Diatribes of Jay

This is a blog of essays on public policy. It shuns ideology and applies facts, logic and math to economic, social and political problems. It has a subject-matter index, a list of recent posts, and permalinks at the ends of posts. Comments are moderated and may take time to appear. Note: Profile updated 4/7/12

29 November 2010

Grover Norquist’s World: Indentured Servitude for Youth



Our Future By the Numbers
Consequences for Youth
Conclusions

Thanksgiving is a time of obligatory optimism and self-congratulation. Now it’s over. So it’s time to look reality full in the face. The result is not pretty.

For the foreseeable future, we Americans will be living in Grover Norquist’s world. Remember him? He’s the one who urged starving the “beast” of government until it’s small enough to “drown in the bathtub.”

Well, he and his kind have won. Their victory and the drowning are not quite complete. The “beast” is still gasping for air. But their dirty little secret is that they’ve already won, and decisively.

Our Future by the Numbers

As usual, numbers tell the tale. It’s easy to lie about or “spin” mood and tone and direction. But notwithstanding Mark Twain’s bon mot about “lies, damn lies, and statistics,” numbers don’t lie, at least when you look at the right ones.

We begin with a simple fact. Rounded to the nearest tenth of a trillion, our national debt is now $13.8 trillion dollars. Our national revenue [page 3, top], or GDP, is $14.75 trillion dollars (as of third quarter 2010, annualized). That means our debt is about 94% of our national GDP. In our entire history, it was greater only in 1945 and 1946 [page 126], just at the end of World War II (96.4% and 97.9%, respectively).

To gauge the significance of that number, consider California. It is by far our most productive state. It’s 2009 GDP (the latest figure available) was [Table 1] $1.74 trillion, and its current total state debt is $26 billion. That’s a ratio of 1.5%—a figure any nation would be proud to have.

The difference of course is that California’s constitution, like those of most states, requires a balanced budget. California didn’t get there this year because its legislature couldn’t agree on budget cuts and/or tax increases. The reason was a supermajority requirement for adopting a budget: a two-thirds vote.

But in their recent election, Californians passed Proposition 25, which abolished the supermajority requirement and allowed California’s legislature to adopt a budget by a simple majority vote.

In that respect, California is far ahead of the nation as a whole. Our national Senate these days acts only by a supermajority vote of 60%, and a single senator can put a “hold” on any bill. In addition, the maldistribution of voting power in our Senate gives our least populated and most rural states a veto over national policy.

California would have the same problem only if the sparsely populated counties in its rural Central Vally outvoted its two great conurbations: the San Francisco Bay Area and the Los Angeles-San Diego corridor (which is now almost continuous suburbs). But they don’t. Power in California’s legislature is roughly proportional to population, while power in our national Senate is concentrated in the outback. It would not only take a constitutional amendment to change that; each affected state would have to consent. That, of course, will never happen.

So don’t listen to California’s detractors. Its debt burden is small by national standards, and its people were wise enough to give its legislature the power to reduce it. The so-called “People’s Republic of California” will be just fine, thank you, with a little belt-tightening and a little increase in taxes.

But at the national level, nothing of the kind is in the cards. One reason is the top federal tax rate. It has dropped like a stone during my lifetime.

In 1945, when I was born, the top tax rate was 94%, on all income over $200,000. (No, those are not typos. Those are the figures, taken directly and identically from the two linked sources.) After the “Reagan Revolution” was complete, the top tax rate has been stable at 35% since 2003. And there is no appetite, at least in our malapportioned Senate, to change it, although it might rise two or three percent if the Bush Tax Cuts expire.

Numbers also tell the tale of corporate power. California’s total debt of $26 billion may seem like a lot of money. But any two of the top eight Fortune-500 companies could have paid off that debt entirely, out of their joint profits, and still had money left over. Thus, in effect, any two of our top multinational corporations have more fiscal power than the government of California, which makes the rules for the world’s eighth largest economy. The 2007 pay of a mere twenty individuals—Wall Street’s top-twenty hedge-fund and private-equity-fund managers—could have retired nearly three-quarters of California’s debt.

The situation is similar at the national level. Just-released third-quarter 2009 figures put collective, annualized corporate profits at $1.659 trillion. If those figures continued, our corporations could extinguish our entire national debt—all $13.8 trillion of it—in a mere 8 years, four months.

Of course, that’s not going to happen either. But it does demonstrate graphically who and what have the power in our society. Our corporations collectively could pay down our entire national debt in less than nine years out of their profits alone, without losing a dime. Any two of the top eight could extinguish California’s debt in a single year.

