The concept of "Class Warfare" has fallen out of favour in the past few decades, as apparently we are all "bourgeois" now; supposedly, we are all full fledged members of the "ownership" society - shareholders in our own careers and all that bullshit... The reality is that the vast majority of people always have, and always will, derive the overwhelming majority of their income from labour and not from capital. Yet, even the Democrats steer clear of the "Class Warfare" term, for fear that they will be labeled as Communist or Socialist. I am not a Communist or Socialist, but I don't believe in
Ponzified crony capitalism either.
Regardless of the marketable fantasy that we are all "owners", the right wing has been propagating a silent
guerilla warfare against the middle class this entire time. The key strategic elements of this
guerilla attack are:
1)
Supply Side Economics. SSE has been around since the beginning of time, but it's modern incarnation was resurrected by the Reagan Administration. In a nutshell, SSE is a set of policies intended to benefit suppliers (aka. employers), as opposed to demand-side policies that are geared more towards employees. Not surprisingly, there has never been a recession or depression in history that was caused by lack of supply. According to Adam Smith (and common sense), greed and self-interest is all that's needed enough to keep supply levels consistently high and rising. On the other hand, lack of demand has been the catalyst for all recession/depressions. So those who take demand for granted, do so at their own peril. There are two key primary drivers to demand: confidence and purchasing power. Once those are exhausted, no amount of interest rate cuts and cheap financing offers are going to get them back. Incidentally, it was George Bush Senior who famously derided the Reagan/Laffler version of SSE as "Voodoo Economics", BEFORE he became Reagan's running-mate. So it's highly ironic that his son, George W., would pick up the Reagan mantle and take SSE to an entirely new level.
2) "Free" Trade, aka. wage arbitrage - swapping out American workers for foreign workers, which I have discussed at length all over this blog.
3)
Monetarism: Monetarism is the economic policy of controlling the economy via monetary policy and changes in the money supply. Monetarism contrasts with Keynesian policy which is about controlling the economy largely through fiscal (Government spending) policy.
This shift from Keynesian philosophy to Monetary policy took place largely in the past thirty years, starting, by no coincidence, when the Nixon Administration abandoned the Gold Standard. The dropping of the Gold Standard was the defining moment for the monetarist movement, because it released the Federal Reserve from the encumbrance of having to maintain gold reserves in proportion to the supply of money.
However, there was a deeper motivation for this policy shift: Conservatives abhor fiscal policy because, its primary mechanism of increasing economic output is through Government taxation and spending (usually on social programs), which is a transfer of wealth from rich to poor. Not to say that conservatives are strictly anti-Keynesian, as always, context matters. After all, Bush was successful in passing his massive tax cut AND starting two wars. Both of these were fiscally stimulative acts which primarily benefited wealthy tax payers and wealthy owners of the military industrial complex.
Monetary policy by contrast, works by altering the terms of credit (interest rates) and therefore represents a loan from rich to poor, as opposed to an outright give away. By lowering interest rates the government can (theoretically) avoid recession by inducing people to borrow more and spend more. Milton Friedman is venerated among conservatives for conceiving and promoting this "brilliant" policy. After all, this policy not only boosts the economy on the front-end, but it also provides interest income on the back-end! (I give it 10 out of 10
ginsu knives on the
Ponzi scale). This shift towards monetary policy also explains how firms like Sears and General Motors basically became finance companies, as opposed to a retailer and an auto company - because apparently there is more money to be made from lending money than from the underlying business itself.
And of course, under this shift towards monetary policy, policy-makers couldn't stop themselves from taking a policy intended to be used sparingly and only in times of great financial crisis, and instead using it as a way of leveraging the middle class to the maximum extent possible. Today, with $48trillion in debt vs. $13trillion in income, we are at almost 4x leverage, which means many people are using their entire income for debt service (mortgage, credit cards, car loans).
It was Greenspan who largely turned Friedman's Monetarist vision into Frankenstein's monster with his view that monetary policy was a cure-all panacea with no long-term risks; however,
Bernanke seems to have learned well from his master.
Bernanke also understands who he works for, and lately he has been busier than a one legged man in an ass kicking contest - doing everything possible to protect lenders from their inevitable fate. To date,
Bernanke has initiated the Term Auction Facility to bail out the banks, initiated the Term Facilities Lending Facility to bail out the brokers, and lent $30 billion to JP Morgan to finance the Bear
Stearns buyout/bailout. In all,
Bernanke has extended upwards of
half a trillion dollars - more than half of the Federal
Reserve's cash resources - to bail out lenders (don't worry, they can print more). On the other hand he hasn't done a damn thing to bail out consumers and average citizens. In fact, since he lowered interest rates from 5.25% to 2.25%, long-term rates have been rising due to inflation concerns, which has hurt consumers. Steepening the yield curve benefits banks, but it hurts consumers who are looking to refinance into long-term fixed rate mortgages. Meanwhile risk spreads have progressively
widened, meaning interest rates on many types of consumer finance loans (home equity loans, auto loans etc.) have been steadily rising (and/or become unavailable) for many borrowers.
So, beyond helping the banks with a steepened yield curve, when you see Ben
Bernanke lowering interest rates from 5.25% to 2.25%, you have to wonder what the hell is he thinking? Well, in a nutshell, he is hoping to fool the Middle Class into one more debt binge, similar to how his master, Greenspan, greased the economy back in 2001-2003 with his 1% interest rate policy. The problem is that consumers have never
stoppped borrowing long enough to pay any of this debt back. The accumulated debt from the past thirty years is still out there. And like junkies on heroin, each hit of credit is giving consumers less and less of a high. Now the consumer debt
junky is essentially dead from overdose and yet old Ben is trying to stick a needle into the heart - praying "Please God, don't let the
Ponzi end on my watch." In fact, as I mentioned above, in the last recession, both fiscal and monetary policy were used to
resuscitate the economy - the financial equivalent of a coke/heroin
speedball. Here we are only 5 years later, looking for an even bigger dose of fiscal/monetary
speedball...
Which brings me to the irony of the situation. Monetary policy was originally intended to favour the rich over the poor - a loan vs. a grant. However, there is an old saying, "when you owe the bank $10,000 and can't pay it back, you have a problem, but when you owe the bank a million dollars and can't pay it back, then the bank has a problem. It looks like the "bank" has a big problem on its hands, because you can't get blood from a stone and the middle class has been milked dry.
So as it turns out, in the end, the rich did "win" the Class War, except in this case it will be a Pyrrhic victory...
