Monday, January 23, 2017

Top Down versus Bottom Up Economic Reform

Economic change - like political change (there is a difference?) comes from the bottom up, not the top down.  Another Bernie supporter makes his voice heard.   Probably voted for Jill Stein!

In my last posting, I had something of a revelation - a realization that my postings all had a common theme.   It was a theme that until now, I could not put in a single paragraph:
You see, we don't believe in "trickle down" economic reform here - trying to fix the people on the top so they stop ripping off the people down the chain.   That would be nice to do, of course, but it has been my experience that the people on top have more money than I do, and thus control all the levers of the system - or at least most of them.  Waiting for "top down" change is pointless.  You'll wait a long time - the rest of your life, in fact.
It struck me that this one paragraph summed up what I have been trying to figure out for the last several years.

I was raised in a household that was fairly liberal, in a State that was fairly liberal.  The thinking back then was that the government would solve most of our problems.   Big, well-managed government programs would provide health care, retirement, and whatnot, and the only problem was that they weren't big enough.

It all made sense in 1965 when gas was 25 cents a gallon and the economy was growing.   But the seeds of our discontent were being sown even back then.  My older brother and sister were reading from Chairman Mao's book and protesting the war and smoking dope.   And these were original ideas that thought of themselves and were in no way influenced by foreign powers such as Russia or China.  Of course not. 

My parents had clawed their way up from poverty, and now their children were rejecting "bourgeois materialism."  My Dad's family was poor.  My mother's family was one generation from poor.  They couldn't understand why my siblings were rejecting what took generations to achieve.  Drugs were involved.

Meanwhile, unions went out on strike for higher wages, and management gave in.  It all worked out OK because there was little competition in the US market - foreign goods were few and far between.  American-made goods were of acceptable (but not outstanding) quality, although prices were far higher back then, for many simple consumer items like small appliances and whatnot.

Then, in 1973, the Arab Oil Embargo.  GM, just coming off a crippling strike, was forced to cheapen the content on its cars.  And funny little cars from Japan were starting to become popular in California.

At the same time, the "Great Society" of Lyndon Johnson was in full flower.  New programs like welfare, subsidized housing, public housing, food stamps, aid to dependent children, and medicaid, started to take off.   People were already alarmed about "the welfare state" - and that would be a theme for the next decade or so.

By the late 1970's, America was a mess.  New York was a crime-ridden slum, where subway cars were covered with graffiti, inside and out, and riding one was to take your life in your hands.  Inflation took off, interest rates soared, unemployment was well over 10%.   Drug use was rampant - in the military no less.  Some folks started to think that maybe government solutions were not necessarily the best solutions.

And one of those folks was a Democrat named Jimmy Carter.  Until about 1979, trucks and airlines were regulated to the point where the government decided which destinations you would go to, what you would haul, how much you would charge, and what equipment you would use.   A coast-to-coast airline flight back then cost as much as a good used car.   Few people flew, which made it a nice luxury for the few of us who did - it was not the Greyhound bus that airplanes are today.

Reagan took office and continued this trend - de-regulation, getting "government out of the way" - and back then, the number of regulations that government had was pretty staggering - nothing like today.   But maybe somewhere, we lost sight of why some of these regulations existed.   When inflation soared, interest rates went up, to the point where banks were now charging loan-shark rates.  "Usury Laws" designed to limit interest rates, had to be abolished out of necessity.   "Bank Interest" was no longer a fixed thing.

In the late 1970's and early 1980's a new trend emerged - homelessness.   Sure, prior to that time, we had bums, hobos, and drifters.   But these were people who road the rails, bummed around, and chose indigence as a lifestyle.  This new generation of bums sat on the street-corner with a cardboard sign and a paper cup, asking for "spare change".

Some decried this - for political purposes - as a sign of the heartlessness of the Reagan era.   They claimed that homelessness (which was  new word) was a result of laissez faire economics.  The reality was otherwise.   As part of the budget-cutting of the 1970's, we closed mental hospitals, gave the patients prescriptions for drugs, and let them loose on the community without much support.   We also were starting to see the fallout from a generation of drug use, including heavy use of prescription drugs, amphetamines, and heroin.   History would repeat itself within a generation, in that regard.

By the 1990's, people had come to accept homelessness as part of our society - and the outrage became muted.    This proved once again that today's "crises" becomes tomorrow's norm, after a few years or even months.   Regulations were also eased with regard to banking and lending.   And new lending institutions and financial instruments sprang up.

