repressive and corporatist Stop Online Piracy Act, which Apple supports (as do a number of other large corporations), is one example of Apple now striving to benefit from State coercion. The massive public outcry against this bill has Apple and Microsoft publicly backpedalling in their support of SOPA, but how sincere this is (and whether they are supporting the bill by proxy or will support other, equally draconian legislation in the future) remains to be seen.
By honestly competing in the marketplace, Steve Jobs enriched not only himself but all of us, including those who never bought an Apple product or saw a Pixar movie. In addition to creating thousands of jobs in multiple industries, Jobs made things better even for people who preferred, say, Dell to Apple. The refined, attractive, and user-friendly nature of Apple products, for example, put pressure on competitors to improve their own products. The Mac OS put pressure on Microsoft to make its own operating systems more refined, attractive, and user-friendly. The quality and success of Pixar films gave other studios incentive to make their own films as high-quality and engaging as Pixar's. All of this, from the design of products Jobs was associated with to their production and marketing, was accomplished without coercion, without violence, with nothing but the vast web of non-coercive human action that characterizes the market and civil society in general.
We need more rich people like Steve Jobs, who create wealth in the open marketplace rather than benefiting from government contracts, giveaways, regulatory favoritism, or by otherwise gaming the corrupt system of the State. But the State is making it increasingly difficult for an honest person to create wealth in the United States – whether by founding a tech giant or starting a one-person business to braid hair (in this case, laws in Utah and other states are the problem). In addition to draining our pockets with taxation and stealing the value of our dollars by inflation of the money supply (the very serious crime of counterfeiting, if you do it), many of the State's actions make honest wealth creation, at any level, more difficult or in many cases impossible. Money isn't the only thing we lose from that: For example, it used to be simple and easy to set up a free clinic to treat the poor, but try doing it now. For that matter, try even just feeding the homeless.
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The Two Systems: Production versus Plunder1
Regardless of form, coercive government – the State as we have known it – is nothing but force.* Ultimately, no matter what it is doing, government's foundation is coercion and violence – including, most ominously, in the matter of funding: "give us your money, or else."
* Alternatives include individual self-government and voluntaryist government in a civil society. In this essay, I use "government" to mean the coercive State, regardless of form – democracy, monarchy, oligarchy, "dictatorship of the proletariat," or whatnot. The defining characteristic is use of force by those at the top against the masses, no matter what the rationale.
In contrast, the market is peaceful, voluntaryist, and cooperative. Customers have choices, including the all-important choice to say "no."
Coercive funding means that government is parasitic in nature, taking wealth from the productive members of society (whether the wealth producers like it or not) and spending that wealth in ways that are at the least inefficient and, in practice, often harmful to those forced to pay. For anything that people WANT done, government doesn't need to be involved: the people will get it done, and more efficiently, with competition providing incentive to keep quality high and costs low – and (unlike entrenched government bureaucracies and special interests) with real openness to new ideas and methods. Government's parasitic nature, combined with the inefficiency and corruption inherent to any operation funded at gunpoint, necessarily reduces living standards overall.
In contrast to coercive government, the market creates wealth and benefits us all, because every voluntary exchange benefits both parties as defined by the parties themselves – neither side participates in an exchange otherwise. But because one's exchanges with the State are NOT voluntary, there is no reason to expect that interactions with the State will be beneficial.
The difference couldn't be more stark: Honest (and non-corporatist2) market activity enriches society as a whole, while government action harms and impoverishes. Liberty produces prosperity; government plunders it – and spends the plunder in ways that cause further harm.
Without honest market activity, there is no food at the market, no smartphones to buy, no anything – except what you are willing and able to provide for yourself. Even a simple wooden pencil requires stunning levels of voluntary cooperation in the global marketplace; Leonard Reed's classic essay I, Pencil, describes why and will knock your socks off if you have not read it before (here's Milton Friedman telling the story; video, 2 min 42 sec). The finely-grained, peaceful, peace-promoting, and non-coercive division of labor that the market naturally creates, along with the simple human desire to better oneself (and one's family and causes) is what allows for modern life.
The benefits of liberty (including the free market) are not mere theory: freedom has repeatedly turned squalor into wealth and starvation into plenty, while extreme levels of government control have reliably done the opposite. Hong Kong (under the British, who gave Hong Kong far more freedom than they allowed to England and other parts of the Empire) boomed, going from wretched poverty in the early 1950s to stunning wealth in just a few decades – while right next door, much of mainland China under Mao was literally starving. Mao's China was one of the poorest nations on Earth, while a more fortunate group of Chinese, with the same cultural heritage as those on the mainland, were rapidly building a modern first-world society on the tiny, mountainous territory that is Hong Kong.
