Armed Madhouse

by Greg Palast

  In the olden days before “deregulation,” you couldn’t do that. Government bureaucrats enforced stiff budgets and profit caps on power companies. The public paid for maintenance, the public got it. Furthermore, there was no power “market.” Engineers in a “dispatch” center sent the power where it was needed, efficiently. Now, juice follows the money, and electrons fly about the grid in crazy-ass chaos determined by “traders” for whom “blackout” means “bonus.” The power pirates who blacked out Ohio and California had first practiced their power market tricks abroad. “Deregulation” was first road-tested by these same companies in Brazil (by Reliant and Entergy), India (by Enron), and, as we know, in Ecuador (by Duke). You could call “deregulation” the “Third Worlding” of America.

  Nevertheless, regulation was tagged the villain—and no less a power expert than Dick Cheney said so. It took two years from lights out to payout for First Energy, Niagara-Mohawk and the other power pirates, but they finally reaped their reward for a job well done. Deregulation gone wild caused the blackout, but the Administration would cure the problem with more deregulation. On July 29, 2005, Congress voted to repeal the Public Utility Holding Company Act, last bulwark of regulatory protection left to us from the New Deal.

  The President Explains Everything You Need to Know About Social Security

  Still, fragments of the New Deal have withstood the onslaught. They can’t take away your Social Security. Yet. But, they can make you insecure.

  Franklin Roosevelt didn’t call Social Security “Old Age Pension” because he saw this as an insurance program that would ultimately provide birth-to-death security, Denmark-style. Americans deserved, he said, “Freedom from Fear.” By contrast, our fear salesman in the White House undermines your faith in the system with a good dose of financial terror, to create social insecurity.

  On February 4, 2005, the President explained how he would “save” Social Security.

  Because the—all which is on the table begins to address the big cost drivers. For example, how benefits are calculate, for example, is on the table; whether or not benefits rise based upon wage increases or price increases. There’s a series of parts of the formula that are being considered. And when you couple that, those different cost drivers, affecting those—changing those with personal accounts, the idea is to get what has been promised more likely to be—or closer delivered to what has been promised. Does that make any sense to you? It’s kind of muddled. Look, there’s a series of things that cause the—like, for example, benefits are calculated based upon the increase of wages, as opposed to the increase of prices. Some have suggested that we calculate—the benefits will rise based upon inflation, as opposed to wage increases. There is a reform that would help solve the red if that were put into effect. In other words, how fast benefits grow, how fast the promised benefits grow, if those—if that growth is affected, it will help on the red.

  Got that?

  So, go ahead, answer the President’s question: “Does that make any sense to you?” And $50 to the first reader who can make it make sense to anyone. It doesn’t make sense, of course. (So I pocket the $50.) And that’s the point.

  They are pretending to tell you their plan. But their plan has to do with the ebb and flow of international finance, the revaluation of the Chinese yuan, and the shift from America the Product Maker to America the Planetary Speculator. One can’t divide the future of Social Security from the grinding forces of globalization. (See “Yuan Your Social Security” in Chapter 3: The Network.) Rather than tell you that, you’re told nothing in as many words as possible.

  Oil Wars and Class Wars

  Three things happened in the fall of 2005 or, in the New Order’s way of measuring things, the third quarter of Exxon’s fiscal year:

  1. The CEO of Delphi Corporation, Steve Miller, gave his 33,000 union workers a choice: Give back two-thirds of your pay or give up your pension. On the same day, he announced additional bonuses for Delphi’s top 486 managers totaling $88 million cash up front, plus $400 million on its way.

  2. General Motors’ union workers, though entitled by their contract, voluntarily gave up $2 billion in annual health care benefits.

  3. Exxon Oil pulled in $9.9 billion in net earnings, more profit than any company had collected for a three-month period in the history of mankind.

  You got a problem with that? You might wonder why Delphi’s CEO Miller would reward managers who, after all, had run their company into bankruptcy. But bankrupting the company was their job, what they were hired to do. Let me explain.

