Weapons of Mass Exploitation
About eight years ago, there was frenzied and furious talk about WMDs, or weapons of mass destruction. Both the frenzy and the fury came from President George W. Bush and his administration, prior to the US invasion of Iraq in March 2003 and soon thereafter. The president's poll ratings had soared in the aftermath of the quick American victory in Afghanistan, which was the base from which al-Qaeda had launched 9/11. In order to keep his poll numbers up, the president and his officials were in a hurry to invade Iraq and remove Saddam Hussein from power. There was a frenzy of claims that Saddam possessed WMDs including chemical arms and nuclear weapons. But when none were found, the officials were furious that Saddam, so to speak, had deceived them. They were also furious at their critics who wondered aloud if the entire WMD claim was actually a fabrication.
The Iraq invasion turned out to be a colossal mistake in terms of lost lives and heavy expenditures that sharply raised the federal budget deficit. However, few realize that the Bush administration made a far bigger mistake in using what may be called Weapons of Mass Exploitation or WMEs, which have all but decimated the US economy and continue to do so.
A WME is a short-term financial palliative that makes the rich richer but postpones economic troubles, while seeming to cure the problems of unemployment and dwindling family incomes. It tends to create debt in the economy, but most economists call it fiscal policy or monetary policy. Once the term "policy" is used, everybody shuts up and accepts the claims of WMEs' beneficence, believing that a genius must have devised it. However, all it does is to generate more debt in the economy, and let the problems pile up, only to return with greater force in the future. Most nations have deployed it in the past 30 years, but various American administrations have been exceptionally adept in its use.
Let us see how a WME only postpones economic ills and also enriches the rich. I am sure you've all heard of supply and demand, even if you never took a course in economics. Supply and demand are like the two wings of an airplane; both have to be equally strong and weighty, or else the plane will crash.
What is the main source of supply? Productivity. What is the main source of demand? Wages. If you become more productive - through education or the use of better technology - you produce or supply more goods. If your wages rise, then you consume or demand more goods. For the economy to stay healthy, supply must be equal to demand, or:
Supply = Demand
Please don't be alarmed by the use of a simple equation, because it will highlight the role of debt in a visual way and make it easily understandable. If supply is not equal to demand, then, like the airplane with unequal wings, the economy will crash some day. Here, supply refers to the value of goods produced in the entire economy, and demand means total spending or the value of goods consumed in the nation.
It so happens that, because of investment and new technology, productivity and, hence, supply rise year after year. This means that wages and, hence, demand must also rise year after, and in the same proportion. Otherwise, there is an imbalance, and unexpected problems arise. If wages trail productivity growth, supply exceeds demand, leading to overproduction. Businesses are unable to sell all that they produce and layoffs follow. Hence, the only cause of unemployment in an advanced economy is the rise in the gap between what you produce and what your employer pays you.
However, joblessness creates problems not only for the unemployed but also for elected officials, because the unemployed have the right to vote. Politicians seek to face a happy electorate and be re-elected. They don't like unemployment anymore than you or I, which means they have to create ways to raise national spending to the level of supply. They face two choices: either to follow policies to raise your salary proportionately to the level of your productivity - which is only fair and ethical - or to adopt measures to lure you into larger debt, so that you spend more not out of a pay raise, but from increased borrowing.
Luring the public into debt in order to get re-elected, I believe, is crass corruption. It is also corruption because the politician, ever in need of campaign donations, wouldn't dream of offending business interests that are all for low wages. With wages trailing productivity since 1981, elected officials have been following what is known as monetary policy, which tempts people into larger debts. This eliminates unemployment as spending rises to the level of supply, because now,
Supply = Demand + New Consumer Debt
With monetary policy, the Federal Reserve prints more money to bring down the rate of interest, and lower interest rates induce people to increase their borrowing or their debt. However, the wage-productivity gap has been rising so fast that the government also had to raise its own spending and debt constantly, so that total spending matched rising supply. In this case:
Supply = Demand + New Consumer Debt + New Government Debt
Raising government debt to postpone the problem of unemployment is called "fiscal policy." Now you see why our nation is awash in debt at both the consumer and the government level. Elected officials have frequently used debt-creation policies to get re-elected, while creating the impression that they are doing American workers a favor by preserving their jobs. Are they doing you a favor? Absolutely not. Instead, they are simply enriching the rich. Let us see how.
First, job creation occurs through the cooperative action of both producers and consumers. Producers only create supply and, indeed, hire workers, but if their goods remain unsold, they lose money and workers are laid off. Second, joblessness occurs only if your boss doesn't pay you enough to match your productivity. If you work hard and still get fired, then it is the employer's fault, not yours. You are doing your job of being productive on the one hand and creating demand out of your salary on the other. If your demand falls or does not rise enough, then it is because your boss has not given you a raise or has cut your wages. At the macro level, insufficient national demand only means that workers have produced so much for their companies that supply exceeds demand, so that some people have to be laid off. Where then is your fault in this entire process? It is your employer's greed that generates joblessness, not you.
Once the government has generated enough new debt to increase spending to the level of supply, the unemployed are called back to work, usually at lower wages. But the debt increase is large enough to eliminate overproduction even at puny wages. As overproduction vanishes, profits jump. You can see this clearly from the above equation. If your wages and, hence, your demand are constant, then the entire increase in debt goes into the pockets of suppliers. Without this debt growth, employers would have suffered losses due to overproduction; but with the creation of new debt, all their goods are sold, and profits soar, while your salary is either constant or grows very little; it may even fall, if you were laid off and had to find a new job. Thus, if the budget deficit is $1trillion, then corporate profits plus executive bonuses jump by $1 trillion. If the deficit is $2 trillion, then businessmen's incomes rocket by the same amount.