After Mao, the Chinese Communist government began allowing significant levels of freedom to the Chinese people, with results we are all familiar with: China has become an economic powerhouse. However, China's government is still corrupt and meddling in Chinese life, running a central bank, inflating the currency, censoring information, spending huge sums on make-work projects including building entire cities that remain almost empty, and so on – to such an extent that a major economic crash is coming for China, and soon, according to a number of well-informed people with solid track records.
Even within mainland China today, the areas least hobbled and parasitized by government are the main engines of wealth; for example, an article in Reason Magazine reveals that "Wenzhou has become one of the richest cities in China under a regulatory regime that borders on anarchism." The piece goes on to say:
"In southern China, things look rather different. The Chinese say that in this region 'the mountains are high and the emperor is far away'—in other words, the government isn’t paying much attention. Companies are mainly small or medium-sized enterprises, government services are slight, and laws are routinely ignored. According to official statistics, the three southern coastal provinces of Zhejiang, Guangdong, and Fujian have the first, second, and fourth wealthiest citizens, respectively, in the country. They are the center of China’s export sector and the primary destination for China’s millions of internal economic migrants. Here is where the real Chinese miracle is happening."
~ China’s Black Market City by Bradley Gardner
Freedom rewards people for doing the hard work of creating prosperity, and thus a free society becomes prosperous. When government steps in – no matter the excuse – this virtuous dynamic is harmed. With enough government involvement, market dynamics become so corrupted that amassing wealth becomes more a matter of having government influence than of producing products and services that the public wants or needs and is willing to pay for.
Those who favor redistribution of wealth have generally missed the fact that most of the wealth redistributed by government has gone, in a great many ways, into the pockets of the rich and of government bureaucrats. (And when some of it does get directed towards ordinary citizens, it comes in smallish amounts, diminishes over time, and creates poverty and dependence or debt – as with Social Security, Medicare, student loan programs, "affordable home loan" legislation, and almost anything else aimed, at least in theory, at helping the little guy).
Thus, we in the U.S. find ourselves paying, via taxes and in other ways, for things like war after war, police-state agencies that assault us, more than 900 military bases on foreign soil (the Roman and British empires each had only 35 to 40 such bases at their peaks), and so many other things we don't want and don't need that the nation is now bankrupt and the middle class is disappearing. We find our regulatory agencies benefiting corporations and special interest groups at the expense of public health, safety, and prosperity. We increasingly find ourselves living in tyranny despite our national slogan (check the coins in your pocket) of "liberty." And stunningly, one-third of Americans are now in poverty or nearly so, even as many of the wealthy rake in millions in bonuses at their insolvent banks and other corporations thanks to taxpayer-provided bailouts – and as connected corporations grow fat on government contracts, corrupt policies, and regulatory favoritism.
How did such a disaster happen?
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America's government was originally very small and restrained – an understatement, at least when comparing today's leviathan to the mere speck of coercive government we had in the post-Revolution years of the late 1700s and early 1800s. Annual per capita federal expenditures were so close to zero [PDF] until the War Between the States that when viewed on a chart (in PDF above) the line can generally not be distinguished from "zero." As for total (not per capita) spending, the chart looks like this:
Chart from USGovernmentSpending.com
Modern levels of federal expenditure simply dwarf previous levels – to such an extent that today's federal budgets are orders of magnitude higher than before.
At the same time, U.S. liabilities (for which the big bankers say "Thank you!") have grown to over 700% of GDP:
From "Financial Position of the United States," Wikipedia.org
This vast tsunami of our national wealth flowing to the State and to its favored schemes, corporations, banks, and special interests is a fairly new problem. We began with no income tax, no fiat-currency-vomiting central bank, and no Departments of, well, anything – other than State, War, and Treasury.* The list of today's federal Departments (Education, Homeland Security, etc.) is long, and those Departments employ more than 4 million people, over and above the Departments of Treasury and State.
* The War Department – tiny compared to today's Pentagon – became the Department of Defense in 1947. There was no Justice Department until after the War Between the States, although the Office of the Attorney General was created in 1789. It became the Department of Justice in 1870. According to the Dept. of Justice website, the Office of the Attorney General was "originally a one-person part-time position." Roll that around in your brain for a moment: One person. Part time.
How did the United States become the richest nation on Earth? Now you know.
The parasite of government was essentially microscopic in this country until recently – certainly in comparison to what we have now. The result was significant levels of actual liberty for the people and a breathtaking growth of prosperity and wealth.