  Delphi is only a few years old, a new baby on the corporate block, spawned by General Motors in 1999. It was a hollow shell into which GM dumped its former auto parts division, Delco. This was the way GM could slice off a big hunk of its union workforce, nearly 40,000 people, and the huge pension and health insurance liabilities that GM auto parts workers had accrued over a lifetime at the job. GM management dumped the costly workers and its pension obligations to them—a $12 billion liability—on the leaky Delphi ship and watched, with a sly grin, as its Delphi “spin-off” sank under the financial waves. Then GM turned on its remaining workers in 2005, demanding, your health insurance or your job. Witnessing their Delco brothers drown, autoworkers coughed up the $2 billion out of their own pockets.

  Sharper readers will be asking, How will Delphi managers collect their juicy $400 million bonus, averaging double their salaries, if their company is in bankruptcy?

  Not to worry, Wilbur Ross will take care of them. More than thirty U.S. auto parts manufacturers have gone into bankruptcy court since Team Bush took office. They don’t die and go to auto parts heaven, they go to Wilbur Ross, a financier adept at picking up the best pieces and repackaging the lot as a new moneymaker. Wilbur saved the American steel industry, which is now thriving as part of the international steel trust controlled by the Mittal family of India. I should note that the industry was saved, but the workers were not. America now produces nearly as much steel (over ninety million tons) as we did two decades ago, but the number of unionized steel workers has declined from over 400,000 to under 40,000 on its way to zero. Wages and benefits have gone from the envy of the world to the pity.

  Wilbur is often called a “vulture,” but I prefer to think of him as a gift wrapper. Prior owners, like LTV Steel, break down their workers, often via a trip through bankruptcy court, which allows companies to rip up union contracts. The pensions are dumped on the U.S. taxpayer (through the Pension Benefit Guaranty Corporation). Then several once-competing companies are tied into one price-lifting monopoly. For his services re-creating steel into a metallic Wal-Mart, Wilbur picked up a quick profit of somewhere over a billion dollars. All Wilbur does is tie the pieces together and wrap it up for delivery; and, given the rake-off of the wage takeoff, his take is reasonable. (I’ve called on Wilbur’s services myself, but that’s another story.) Wilbur’s said he’s ready to do it again in auto parts. He envisions a $30 billion auto-parts behemoth, an auto parts OPEC (AUPEC?). If all goes to plan, the Delphi managers will get their half-billion slice of Wilbur’s reorganizational windfall funded by the wage cuts that will bring the union workers’ salary to $50 a year below the poverty line. In other words, the managers will simply receive their reasonable share of the spoils of the class war.

  War isn’t pretty. You have to accept collateral damage. Just ask the Sago mine workers. Wilbur purchased Sago of West Virginia in November 2005 through another one of his lucrative industry makeover operations, International Coal Group. In the first six weeks under his company’s ownership, Sago’s mine suffered two roof collapses. The billionaire said, “We were comfortable, based on the assurances from our management that they felt that it was a safe situation.” Safe financially, maybe, but a third roof collapse in January 2006 caused twelve miners to suffocate. In light of the tragedy, Wilbur is asking Americans to donate to victims’ families. I don’t know, however, if you should send your money to his home in Palm Beach or the one in the Hamp
tons or the one on Fifth Avenue.

  The same earth-flattening machinery that flattens the Third World has returned to the USA with a vengeance. And as China, India and Ecuador are tilted, so is the new America.

  You can’t separate the GM workers $2 billion give-back and the Delphi workers’ give-up from Exxon’s miracle quarter, the $9.9 billion profit gusher. You could almost hear the whoosh as the loot rolled down from the cold Lake Michigan shore to Houston.

  The cold cruelty of GM/Delphi managers was impelled by the “ebb and flow,” the transcontinental in-and-out of petro-dollars and free trade across a borderless, flattened earth. There were four knives at GM’s back:

  1. Health insurance. GM, even after cutting Delco workers adrift, still pays $5.6 billion a year for worker medical coverage. And that’s nothing compared to the required long-term cost of funding health care for their retirees: $80 billion. The cost of health insurance per GM car: $1,500.

