The Crash of 2016

by Thom Hartmann

  Occasionally I could see the remnants of a name painted on the factory or etched into the concrete or brick rooflines or cornices, names that had been proudly put into place in the late nineteenth or early twentieth century. They spoke of the long-ago manufacture of steel and car parts and lawn mowers and machine tools, of sweaters and socks and jeans.

  During one particularly poignant stretch, after passing dozens of empty factories the train passed what must have been at least a mile of empty houses. Most of them looked like they were formerly elegant brick row houses that, if they were in DC or New York today, would fetch a million dollars each. Yet these had once provided middle-class housing to the men and women who’d worked in the now-closed factories. Now they were mostly reduced to smashed-out windows, graffiti-tattooed walls, and rotting ceilings.

  I was describing what I was seeing to Earl, who himself knew it all too well. “It looks like the end of America,” I said.

  “It’s certainly the end of the American middle class,” Earl said in a soft, sad voice. “You can see it all across the country.”

  This is the early stage of crash.

  We’re not just talking about decaying railroads and buildings; we’re talking about decaying fundamentals—the pillars on which you can build a healthy economy, an expansive middle class, and a strong democracy.

  All of it, sucked out of the country.

  There was a moment of hesitation when Clinton signed the free-trade death warrant for the middle class.

  According to Bob Woodward, during a meeting in the Oval Office regarding these trade deals, Clinton said sarcastically, “Where are all the Democrats? I hope you’re all aware we’re all Eisenhower Republicans.”73

  He added, “We’re Eisenhower Republicans here. Here we are, and we’re standing for lower deficits and free trade and the bond market. Isn’t that great?”

  It’s true, the political left had abandoned FDR’s fight against the Economic Royalists. They had assumed the position of New Deal Republicans such as Dwight Eisenhower.

  And perhaps that wouldn’t be so bad. After all, Eisenhower believed in the New Deal. He told his brother Edgar in a 1954 letter, “Should any political party attempt to abolish social security, unemployment insurance, and eliminate labor laws and farm programs, you would not hear of that party again in our political history.” He added, “There is a tiny splinter group, of course, that believes you can do these things. Among them are… Texas oil millionaires, and an occasional politician or businessman from other areas. Their number is negligible and they are stupid.”74

  The only problem is, while the Democrats turned into Eisenhower Republicans, the Republicans turned into something completely different.

  When George W. Bush took office in 2001, the Economic Royalists would step up their assault. There would be no Leisure Society, only a cataclysmic crash.

  Chapter 6

  “Madness”

  I made a mistake in presuming that the self-interest of organizations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms.

  —Former Federal Reserve Chairman Alan Greenspan,

  October 2008

  One of the great chroniclers of the last era when the Economic Royalists were in control was economist John Kenneth Galbraith, who was born in 1908 and watched it all unfold as a young man. In 1954, while he was a professor of economics at Harvard University, he wrote the international bestseller The Great Crash 1929.

  In it, he noted that the nine years of hot money (from low taxes on the rich) and minimal regulation had led to a hollowing out of the American economy, along with a massive transfer of wealth from the working class to the very rich.

  He noted there was “little question” that in 1929 “the economy was fundamentally unsound.” There were, he said, five major weaknesses that “had an especially intimate bearing on the ensuing disaster.”75

  Galbraith listed them as being the following:

  (1) The bad distribution of income

  (2) The bad corporate structure

  (3) The bad banking structure

  (4) The dubious state of the foreign balance

  (5) The poor state of economic intelligence

  Most important, though, Galbraith noted that it was a lack of any sense of conscience or remorse—of responsibility—among the movers and shakers in the business and governmental worlds that caused the Great Crash. Our nation’s governance and industry had been taken over by people who had absolutely no commitment to the community of humankind, nor even to the community of our nation, nor to the neighborhoods in which they worked or ran their businesses.

  Without using the word, which was then relatively obscure and ambiguous, Galbraith suggested we’d been taken over by psychopaths—people who were unable to understand the damage their actions were causing to the economy as a whole. Bluntly, he referred to it as “madness.”

  Galbraith went on to describe the effects of this madness. “The sense of responsibility in the financial community for the community as a whole… is nearly nil. Perhaps this is inherent.

  “In a community where the primary concern is making money, one of the necessary rules is to live and let live.”

  Galbraith noted that when the mad—as in “insane”—people take over an economy, just the simple act of pointing it out is dangerous. The result is that the psychopaths—he refers to them as “the foolish”—are even further empowered and not only make off with more of our nation’s wealth but also hollow out our institutions of both governmental and corporate regulation in order to make their heist easier:

  To speak out against madness may be to ruin those who have succumbed to it. So the wise in Wall Street are nearly always silent. The foolish thus have the field to themselves. None rebukes them.

  Only in the wake of that Great Crash, Galbraith and most other economists note, did we figure out that our economy had been dangerously hollowed out by the twin combination of well-meaning ideologues and the psychopaths they empowered.