But eventually the parasite became too big for the host – and now the host is dying.
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Taking Back Our Wealth and Our Freedom
On a national level, the only possible fix for this disaster is to reverse the cancer-like growth of government – not to slow the growth (called "tax and spending cuts" by the politicians), not to stop the growth, but to reverse it – to dramatically shrink the size, cost, and reach of government in the United States. Government must again be made small enough that it cannot provide corporate subsidies, "regulatory" favoritism, multi-billion-dollar bailouts, or create entire industries (the defense and nuclear power industries as currently constituted, for instance) that you and I would never support voluntarily. Monsanto is a good example of how corporations benefit from government power; they can hire (in one form or another) current or former senators and other high-ranking government employees to support their corporate interests:
http://geke.us/Monsanto.html [Note: lots of other interesting graphics at the site]
Now imagine the corporate/government overlap shown above being impossible, because coercive government was either non-existent or so small as to have no coercive power for corporations to hijack and use to their own benefit.
The genuine freedom and prosperity that only a very small (or non-existent) government allows for (at least on any sustainable basis) is your legacy as an American – and for that matter as a human being, no matter where you live. The best of the founding generation (Thomas Paine, for one stirring example) saw the American Revolution not as merely a revolt against the British King, but as a revolt against the idea of coercive Authority itself. The Revolution was not just for the benefit of those in the 13 colonies, but ultimately for all mankind.
Where do we start? Simple understanding of the truth is the first step, and spreading that understanding is the foundation for any restoration of liberty. You will have your own ideas on how to do that – that's the value of liberty: a society gets the benefit of the creativity, intelligence, experience, and talent of millions of people, not of just a few "special" people (too-often corrupt or even psychopathic) at the top.
Clearly, however, we need a way to rapidly educate millions of people about the benefits of liberty and about the dangers of the ominous, tyranny-expanding path we are on. The tiny audience for abolitionist / anarchist / voluntaryist material means that, while important, such an approach must not be our only one. We are very fortunate to have a mass-audience pro-freedom campaign being reluctantly underwritten by the same corporate media which supports the Total State: Ron Paul's ongoing campaign for president – actually a campaign for liberty and against the Federal Reserve, against the IRS, against our illegal and aggressive wars, against corporatism, against the cruel Drug War, against Big Government of every stripe.
Dr. Paul's interviews and debate responses in the national media, along with his other campaign efforts and the creative, energetic promotion of his campaign by a growing army of supporters is the most effective mass education campaign about the dangers of the State and the benefits of liberty the world has seen since 1776.
I endorse and support Dr. Paul and encourage others to do so – not because Paul is an abolitionist or voluntaryist – he isn't – and not because I think a "restrained, constitutional government" will solve our problems (we had exactly that, starting in 1789, and it took us where we are now) – but because every journey must begin somewhere, and waking Americans up to their heritage of liberty, flawed though that implementation of liberty was, is a necessary first step in turning the situation around.
We absolutely must move away from the high-tech Total Tyranny that approaches and return to a smaller, less cruel, less violent, less corrupt State. Nothing resembling freedom will survive otherwise. If we are lucky, stepping back from the brink will give us a chance to continue reducing coercion until we find ourselves with a truly civil society, where love and freedom are equally in evidence and where the coercion and violence of the State are but fading nightmares.
A world of liberty and compassion is what every new human life desires and what each of us is made for. Soon, it may be the only world an increasingly god-like techno sapiens can survive in.
Love and freedom: we won't get there in a single step, and we need to encourage as many people as possible to begin the journey now.
1) The phrase "production versus plunder" is from the title of Paul Rosenberg's Production Versus Plunder: The Ancient War That Is Destroying the West. Highly recommended, with a mix of history (from the start of human settlements to modern day), intelligent analysis, and a devastating description of the beginnings and true nature of the coercive State: as a more effective and safer (for the plunderers) means of appropriating the wealth created by those who actually produce.
2) I use the term corporatism to mean a symbiotic relationship between governmentand corporations. Corporations supply money in the form of lobbying, campaign cash, jobs to regulators and other government employees after their retirement from "public service," media spin to support this whole corrupt scheme, and other incentives to those in government. Government supplies the force, including actual military force (e.g., as used in the Middle East to the benefit of bankers, oil companies, private security contractors, and many others), and other coercion including regulatory favoritism (see today's pharmaceutical and medical industries), corporate welfare, no-bid contracts, outright cash giveaways in the form of bailouts and "stimulus" spending, loans that often remain unpaid, and many other things – all of it paid for, one way or another, by "the masses" – by all of us not on the corporatist gravy train.