  2. “Free” trade. America imports $26 billion more in parts than we export. Our biggest competitor is Canada, where the government, not automakers, provides the medical care. Pretty sneaky of those Canucks, eh? Canadian car parts flow tax-free to the States because of NAFTA, the North America Free Trade Agreement. Free to whom? Not GM employees. But China is quickly replacing Canada, with China’s sales to the USA rising 300% in a single year (2003). Free trade with a slave state. Delphi USA didn’t stand a chance. But Delphi’s China subsidiary is expanding as fast as you can say, “Independent unions are banned in China by law.” Of Delphi’s 167 factories, only 34 remain in the United States. General Motors has cut its U.S. workforce from half a million at peak to the shattered cadre of 80,000 survivors who will remain according to GM’s plan for 2008.

  3. High interest rates. Remember, Mr. Beale, that real interest rates must rise to entice back those petro-dollars that sailed to Arabia. Higher interest made GM’s borrowing to modernize more costly. In just two years, GM’s borrowing cost ballooned from $480 million to $2.48 billion—an interest hit equal exactly to the sum GM workers gave back to their company. General Motors the carmaker is dying, but GM the bank is doing quite well. Its GMAC unit, one of the biggest financial institutions in America, is rolling in loot from the interest spike and expects to fetch mucho billions if sold off.

  4. The Iraq War oil spike. Ultimately, Delphi was gunned down in Baghdad. It could have survived the triple onslaught of health insurance costs, foreign competition and high interest rates. But it could not survive the higher oil prices that hammered the market for GM cars.

  Crude at $60 a barrel ($2.50 a gallon at the pump) puts General Motors auto division dancing with the death’s-head of bankruptcy. And the concomitant spike in the cost of jet fuel has financially hijacked U.S. airlines and driven 30 of them, including every full-service carrier, into Chapter 11.

  What’s going on here? Put it together: Exxon’s profit meant Delphi’s death. The murderously high price of oil created an effective “gas tax” on auto workers, which rolled down from Detroit to Houston, into the pockets of the oil-industry owner class, its managers and stockholders.

  No wonder they’re breaking out the champagne in Dick Cheney’s bunker. The United Auto Workers and the airlines’ International Association of Machinists provided the muscle and finances for many a Democratic campaign. Now their union membership is impoverished, reduced to a fraction of its former number, and dispersed from the “blue” Democratic state of Michigan.

  Dick Cheney, the man who has his hands on the oil valves of the Strategic Petroleum Reserve, has his foot on the life-support lines of the auto and airline industries.

  Did this Administration invade Iraq to eliminate union stronghold industries? No. Like vultures, they just have to stand by silently watching their prey die.

  Remember the unguarded words of insider Ed Morse:

  The VP’s office [has] not pursued a policy in Iraq [nor] done anything, either with producers or energy policy, that would say, “We’re going to put the squeeze on OPEC.”

  Hot wars abroad can assist class war at home.

  Dems in Drag

  Let’s be honest about it. George Bush didn’t kill Delco and the United Auto Workers, he only attended the funeral. (OK, he unplugged the life support of cheap interest rates and cheap oil.) Auto parts and other thing-makers were mortally wounded by the prior administration. It began in 1992, when the Democratic Party was seized by the Democratic Leadership Council, a group of business-class collaborators who believed the party could be saved if Democrats stripped off those New Deal ideals and dressed up in something a little more Republican.

  The pro-business platform didn’t win many votes—the Bill Clinton–Al Gore ticket won a dismal 43% of the vote, but still won the presidency. In fact, it was a wipeout. George Herbert Walker Bush was pulverized, receiving the lowest percentage of votes (37%) of any Republican since Alf Landon lost to Franklin Roosevelt.

  The difference between the Clinton/Gore low vote and the Bush lower vote was the Reform Party, the 19.7 million votes for Ross Perot. America hadn’t seen anything like it since 1860, when Abraham Lincoln’s new party destroyed and replaced the Whigs.