  The Evolution of Madness

  Could it be that there’s a subset of that eighty-year crash/war cycle that produces a corresponding rise and fall in the number of psychopaths who are running American business and government?

  Darwin’s finches say yes.

  Charles Darwin, in the 1830s, famously sailed aboard the exploration ship HMS Beagle to the Galápagos Islands, where he observed a broad variety of species of finches (among other things). Some finches, for example, were adapted to eating large, hard seeds and had correspondingly larger beaks. Some ate small seeds, and so had smaller beaks. Some ate seeds inside cacti and had longer and thinner beaks.

  This variety of finches had all presumably evolved from one or two initial species that had been blown all the way to the Galápagos by a storm or carried in some other way. From this he developed his theory of how evolution produces speciation, and published it in his book The Origin of Species.

  But Darwin didn’t have the time to visit and revisit the island where he’d found the finches, so he didn’t have an opportunity to see how his finches would change over time in response to changes in their environment. That job fell to Peter and Rosemary Grant, who spent decades annually visiting Darwin’s finches and watched extraordinary changes, chronicled in Peter Grant’s book Ecology and Evolution of Darwin’s Finches and later more widely popularized by Jonathan Weiner in his best-selling book The Beak of the Finch: A Story of Evolution in Our Time.

  The Grants, in annual visits to Daphne Major, one of the Galápagos Islands, watched evolution—which Darwin had assumed worked slowly, over aeons—transform the finches of the island several times in response to severe environmental stresses.

  The first time was in 1977, when a drought hit the island hard. This island was already a relatively barren and sparse environment, and the drought decimated the smaller and less hardy vegetation, browning the island and killing off the source of smaller seeds
. The result was that the finches with smaller beaks, who couldn’t crack open the remaining larger seeds, died off.

  In 1978, the offspring of the survivors of that drought had universally larger beaks—an environmental adaptation that took less than a year to happen.

  It happened again—differently—during a two-year period of unusually rainy weather, 1984–85. All that moisture favored the smaller plants, which exploded across the island, and the finches with smaller beaks were able to eat those seeds without expending as much energy flying around carrying larger, heavier beaks like their relatives. And, sure enough, by 1986 small-beaked finch populations were back up to high levels.

  Not only did evolution happen but it also cycled back and forth in response to a changing environment.

  To the extent that economics can be described as an ecosystem—and the resemblances are many—it’s not hard to see how different economic environments are suited to different types of people.

  In the wake of an economic crash, psychopaths would not be favored. Instead, the environment would be best adapted to people who are not perceived as risk takers, who have a high level of social commitment, and who are slow-and-steady builders of businesses. Classically, these were the CEOs and senior executives who followed business models that were prevalent in the half century following the Great Depression—CEOs who took only thirty times what their bottom-paid employee received, who typically had been more than twenty-five years with their own company before reaching the level of CEO, and who were not compensated in a way that was tied to stock prices.

  During this period, CEOs were answerable to the workers (via labor unions), the company (via its board of directors), and the community (via local/state/federal government and community pressure). They were paid exclusively by salary and bonus—the tax code did not provide for compensating CEOs with stock or stock options. It was also during this period that some of the largest, strongest, and most resilient of American corporations were built.

  Similarly, there were protections built into our business systems to allow for competition—particularly small, local competition—thus giving entrepreneurs an opportunity to step into the marketplace. If big corporations got too big, they were broken up, using the Sherman Antitrust Act of 1890 (among others).

  But, eventually, the Great Forgetting took hold. And the Royalists and their madness crept back in.

  Monopolies Return

  Under the watch of the Royalists, the Reagan administration was philosophically opposed to the government breaking up companies. Over the next few decades, the monopolies of the Gilded Age returned.

  On Wall Street, the twenty biggest banks own assets equivalent to 84 percent of the nation’s entire GDP. And just twelve of those banks own 70 percent of all the banking assets. That means our entire banking system relies on just a few whales that must be saved at all costs from going belly up, or else the entire system goes belly up.

  And consider our food industry. According to Tom Philpott at Mother Jones magazine, agriculture oligopolies exist from farm to shelf. Just four companies control 90 percent of the global grain trade. Just three companies control 70 percent of the beef industry. And just four companies control 58 percent of the pork and chicken industry.76

  On the retail side, Wal-Mart controls a quarter of the entire US grocery market. And just four companies produce 75 percent of our breakfast cereal, 75 percent of our snack foods, 60 percent of our cookies, and half of all the ice cream sold in supermarkets around the nation.77

  And then there’s the health insurance market. Just four health insurance companies—UnitedHealth Group, WellPoint, Aetna, and Humana—control three-quarters of the entire health insurance market. And as a 2007 study by the group Health Care for America Now uncovered, in thirty-eight states, just two insurers controlled 57 percent of the market. In fifteen states, one insurer controlled 60 percent of the market.

