The Neoliberal Ideals and Why Poverty is Necessary By Mason Giem 11/2/08
As citizens of the United States we are lead to believe we have a stable economic system, when in fact it has only become more unstable during the low interest rates and neo-liberal ideals of the last 20 years. According to the U.S. Census Bureau, in the past 20 years the percentage of people in poverty living in the United States has increased to 12.5% 1. There are several key Neoliberal strategies like the deregulation of the economy, the liberalization of trade and capital markets (NAFTA), tax cuts (for corporations and the wealthy), strict control of interest rates and cutting social-service expenditures2. I will show that poverty in America is not an accident and is intended to keep the richest one percent of the nation wealthy and the poorest ten percent in poverty. Section 1: The Deregulation of the Economy The first attempt at a Neoliberal ideology was at the creation of the Federal Reserve act, and it was passed on December 23, 1913 by President Woodrow Wilson. The Act, create the establisment of the Federal Reserve Banks and allowed them to make an elastic provided for the establishment of Federal Reserve Banks and allowed the banks to make a flexible currency, to print and mint money not out of gold and to provide a bank that other banks could rely on.3 The bank was originally founded by donations from
http://www.census.gov/hhes/www/poverty/histpov/histpovtb.html America Transformed, Globalization, Inequality, and Power, Gary Hytrek, Christine Zentgraf, 2008, p.p.9. 3 http://www.federalreserve.gov/pf/pdf/pf_1.pdf 1
one of the country’s most wealthy family, the Rothschilds. Because of the dependability of the bank always loaning the Federal Government money and making interest on that money, this was a very important first step in power consolidation. The Federal Reserve System enjoys many undemocratic benefits including the fact that the Chairman of the Federal Reserve does not need to be approved by the senate.4 Then there is the fact that they claim to be an independent organization within the government, and should be free from its influence.5 Most importantly “The Federal Reserve banks are exempt from all taxation. These people are very independent, independent of audits, independent of congressional supervision, and independent of the American voter”.6 Power of the organization has only grown since its inception because of its ability to have regional branches that help regulate the amount of money in our economy through a currency system that is not backed by gold but by speculation on the future of the economy. “ They will provide an elastic currency, issuing notes secured by their commercial interests”.7 This power has freed our economic system from the pressures of not having enough money to supply unlimited growth. Unlimited Growth is an ideal that has been supported through de-regulation of the banking system and low interest rates. Now it has led to what may be considered the second economic crash Federal Reserve has created8. The first crash occurring in 1929, and the second in the fall of 2008. The
Wayne N. Krautkramer, 2004, The Federal Reserve - Its Origins, History & Current Strategy, http://news.goldseek.com/GoldSeek/1095269452.php 5 Wayne N. Krautkramer, 2004, The Federal Reserve - Its Origins, History & Current Strategy, http://news.goldseek.com/GoldSeek/1095269452.php 6 Wayne N. Krautkramer, 2004, The Federal Reserve - Its Origins, History & Current Strategy, http://news.goldseek.com/GoldSeek/1095269452.php 7 The Federal Reserve Act of 1913, O. M. W. Sprague, The Quarterly Journal of Economics, Vol. 28, No. 2 (Feb., 1914), pp. 213-254, Published by: The MIT Press 8 The Federal Reserve's Role in the Great Contraction and the Subprime Crisis, 2
subsequent effect of these economic crashes on the communities of the United States has been devastating. Section 2: The Liberalization of Trade and Capital Markets The liberalization of trade and capital markets of the economy has been a major contributing factor to the increase in capital among the buguasi. The creation of the North American Free Trade Agreement does just that and states that no government may directly or indirectly create artificial trade barriers.9 This means that the global economy of Multi or Transnational corporations can have free trade between the countries signed into the agreement. The resulting effect of this has been the highest GDP in the world, but it has come at a high price for the American people, and her future generations. One result of the free trade agreements on the American people has been a lowering of the real minimum wage in the United States since 197810 when Neoliberal ideals were really taking a hold on our way of life. The influence of mass media is everywhere, we are in an imaginary world where the media tells us that if we don’t have the latest product or credit card, we are not happy. I detest the veil of glamour that has caused our society to become the sheeple of the corporate agenda. If we were truly free and informed citizens we would realize that the very nature of a country run by Neoliberal ideals is one in which the human rights to life, liberty and the pursuit of happiness, are a lower priority than making money. Excessive wealth does nothing but lead to gluttony, war, and lethargy, all of which were very prevalent in ancient Rome before its fall, and in the developed world are currently the Timberlake,Richard H., Cato Journal, 2008, 28, 2, 303-312 9 America Transformed, Globalization, Inequality, and Power, Gary Hytrek, Christine Zentgraf, 2008, p.p. 30. 10 U.S. Bureau of the Census; U.S. Department of Labor, Bureau of Labor Statistics; Statistical Abstract of the United States; and Survey of Current Business. 3