In the early 1990's it was the "Savings and Loan" and the "Junk Bond" brought to you by a guy named Michael Miliken.   Two decades later, history would repeat itself with the "Mortgage-backed-security" and the "Reverse-Default-Credit-Swap" both of which would also melt-down the economy, at least temporarily.

The economy tanked and the first Black President was elected, and he tried to clean up the mess he was handed by creating new fiduciary rules for banks and lending institutions as well as forming a new consumer protection agency.   The rules helped, somewhat, but people were still free to make shitty bargains and sign crappy deals.  And the people with money argued that these rules "slowed growth" of the economy.

Fast-forward a about a decade and people want to "Make America Great Again!" pining for the fabled lost years when a man could graduate from High School and make a good living down at the plant - living a middle-class lifestyle.   Problem is, that era was very short-lived.   In the 1930's, no one was "making a good living" at the plant - in fact they were laid off.   In the 1940's, everyone worked, but only because of the war.   The blue-collar middle-class had a heyday in the 1950's, but it started to come unwound in the recession of 1958-1960.   Strikes and whatnot kept wages high for another decade or so.   But by the 1970's, the party was pretty much over.    

This ideal of a bygone America was really only a phase we went through.  Whether we can repeat that era is hard to say - and it will be harder to say whether we could sustain such an economic situation any better than we did back then - it fell apart back then because of high costs and competition - not to mention the high cost of energy.

So here we are today.   If you don't have a good technical education, good jobs are hard to come by.  You can't expect to have a middle-class income as an unskilled laborer with a high-school diploma.   You have to know something of use, whether it is how to turn a wrench, program a computer, or perform surgery - or write a book or something other than working as a manual laborer.

And the economic environment has become much harsher than in those bygone days.   The payday loan shop and check cashing store simply didn't exist when I was a child.   Pawn Shops were the stuff of Raymond Chandler novels - where Private Dicks would hock their "heater".   Middle-class people - even lower-middle-class people simply didn't patronize places like that.

Today, scorched-earth lending has gone mainstream.   Corporate America has discovered, thanks to bankruptcy reform, that you can make more money ruining a person that by doing business with them.   So the banks offer huge lines of credit on onerous terms, knowing you will default on it.   They collect interest and get the principal back in bankruptcy court - after taking your house, car, or whatever.

They call it "predatory lending" but for the life of me, I don't see how that term is appropriate.  It is not like they signed you up for a loan without your knowledge, is it?   Oh, right, Wells Fargo Bank - putting the "predatory" in predatory lending - signing people up for high-interest rate credit cards without their permission.   Why on earth would anyone do business with such a bank?  Why are they not out of business already?   If any bank deserves the "death penalty" Wells Fargo is it.   Even Bank of America doesn't sink that low.

But the fact that people still do business with a bank with a track record of committing fraud on its clients is part of the problem.   If Bank of America opened an account under my name without my permission, I would move my funds elsewhere.   Banking is based on trust, and I don't give people more than one bite at that apple.

Americans have become passive when it comes to their own economics.   You see, in addition to all of these social, political, and economic changes that have occurred on a meta-scale since the "good old days" there have been similar changes in terms of individual economics.   Back in the 1960's, people were less willing, I believe, to sign up for such shitty deals.   And yes, shitty deals existed back then, but most middle-class people eschewed them because only the poor were dumb enough to bite on nonsense like that.

Today, I hear people blather on about what a great deal they got on their Cable-TV "bundle" as if they could bundle their way to wealth.   People write articles in the Atlantic about how check-cashing stores and payday loans are rational decisions for people with limited incomes.    Middle-class people tell me what a great deal leasing is, and how I "just don't get it" because they are buying only the part of the car they use - as if sloganeering was equivalent to thinking.

Or take timeshares - something that didn't exist when I was a kid, and was created, I am told, to sell off a ton of unfinished condos during one of the many real estate meltdowns that occurred in the past.  I have had people - smart, college-educated people - tell me with a straight face what a "deal" their time-share is, not realizing they signed a contract they will never get out of until death.   They also tell me, with a straight face, that Real Estate bubbles never happened.

So Americans today are getting a screw-job compared to a specific time-frame in the past.   Not as bad a screw job as say, in 1915, or 1935, but a screw-job nevertheless.  People are offered shitty deals and they bite on them, with regularity.  It all starts at age 18 with that first credit card and student loan document - and goes downhill from there. 

So what is the answer?  Do we re-regulate businesses so they have to offer better deals?   Do we enact trade tariffs so jobs will come back to America?  The problem with these "top-down" approaches is that they are hard to enact, as there is so much entrenched opposition to them, and they largely won't work.

