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Our Elites Refuse to Accept Responsibility, by Dean Baker

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I think this submission by Dean Baker begs a lot of questions regarding how things are done at the top. I think he makes some great points here that most folks don't think enough about.


Our Elites Refuse to Accept Responsibility for Leaving Behind the Left Behind

Written by Dean Baker

Published: 30 November 2018


There have been several analyses of the 2018 election results showing that the Republican regions are disproportionately areas that lag in income and growth. In response, we are seeing a minor industry develop on what we can do to help the left behinds. 

The assumption in this analysis is that being left behind is the result of the natural workings of the market -- developments in technology and trade -- not any conscious policy decisions implemented in Washington. This is quite obviously not true and it is remarkable how this assumption can go unchallenged in policy circles.

Just to take the most obvious example, the natural workings of the market were about to put most of the financial industry out of business in the fall of 2008.  In the wake of the collapse of Lehman, leaders of both the Republican and Democratic parties could not run fast enough to craft a government bailout package to save the big banks, almost all of whom were facing bankruptcy due to their own incompetence and corruption. 

It is worth contrasting this race to bailout with the malign neglect associated with loss of 3.4 million jobs in manufacturing (20 percent of the total) between 2000 and 2007 (pre-crash). This job loss was primarily due to an explosion in the trade deficit. The latter was due to an over-valued dollar, which in turn was attributable to currency management by China and other countries, that kept their currencies below the market level. 

While most economists now acknowledge the impact of China’s currency management, at the time there was a great effort to pretend that this was all just the natural workings of the market. The loss of jobs, and the destruction of families and communities, was not a major concern in elite circles, unlike the prospect of Goldman Sachs and Citigroup going bankrupt.

The decision to bail out the banks is routinely justified as being necessary to prevent a Second Great Depression. No one who says this has a remotely coherent story as to how the bankruptcy of these banks would have condemned us to a decade of double-digit unemployment. 

We have known for 70 years how to get out of a depression (it’s called “spending money”). if the banks had collapsed, it would have undoubtedly worsened the 2008-2009 downturn, but nothing would have prevented us from boosting the economy back to full employment with a large burst of spending, just as the spending needed to fight World War II brought the economy to full employment in 1942.    

Anyhow, let’s envision what New York City’s economy looks like after the major banks have gone bankrupt and we have a sharply downsized financial sector. In this world, finance looks more like a normal industry. The million dollar salaries are few and far between and many fewer people are employed in the sector. Is New York still racing ahead in this story with others being left behind?

Just to take it a step further, it is not just bailout insurance that the government gives to the financial sector, we also write the laws to foster its growth, even at the expense of the rest of the economy. The rules on bankruptcy, which prevent mortgages from being written down and give derivatives priority over all other debts, were explicitly written to support mortgage backed securities and derivative trading. This is in addition to the tens of billions annually that the industry rakes off individual investors with 401(k) fees and public pension funds with private equity and other scams. In short, we have a problem of the government subsidizing the financial industry at the expense of the rest of the country, not a story of the market just leaving some areas behind.  

The situation is even clearer with patent and copyright protections. These government-granted monopolies are explicitly designed to provide incentives for innovation and creative work. If we think too much money is going to the people who do this work, and too little to everyone else, why not make these protections shorter and weaker, instead of longer and stronger, as we have been doing? 

It is mind-boggling that the issue of patent and copyright protections never comes up in the income inequality debate. There is a huge amount of money at stake. There is around $380 billion in the case of prescription drugs alone. That is more than five times annual spending on SNAP. If we add in medical equipment, software, the entertainment industry, and all the other sectors where these protections account for a large part of the price of the products being sold, the sum would be close to $1 trillion annually, more than half of after-tax corporate profits. 

If we’re thinking of regional impacts, what would Los Angeles look like without the entertainment industry and the copyright monopolies that make it possible, Silicon Valley and San Francisco without copyright protection on software, or biotech sector in the Washington DC area with patents? These areas did not get ahead because of the natural course of economic development, they got ahead because we structured the market to provide very large rewards in these areas.

And, to flip over the trade story, imagine that our trade policy was as focused on putting doctors and other highly trained professionals as competition with their low-paid counterparts in the developing world as was the case with manufacturing workers. Let me just state this as clearly as possible. 

There are literally millions of very smart ambitious people in the developing world who would be happy to train to U.S. standards, and learn English, and work as doctors for less than half of the pay as our doctors. The reason this doesn’t happen is because our doctors are very powerful politically and keep in place professional barriers that make it difficult for foreign doctors to practice here. (And, just to head off some painful stupidity, I know that 20 percent of our doctors are foreign born. If we didn’t have protectionist barriers, it might be 80 percent, just like with apparel.)[1]

Anyhow, the reason that laid off steelworkers in Ohio are left behind and cardiologists in New York are not, is that we designed our system of trade to subject the former to international competition, while protecting the latter. It is incredibly dishonest for policy types to pretend that the current situation is an inevitable outcome of globalization.

I could go on at length, this is of course the topic of my [free] book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer. It is amazing how so many highly intelligent and well-meaning policy types can keep up this charade that the upward redistribution of income over the last four decades was somehow a natural development as opposed to being policy driven. The denial really is Trumpian in its character. 

I’m not sure how to break through, but I will keep trying.  


