By Ted Braun / Chronicle contributor
The current economic meltdown has given us a good look at how our free market system works. The Reagan-Clinton-Bush belief that free markets will regulate themselves if big government doesn't interfere has turned out to be voodoo religion.
Many economists could see danger coming in 1999 when Congress, led by Phil Gramm who was chair of the Senate Banking Committee, repealed the Glass-Steagall Act. This Act had been a New Deal reform passed in 1933 to regulate the banking system and prohibit banks, investment houses, and insurance companies from merging.
The resulting deregulation allowed the financial sector to package innovative combinations of subprime home mortgages, auto loans, credit card debts, and derivative investments into bundles. These, then, were given frequently unmerited high accreditation, then tranched (sliced up) and sold to investors around the world, generating profit for each holding company along the way—until this speculative house of cards finally collapsed last year.
At the top of this Gilded Age gold rush have been super-wealthy Wall Street bankers and corporate CEOs. These have been pulling in multi-million dollar salaries, bonuses, and golden parachutes—wealth that was subsequently spent by them on perks such as McMansions, private jets and yachts, extravagant retreats, expensive cars, clothing, food, vacations, and art acquisitions. Many of these have received such benefits even though employees of theirs have lost jobs.
These wealthy barons have also benefited from low tax rates and loopholes, resulting in significant lost income for our nation's infrastructure and welfare. Between 2000 and 2006, one-fourth of the entire income growth during those years went to the wealthiest families.
Corporations, even more than their CEOs, have benefited from low tax rates, loopholes, and foreign addresses. In fact, most corporations pay no taxes at all.
When Hank Paulson engineered the first bank bailout with public funds at the end of Bush's presidency, these funds did not trickle down very far but went to sustain high CEO salaries and bonuses and to enable bank mergers and acquisitions to take place. The average CEO salary is now over $7,000 an hour—400 times more in pay than that made by the typical hourly employee in the same company.
There are several names for this kind of economics. One is "predatory capitalism." Another is "half-socialism": the privatization of profits (for the corporations and CEOs) and the socialization of costs (for the public). Another is "greed."
There are several steps a nation can take to make the economic system more equitable and beneficial for all its citizens. It can reduce the gap between the incomes of the top executives and hourly employees. For instance, France which offers free health care and free education through university to all its citizens, has a gap of 16 to 1. France regards both health care and education (including university) as basic human rights, and not as privileges for those who have more wealth.
A nation can also view taxes as a way for all its citizens to join in supporting a nation's infrastructure and common good. Equitable taxes would be raised not only from job income but also from wealth income such stock earnings, capital gains, and dividends. (Back in Eisenhower's presidency, the tax rate for millionaires was 91 percent!)
Moving from a permanent war-based economy to a peace-based one would release huge amounts of money for constructive use within our nation.
Beyond such equity-supporting mechanisms, however, is the need for a new economic ethos—a sensitivity and empathy that reaches out beyond the self-contained bubbles that so often are the habitat of wealthy people. The continuing Katrina disaster is a testimony to the inability of our clueless national government and past president to deal effectively with such a disaster. It remains to be seen how effectively our new Administration will be able to deal with the dismaying complexities of our economic meltdown. A person who loses a job is likely to lose a house, health care, and a pension, as well.
Jesus was aware of such challenges in his time. In Luke 16:19-31 he describes a rich man living in a similar kind of bubble, disregarding Lazarus, a poor man at his gate.
One solution to this bubble problem is suggested in another place in the Bible: Acts 2:44-45. A group of people, rich and poor from many different nations, who had gathered together on Pentecost day were determined to establish a new kind of community that would reflect social and economic justice and a valuing of each person. Their solution? "All who believed were together and had all things in common; they would sell their possessions and goods and distribute the proceeds to all, as any had need."
Wall Street CEOs, take heed!