The consumer protection bureau - one of the signature achievements of the Obama Administration, will likely be closed or at the very least, stripped of all real powers, under the new administration.  The GOP already had tried to neuter it in the past, as well as try to smother it in the cradle.   But even if such an organization were allowed to live, it can only serve to block clearly fraudulent deals and to warn people about shitty deals.  It can't prevent people from signing on the dotted line on a shitty lease deal, an onerous mortgage, a private student loan, or a high-interest credit card.

Similarly, the idea that government will "get our jobs back" by putting a tariff on imported goods is somewhat short-sighted.  Blue-collar jobs are not all going overseas, many are going to the robot near you.   And that robot needs someone who knows how to repair and program robots - which creates a job opportunity.  In spite of automation and the substantial increase of the workforce (due to increased population and due to women entering the workforce) the number of jobs keeps increasing over time.

The secret isn't to pine for the good old days and get your unskilled labor job back - that likely isn't going to happen, ever.  A better idea is to find a skill that is in demand today, because today, unskilled labor jobs are never going to pay much, ever, no matter what Donald Trump says.   Oh, yea, and the fact that the Republican Congress is highly unlikely to enact tariffs.

Rather than wait for "top down" solutions in life - solutions that may never happen and are not likely to happen, a better idea is to change things from the bottom up.  We can't expect "wealth re-distribution" by taxing the 1% because the 1% aren't going to go quietly into the night.  It is a flawed idea anyway - that somehow you are entitled to someone else's money because they have a lot and you have a little.   It is as flawed as the idea that they got that money by taking it from you.

No one "took your money away" if you never had any.   Bad choices are usually what makes a person poor, or poorer, and unhappy.  And it starts early in life, with bad life choices.   Choosing to hang out with a gang, instead of getting an education is a one-way ticket to incarceration.   It is a choice a lot of folks in the inner city - or even suburbs or the country - make, though.  They fail to think about the fact that there are no old gang members, or the fact that most gang members are as poor as dirt and live with their mothers.

But even in the wealthy suburbs, kids make bad choices - worrying more about being "popular" in school than studying harder courses.   Deciding to smoke pot.   Signing on to four years at party-U to get a degree in advanced naval gazing - and signing onerous private student loan docs to pay for it all.

And it gets worse as we get older.  Bad credit card deals.  Thinking we need flashy cars and fancy houses.  Spending more and saving less, convinced we are getting richer based on what is parked in our driveway.

And it is a sport anyone can play at any income level.   It is understandable when a person making $40,000 a year and raising a family says they are living "paycheck to paycheck", it is obscene when someone making over $100,000 a year says the same thing - all texted to you on their new iPhone while they wait for their oversized entree at Chi-Chi's.

We have choices in our lives.  Few choose to make them.  In the last election, people chose.  And what they chose was illustrative of the problem we face.  The Bernie people were classic "top-down" folks - convinced that their only hope of change in the economic system was not changing their shitty personal choices, but electing an antiquated socialist from Vermont to redistribute the wealth and forgive debts.   It was a shameful thing that so many Americans bought into this kind of thinking.

Trump was no better, of course, promising candy to every trick-or-treater who came to his door.  He would bring back jobs, slash our taxes, and so forth and so on, and no one would have to pay for it.  Well, we have four years to see how that works out.  I am not optimistic.  Our only hope is that a conservative Congress will stifle his more egregious urges.

Hillary of course, failed to articulate any sort of platform, afraid of alienating any constituency.  While she was more middle-of-the-road than Bernie, she sold the same socialist snake oil (in lite form) to try to woo those voters.   We know how that worked out.

The problem isn't Washington or the politicians - we elected them.   They just represent another shitty choice that most Americans make - voting along partisan lines based on "social issues" and strict ideologies that allow no room for compromise.  We whine about gridlock in DC, but it is a gridlock we created ourselves.

Just as we whine about our student loan debt, or the house we are underwater on, or the car we paid too much for, or the credit card debt we can't seem to pay off.  Whose fault were these?  Was it the evil bankers or whatnot for enticing us to sign on the dotted line?  Or was it our own damn fault for "wanting it all" and not thinking about consequences.

If real change is going to occur in America, it isn't going to happen in Congress or the White House or in the Board Room.  It will happen in the living rooms and on the kitchen tables of America, where economic and political decisions are actually made.

If enough Americans stop making shitty choices, the politicians and the corporations have to listen.  Because in reality, they need us more than we need them.  Political leaders cannot lead without constituents.  Corporations cannot sell products and services without customers.  Banks cannot make a profit without making loans.

We have shitty deals and shitty politicians because we chose them.  

Maybe it is time we stopped whining about our poor choices and made better ones.

Just a thought.