highest in America. There are many members of the Buguasie, that have influenced the Neoliberal type of development but there is one person that I feel has been a cheerleader for these short-term economic growth packages, Alan Greenspan. Alan Greenspan, former Federal Reserve Chairman, and large supporter for de-regulation of the banking industry, claimed on October 23, 2008, that perhaps there was a flaw in his free market ideology11
“He noted that the immense and largely unregulated business of spreading financial risk widely, through the use of exotic financial instruments called derivatives, had gotten out of control and had added to the havoc of today’s crisis. As far back as 1994, Mr. Greenspan staunchly and successfully opposed tougher regulation on derivatives”12
The Chairman, appointed by the president, casts his large shadow of influence on the entire nation by raising or lowering interest rates or speculating what the Neoliberal buguasie wants the economy to do. The rational-legal authority presented by Weber , 1968, illustrates that the power the Federal Reserve chairman holds is given to him by law and is legal.13 I however, advocate that the position of Federal Reserve Chairman is so important that we should be electing and holding the chairman responsible to the American public. In order to understand how an unelected individual has so much power in a democratic society, we must look at the Neoliberal economic philosophy of the
Greenspan Concedes Error in Regulation, Andrews, New York Times, 2008, http://www.nytimes.com/2008/10/24/business/economy/24panel.html). 12 Greenspan Concedes Error in Regulation, Andrews, New York Times, 2008, http://www.nytimes.com/2008/10/24/business/economy/24panel.html). 13 The Types of Legitimate Domination, Max Weber, 1968, p.p. 215-245. 4
organization for which he works. The power of the banking industry on government policy has allowed for a worldwide distribution of debt known as derivatives. “Derivatives are a financial instrument whose characteristics and value depend upon the characteristics and value of an underlier, typically a commodity, bond, equity or currency”.14 With the widespread use and subsequent abuse of derivatives assuming their value on an inflated home value bubble, the American investment banks were able to spread the loans all over the planet.15 The spread of these loans was supposed to stabilize the market and allow for more Americans to become the mass consumers that drove our GDP to the highest in the world. Molotch, 1976, would say that this is a perfect example of how politics revolve around the conditions for creating growth and distributing the resources obtained from growth.16 With the national government as an example, I claim the American people have been convinced that it is OK to get rich quick, even if it means people in your own city starve. Section 3: Strict Control of Interest Rates In our society we are often forced to borrow money to make money. Thus, we have lost much of our freedom and have become the equivalent of modern day serfs to the feudal rulers of the national banking system, and all those who profit from our economic dependence. The lowering of interest rates, and deregulation of sub-prime mortgage lending during the rise of the Neoliberal ideals fueled the rise of individual
http://www.investorwords.com/1421/derivative.html). The Federal Reserve's Role in the Great Contraction and the Subprime Crisis, Timberlake,Richard H., Cato Journal, 2008, 28, 2, 303-312 16 The City as a Growth Machine," by Harvey Molotch, in The American Journal of Sociology, © 1976 by The University of Chicago. 5
debt. This point is illustrated by examining the enticing element of getting a dream house for 0 down at a %5 interest rate. During the current Bush administration, Americans’ savings rate actually went to an all time low, while household debt as a percentage of GDP soared above 130%, a doubling in 25 years17. The resulting effect on communities has been a nation with a savings rate of less than one percent18, which expects to keep growing forever. A country with such low savings rates and high amounts of debt decreases the value of its currency, and thus a spiral into recession is the only logical conclusion. This is shown by the decreasing value of the United States currency compared to that of Canada or the European Union and our current recession. Where will this trend lead? As Harvey Molotch ,1976, would point out, the battle for the nicest car, house, kid, is exactly the kind of power game the political economy wants us to play19. The question we need to ask ourselves is why do we put so much trust in an ideology that puts making money above the well-being of American lives all over the country? Section 3: Cutting Social Expenditures One of the most obvious ways that poverty is maintained is by the cutting of social service expenditures. This includes the high cost of higher education, and the high cost of healthcare, and the creation and implimentation of the antiwelfare program called the Personal Responsibility Act. The cost of higher education in the United States is another great example of the rich trying to keep the poor, poor.