  Perot, a quixotic billionaire, had fired up the resentment of his 19.7 million—and millions of sympathizers more—by a focused attack on “NAFTA,” the North American Free Trade Agreement. Seven years before the “Battle of Seattle” at the World Trade Organization confab, Perot went after “free trade,” the cornerstone of the new economic Darwinism. Perot alerted the nation that the wealthy had joined forces to cut your jobs and wages, to pit Detroit against Juárez in a competition to the bottom. His message woke up working-class Republicans by the millions; those guys in the mailroom and behind the lunch counter who voted Republican because of the corporate party’s platform of no abortion, no flag burning, no homosexuals and lots of country music. Perot told them to “think jobs” instead.

  The night of November 9, 1993, a year after the election, Vice President Gore had the opportunity to change history. He was to debate Ross Perot on Larry King Live. It was the most-watched cable program ever. Here was the Democrat’s once-in-a-generation chance to win over that 19.7 million that was now up for grabs, to realign the entire party structure as Roosevelt had done in ’32 and, like FDR, create a working people’s majority led by the Democratic Party that could rule for decades.

  Instead, I watched a swaggering, self-congratulatory Al Gore, snickering at the uncouth Perot’s warning of a “giant sucking sound” of jobs draining to Mexico. I felt my political soul rise up off the sofa—this was an out-of-body political experience. Perot and his 19.7 million workers who feared for their pensions and union cards were called ignorant fools, suckers for labor union fearmongering, confused, economic dummies, and cowards before history, trying to hold on to their shitty little jobs at Zenith Electric when the future awaited in writing computer programs for Microsoft.

  Gore laughed at Perot, he guffawed, he mugged at the camera, snidely dismissing Perot’s prediction of a shift in the balance of trade. Gore, the rich prep-school kid, looked so pleased with himself, taunting the funny little man who’d made his way up from the working class. And 19.7 million Americans knew Gore was making fun of them, too, telling textile workers losing their health insurance they were unsophisticated little schmucks who understood nothing about economics. The Vice President knew jobs wouldn’t be lost. In fact, if we embraced the free-trade treaty…

  We can create hundreds of thousands more [jobs]. We know this [free trade] works. If it doesn’t work, you know, we give six months’ notice and we’re out of it.

  Gore singled out the auto parts industry: Delco workers would win big. More jobs were coming.

  Here’s what happened: The border was erased, the economic levees burst. In 1992, the year before NAFTA’s passage, the USA had a $5.6 billion trade surplus with Mexico. In 2004, under the free trade pact signed by Bill Clinton, it reversed, and with a vengeance. In 2004, $45.1 billion more in goods came
in from Mexico than the U.S. sold to Mexico, an unprecedented $50.7 billion swing to deficit.

  And auto parts? I noted that China’s sales of auto parts to the U.S. (and purchase of almost none) had risen 300% in one Bush year, but China’s total remains relatively small. The $26 billion single-year tidal wave of auto parts that drowned the Delco/Delphi workers came overwhelmingly from the NAFTA nations, Mexico and Canada.

  The macroeconomic modeling I did in my old academic days suggests that, very roughly, such a loss of income to the USA costs half a million jobs. You can quibble with the estimate, call it 300,000 jobs or 900,000. But a $50.7 billion crocodile is difficult to disguise as a pet gecko.26

  American workers could have done worse, of course, and they did. The trade deficit with Canada went from a small $8 billion before NAFTA to a Katrina-sized $73 billion in 2005.

  The giant sucking sound was not, as Perot predicted, so much the jobs gone south, but the sound of cash vacuumed from the workers’ pockets in both nations to the owner class as workers in Juárez competed with workers in Detroit. Both lost. Real wages fell on both sides of the border, or, more correctly, all three sides, as U.S., Canadian and especially Mexican production wages were hammered. In Mexico, laborer’s pay per hour dropped 40% in the first seven years after NAFTA’s passage. At the same time, the wage-wealth jaw opened wide in all three nations as productivity rose, lifting the value of owners’ equity by several trillion dollars.