  Since there’s no functional competition in such a market, prices continue to get higher and higher while the profits for these whales skyrocket, too.

  In the cellular phone market, just four companies—AT&T Mobile, Verizon Wireless, T-Mobile, and Sprint Nextel—control 89 percent of the market. And in the Internet market, just a handful of corporations—AT&T, Comcast, Time Warner, and Verizon—control more than half of the market.

  From newspapers to television, radio to movies, monopolies dominate the markets.

  If we were to give the Internet oligopolies the same treatment Richard Nixon gave AT&T in the 1970s, then maybe we Americans would have the same superfast Internet speeds and supercheap rates enjoyed by most of the rest of the developed world. For example, South Koreans get Internet speeds two hundred times faster than what most Americans get, and pay only $27 a month for their service. Professor Susan P. Crawford, author of Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age and former board member of ICANN, told me that while the average American consumer pays around $90 a month for a cell phone with a data plan, the European average is just $19 (and the coverage is better and the data is both faster and unlimited).78

  Rising health-care, food, and energy costs can all be traced back to this problem of monopoly in America.

  It’s a Second Gilded Age, and it’s headed for another Monopoly Endgame. And this time it will be worse than before.

  We are no longer dealing with the Robber Barons, who savaged working people through the last half of the nineteenth century. And we aren’t talking about the Economic Royalists of FDR’s day, who plotted a coup. This is a new form of Royalist.

  As Pulitzer Prize–winning journalist Chris Hedges told me, “The Robber Barons, however feudal they were, ran their enterprises within the nation-state itself. Now, we have corporate entities which seek the lowest possible wage around the world, in essence the prison labor in China, and are forcing the rest of the planet’s workforce to compete with this slave labor.”79

  He went on describing the Royalists at work today. “It’s similar to the age of the Robber Barons but in fact worse because there is no loyalty to the nation-state. The corporations are actually hollowing the country out from the inside… We’re creating a kind of neofeudalism.”

  Global Psychopaths

  In his book The Collapse of Globalism, author John Ralston Saul lays out the primary driving ideology of globalism, which was unleashed on the world on a scale not previously seen before with the creation of GATT, the WTO, and NAFTA.

  “The force of Globalism,” Saul writes, “through trade agreements, deregulation and privatization, would seriously weaken the ability of nation-states to act with any political independence.”80

  For most of American history, businesses—for-profit and nonprofit—had mission statements that were broader than simply serving the interests of the shareholders and CEOs, and referred instead to the long-term interest of the company, its workers, and its customers. And perhaps most important, the long-term interest of the nation it belonged to. After all, if your nation goes to hell, so does your market—a collapse isn’t good for business.

  But globalism changed the game. Globalism is the breaking down of economic borders. What globalism does is peel away those government protections of national industries, and let global Economic Royalists dive in and feast on the goods. Once government is out of the way, Saul explains, the transnational corporations rise to power. “Richer than a majority of nation-states on the planet, free of the geographical and social obligations of these old states, beyond the embarrassing demands of nationalism, freed in fact from the emotional, immeasurable demands of the citizenry, the transnational would be able to organize world affairs in a more rational, efficient manner.”

  Without the “demands of nationalism,” corporations can skate by without hiring American workers, they can dodge taxes, and they can spew toxic chemicals all over our commons. Instead of nationalism, corporations are bound by efficiency, which in turn yields higher profits. And it’s far more efficient and profitable t
o hire low-wage workers in India, to spend millions lobbying to avoid billions in taxes, and to skirt regulations that keep people working on oil rigs alive and prevent ecological disasters.

  Clinton opened the door to globalism, but George W. Bush oversaw the looting of America by global psychopaths.

  As a result of so-called free trade, every single month since 2001, our nation has shed, on average, fifty thousand manufacturing jobs. And in that same time period, over fifty thousand manufacturing plants—like the ones that used to line the rail tracks up and down the East Coast—have been permanently shut down.

  At a blistering pace, American industries are being sold to the highest foreign bidders, be they Chinese business tycoons, Saudi princes, or Russian oligarchs. In the time it takes you to read just one page in this book, $240,000 worth of American industry is sold off to a foreign interest.81

  In the past thirty years, foreign investors bought roughly $3 trillion worth of American industry.82 That means $3 trillion worth of assets that were generating profits for America, hiring American workers, and making things with a “Made in America” stamp on them are now in the possession of foreign nations, so if they continue to operate, all their profits go overseas. It’s like a giant liquidation sale in a nation that’s on the verge of going out of business.

  To highlight just how in peril the United States’ economic dominance in the twenty-first century is, consider this trend: In the first decade of this new century, some of the biggest transnational corporations in America—corporations that employ one-fifth of all American workers—have been shipping jobs away en masse. Since 2000, these transnationals have laid off 2.9 million Americans, and hired 2.4 million foreign workers.83