(Meet the Shallowest Generation, November 1st, 2008, http://www.speroforum.com/site/article.asp? idCategory=34&idsub=158&id=16602&t=Meet+the+Shallowest+Generation 18 The Return of Saving, Feldstein,Martin, Foreign Affairs, 2006, 85, 3, 87-93, Foreign Affairs 19 The City as a Growth Machine," by Harvey Molotch, in The American Journal of Sociology, © 1976 by The University of Chicago. 6
The high cost of education has succeeded in discouraging students from completing their college degree. As evidence by the graduation rate that has remained steady over the past four years and has dropped only slightly over the past 10 years down from 54 percent in 1992.21
“Over the past 10 years, tuition fees at four-year public colleges have grown at a rate of about 4.2 percent a year after inflation, according to the College Board. Tuition has grown at an annual average of 2.4 percent at private four-year schools, and at a rate of 1.4 percent a year at public two-year schools”.22
U.S. Bureau of the Census; U.S. Department of Labor, Bureau of Labor Statistics; Statistical Abstract of the United States; and Survey of Current Business 21 http://www.act.org/news/releases/2002/11-15-02.html#1). 22 Saturday, November 1, 2008, College costs going up, The Business Review (Albany), http://www.bizjournals.com/albany/stories/2008/10/27/daily41.html 7
The cost of healthcare in the United States has also risen as corporations receive more power in our society. I can speak from personal experience knowing that my grandmother was being assigned multiple medications that were unnecessary and in some cases off setting the effects of other medications. “From 1987 through 1994, of the 11.9 percent average annual rate of spending growth, about half reflected the direct effects of increased prices, while the remaining half is attributed to utilization growth. In contrast, from 1994 through 1999 the growth rate remained in double digits, but only about one-fifth was directly attributable to price changes; nearly 80 percent of increased drug spending was related to growth in utilization”.24 This goes to show that there are many influences that have worked together to reduce the amount of economic freedom we have as individuals of the lower working class.
The Personal Responsibilities Act is another major contribution to the effects that keep people in poverty. This act according to Sharon Hays in Flat Broke with Children, claims that the personal responsibility act does not give individuals enough of the assistance they need to be able to stay out of poverty26 Some of the assistance that they do need are programs that give them enough marketable job skills to raise themselves out of poverty and to stay out of poverty. There are other aspects of the Personal Responsibility Act that have been denounced by Mark Rank, he claims that “ …to focus more on the lack of marketable skills, training, education, as well as other characteristics such as being a single parent or having large numbers of children, hinders the ability of particular Americans to compete in the economy and thereby raises their risk of poverty”. 27
http://content.healthaffairs.org/cgi/content/full/20/2/100). Flat Broke with Children, Sharon Hays, 2003, p.p. 8. 27 One Nation, Underprivileged, Mark Rank, 2005, p.p. 172. 9
In conclusion, America has been known as the best place in the world to invest because of our free market ideology. Our current belief in Neoliberalism is an idea that the market will take care of itself and regulating it will only subtract from its potential to create a better way of life for its people. This theory is presented by Harvey Molotch, and motivated by the centralization of monetary power in the hands of rich, which control the flow of goods and recourses within our country. These rich do not want to lose their power, and have thus have done everything within their power to reduce the chances of individuals from lower classes moving up into the upper classes. This principle motivation to look out for oneself even if it is to the detriment of the community is a dangerous lifestyle when sustainability is considered. It seems to me that the people of power in our society understand and implement the political economy approach to understanding society. I would like to challenge every one to think about what constitutes a better life? Is it a nicer car or bigger house? What is happiness? Happiness levels in the United States from the 1970s until the present have not changed much, even though it has been a period of unprecedented economic growth. To the extent happiness levels have changed, they have dropped downward a small amount (the explanation usually given for that drop is the unevenly shared nature of the economic gains).28 This is why we need to take back the future of our country from the deadly grasp of corporate agenda, if we are to enjoy the freedoms of life, liberty and the pursuit of happiness, as granted to us by the U.S. Constitution.
Gross National Happiness and the Economy Happiness, Global Economics, U.S. Economy, Financial Markets, Carol Graham, Senior Fellow, Foreign Policy, Global Economy and Development, Soumya Chattopadhyay, Senior Research Analyst, Foreign Policy, Global Economy and Development TheGlobalist, http://www.brookings.edu/opinions/2008/1024_happiness_graham.aspx 10