So if money is power, the private sector has it. Government doesn’t. Maybe it’s not quite drowned in the bathtub yet. But it’s already clear that corporations are the heavyweights and government the skinny 110-pound weakling. And it’s also clear that, at least at the federal level, the disparity is only going to get worse.

Consequences for Youth

This growing disparity didn’t appear overnight. It’s the result of a forty-year assault on progressive taxation, which turned vicious after the so-called “Reagan Revolution.” The most visible consequence is a maldistribution of income [Table 6], as follows:

Category of Income Recipients (2006)Percentage of All Income They Receive
Top 1%21.3%
Top 20%61.4%
Bottom 80%38.6%

There is a similar Maldistribution of Private Wealth [Table 1] (2007)

Percentage of All Wealtholders (2007)Their Percentage of All Wealth
Top 1%42.7%
Top 20%93%
Bottom 80%7%


But for me, the most striking consequence of emasculating government hits our youth. Two-thirds of college students today are in debt upon graduation, and 17 percent owe more than $30,500. With distributions of income and wealth like those shown above, most of them are going to have to work for many years to pay off that debt.

In contrast, in 1966 I graduated from a leading state university with zero debt and money in the bank. (I worked, but only part time, and I had two small merit-based scholarships that helped pay living expenses. There was no tuition, only a fee of $100 per semester.) With the help of a federally-funded fellowship and student assistantship, I even got a Ph.D., again from a prestigious state school, with zero debt.

What all this really means is apparent from our own history. When we were still a British colony, passage to America was beyond the means of most ordinary people. Those who wanted to emigrate to the “New World” did so as indentured servants. Wealthy people or businesses advanced the fare for their passage. On arriving, they served for seven years to pay the debt. By that time they were bent with toil and trained in a trade. (Not coincidentally, the period of apprenticeship was also seven years.) They would then toil lifelong for wages in the trade they had learned as indentured servants. The lucky ones were able to start their own businesses.

Today’s massive student debt is just a milder form of indentured servitude. The “passage” is no longer a months-long sea voyage, but the education needed to succeed in and contribute to a complex, modern society. It will take most students about as long to pay off the debt for that modern “passage” as immigrants to the New World took to pay for their passage in colonial times.

The servitude may be better in one respect: there is no contract with a single master. So the relationship is less like temporary slavery. But the principle is the same. Debt pushes graduates hard to do not what they like, or even what they do best, but to do what their corporate masters bid. Maybe that’s why, as the Wall Street Journal recently reported, “the U.S., after leading the world in previous years, has fallen to 12th place for college completion rates among people ages 25 to 34.”

Above all, the threat of indentured servitude is the reason for the massive exodus of our best and brightest from the arts, sciences and engineering into law and investment banking. Debt dies easier when you can charge several hundred dollars an hour or get year-end bonuses of several hundred thousand dollars.

Financial circumstances force graduating students to make these choices. In the post-World War II “GI bill” days, returning troops and maturing youth got educated essentially for free. When they graduated, the world was their oyster. They could do what they wished. They could even work for the benefit of society. Now, like emigres from the Old World in colonial times, graduating students are indentured to those who call the shots.

Conclusions

This is not the end of the world. We survived our start-up period of indentured servitude as a nation. We even survived the enslavement of a fraction of our entire population. We will survive this, too.

The immediate postwar period, with its historically unprecedented freedom for youth, was unique in our history and possibly in human history. Not coincidentally, that period also marked the wealthiest, happiest, most innovative and most cohesive society in human history.

But that era is now gone. Indentured servitude is back. And our new masters seem to like it that way.

The Norquist “conservatives,” who once forced their sons to enter their fathers’ lines of work, are in control. They are the same people who neglected the nation’s infrastructure to line their own pockets, who think windmills are some Marxist plot against the oil companies (while the rest of the world installs them for free energy) and who think high-speed rail and electric cars are for socialist Europeans and wimps.

Unless we take on one too many wars in our ceaseless quest to command more than our fair share of the world’s limited resources, we’ll survive their rule. But when we again emerge into another bright era of economic freedom and innovation, we won’t be the world’s leader any more. We might still excel in law and banking, which is to say disputation and swindling. But the best of us will long since have emigrated or have been drowned in the bathtub, along with functional government.

Welcome to your brave new world, Grover. I hope you like it. I doubt your progeny will, if you have any. But then again, kids are always ungrateful, aren’t they?

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