[1] To respond to the inevitable complaint about brain-drain, it is easy to design mechanisms whereby developing countries are compensated for doctors or other highly paid professionals who come to the United States. This is a classic story of having the winners compensate the loser that economists like to talk about in other contexts. In this case it would be logistically easy, since the professionals are licensed and we would have a record of the country in which they got their training. 

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Barn, forgive my replying before reading most of the post, but I'd like to comment on the topic.


There's a fundamental misunderstanding about how power works, and whether it's supposed to look out for the people.


During the history of mankind, the rule of thumb has been, to exploit people. You know, make them build you a nice pyramid, make them go to war to gain land and loot for you.


The norm in human history has been feudalism, to varying degrees. People can get a little bit - slaves got some room and board, free people could have a little money, but the bottom line was the well-being of the few at the top. Basically everyone had to serve them.


There was a long shift toward the gradual increase in power for the people, to where their well-being mattered a bit. This led to the democratic revolution - gradually the growth of democracy, with its ideal of 'the people' being in charge.


But of course, that has ALWAYS been compromised by the few powerful - even if they technically only have one vote - having a lot more power than that one vote. But the very fact they had to hire people to con the people to get lackeys for the few elected had a moderating effect on how much they could screw the people.

Not that they didn't try - from the very first time the US created great wealth, with the industrial revolution, the single biggest economic turning point in human history, we immediately had the gilded age and 'economic slavery', with a partial backlash of the progressive movement.


But the powerful have always been at war with democracy, finding ways to undermine it - and thereby take the power away from the people and make their well-being less important, to try to go back more to the glory days of feudalism.


Now, of course, things are far better for the American people than in the people of history, for a variety of reasons, including that technology has allowed a small share of income to provide a lot more to the people than it used to when the only wealth was what people could farm pretty much.


But for 50 years, we've been sliding back away from democracy. And the powerful have no allegiance, baically, to the well-being of the people.


And here's the key economic fact:


For the history of the world, the economic contribution of people was positive. So, exploit them, and take the wealth they create - that was the system. But in the modern age:

The economic productivity of many people has become negative.


The implications of that are huge: now, the wealthy aren't best off by *taking the wealth created by the people* - though they still want to do that - but they're now better off *if those people are killed, instead of taking up room and food and the cost of medical care and so on*.


The interests of the powerful have always mattered, a lot, and now those interests say, 'kill off the poor'. They're just not 'needed' for the benefit of the powerful as they were.


And that has enormous ramifications. Things like 'a lack of healthcare will kill people' becomes a GOOD thing, not a bad thing. Things like 'war will kill people' becomes a GOOD thing.


To make it worse, not only does killing people become in the interests of the powerful, but they'll almost never admit it. So the people won't see them say, 'we're going to adopt a policy that will kill people' and get to decide they don't like that - they'll only see a policy to kill people sold by lies and propaganda, which we know can fool a lot of people.


This is pretty critical to understand: that having the well-being of the people the policy basis is NOT automatic - it's something the people have to go to war, politically, to win.

There's an old saying, that power is never given, only taken. And the people WILL be killed, basically not only without concern but with desire, by the rich, if the people don't fight for the money to be shared.

I don't mean rich people sit around cheering people being killed - of course they don't. 'Out of sight, out of mind'. They simply fight for politicians who 'work for them' to be elected to keep more of 'their' money, and the effects kill people but they aren't paying attention to that. In fact, they largely feel like victims paying the taxes they do.


So we get to the point today that three Americans have as much wealth as half of the American people - and our policies for the people show that.


So, it's not a surprise that the elites don't accept responsibility - they don't view the harms of plutocracy as a good thing, but as required for them to keep more money. The people being poorer and killed off is not a problem - it's a solution to overpopulation, even if they don't look at it that way.

In that sense - that they'll give a bit of money to charity and think they're helping the people - is their not 'taking responsibility'. But the bottom line is that a society can either be more plutocratic or more democratic, and we're moving in the plutocratic direction.


But the people largely don't realize this plutocracy is the situation - their leaders aren't telling them it is, they're telling them to be scared of the poor, and defending the plutocracy. It'd be like slaves looking to the slave owners to say 'you know, this isn't fair'.

You could say the slave owners didn't 'take responsibility' for the injustice to the slaves - well, ya. They depended on the system. As do the 'elites' today.

And it's not black and white. There is some justice, some democracy, some sharing; tens of millions of Americans get help on things like health insurance. This is not 1917 Russia or 1790 France or 1949 China. And that makes it all the harder for people to appreciate the issues like plutocracy.

And many of the rich really do provide things to society and many really do 'deserve' large rewards, if not as big as they are. It's a combination of a system providing good incentives, and a system providing for corrupt, excessive rewards. It's not that simple.

What is simple is the extreme effect of the current policies, the extreme concentration of wealth, the destructive effect it has on the democratic systems.


I'd argue what's needed is less the elites 'taking responsibility' - see above about how they never give things away - and more about the people fighting for more against them. The people aren't being very responsible when they put on the MAGA hat and hand power over to the plutocrats promising to protect them from immigrants but take great wealth and power.


Really, a case could be made that the answer to whether the American people are able to 'self-govern', rationally and well-informed, is largely 'no' - just look at the crowds at a trump rally.


A thread about the responsibility for social policy really shouldn't be limited to the elites, who are pursuing self-interest, not altruism or the public good.

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