This is exactly what has occurred during the Great Recession that started at the end of 2007. Millions of people were fired because the likes of General Motors, IBM, Microsoft and Goldman Sachs could not sell all they had produced. Then President Bush sharply raised the budget deficit, and the Federal Reserve printed tons of new money to bail out failing businesses. As a result, the economy stabilized in 2009 and began to grow in 2010. However, real wages fell, while profits sky-rocketed. Why? Because, the entire increase in government debt went into the coffers of producers. This is how Goldman Sachs alone could give bonuses of over $20 billion to its executives in 2009, while millions were still being laid off. Consumer debt actually fell, but the government debt rose so much that executives received hefty extra compensation.
Eliminating the Budget Deficit
It should be clear by now that our so-called monetary and fiscal policies are enriching the rich while not doing much for the jobless. What should we do? For the solution, let us take a look at the American economy in the 1950s and the 1960s, the golden decades of high growth and growing prosperity for all. GDP growth averaged over 4 percent as compared to less than 3 percent since 1981, while real wages went up to match rising productivity. The top bracket income tax rate at the time averaged above 80 percent, and corporations paid 25 percent of the total tax revenue or about 5 percent of GDP. The middle class paid low taxes, and there was practically no budget deficit.
Why was GDP growth so high back then? The answer lies in high taxation of wealthy individuals and corporations. Thus, for the 1950s and the 1960s:
Supply = Demand + Near Zero New Debt
Since real wages grew as fast as productivity, new debt was practically zero. People met their needs mostly out of their rising salaries. Demand rose in a natural way to match increasing supply. It may be noted that supply comes primarily from the rich, but demand comes primarily from the poor and the middle class. Since taxes were low on low-income groups, consumer demand grew as fast as salaries; but from 1981 on, thanks to President Reagan and his advisers such as Alan Greenspan, the tax burden was transferred from the rich to everyone else. Income tax rates sank for wealthy individuals and corporations, while most, if not all, other federal taxes jumped. The self-employed small business person, for instance, saw a rise of 66 percent in their tax rate. Taxes also rose on gasoline and tires. The crippling tax burden on lower incomes naturally reduced the growth in demand, so GDP growth (growth in supply or output) fell sharply below that in the 1950s and the 1960s. Even the oil-shocked 1970s produced higher growth of 3.3 percent.
All this suggests that we should move toward the tax structure of the 1950s and 1960s. Today, the top-bracket income tax rate is 35 percent. Suppose we were to raise this rate to 45 percent for annual incomes above $250,000, and to 70 percent for incomes above one million, then the income tax yield would rise from $1 trillion to $1.5 trillion, or by $500 billion. Thus, any dollar earned above $250,000 will be taxed at the rate of 45 percent; similarly, any earned above a million will face a rate of 70 percent, so that average tax rates will be well below the top rates, which will still be below those in the 1960s. For corporations, we could go back to the old rate of 45 percent tax on corporate profits, while eliminating loopholes. We would then collect about 5 percent of GDP or some $750 billion, which would bring in extra revenue of $600 billion. Thus, higher taxes on affluent families and businesses will raise our revenue annually by $1.1 trillion. Slashing defense spending and oil and agricultural subsidies would reduce government spending. This way we can almost eliminate our budget deficit, which is currently running at an annual rate of $1.2 trillion.
Eliminating the Trade Deficit
Eliminating the budget deficit would quickly revive our comatose economy. The first benefit would be felt in the fall of our trade deficit, especially that with China, which has become our foremost lender. America would no longer have to borrow money from anyone, and China would not be able to use its surplus dollars to buy more US government bonds. Such a move would cause a major appreciation in the value of the Chinese yuan, which, in turn, would reduce, possibly eliminate, our trade shortfall with China. Our manufacturing would revive and thousands of new jobs would be created, raising the tax revenue further.
The next step would be to reduce the tax burden on lower incomes by cutting the self-employment tax to 12 percent from the current 15 percent; we could also eliminate the Social Security tax on the minimum wage. Our increased tax revenue would pay for these cuts, which would further raise consumer demand and, hence, GDP growth. Note that the trade deficit is also a WME, because it tends to lower wages, while stuffing the wallets of the CEOs of multinational corporations. Just look at the fat pay checks of such CEOs in the aftermath of our trade with China.
Another WME that our government has systematically used to reduce our living standard is outsourcing; we can impose a stiff tax on this practice and raise even more revenue. This would also enable us to trim the tax burden of low-income groups.
In short, the American economy can be easily fixed if our government would stop using its vast arsenal of WMEs against us. I believe that, in just 12 to 18 months, we can bring the nation back to an unemployment rate of 6 percent, which is close to full employment.
This work by Truthout is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.






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justintime
Fri, 2011-05-20 09:38
The economy is totally wrecked and doesn't look hopeful... productivity is fake because jobs wrer eliminated and downgraded as well as salaries lowered. Quality and knowldege has been lost. People with technical knowledge have been replaced by lower paid less qualified people who then are asked to do several peoples work some of which they are barely trained in so they are patching and filling and putting fingers in dikes.
So cost of goods didn't go up so sales to poor pople can continue and the productivity has gone to profits. But we are running on fumes and systems could just collapse and the knowledge base for handling the system failures is gone.. they had to refit to new jobs under their qualifications and are not on the market plus who would want to take on the incredible mess... We are close to systems collapse having cashed out on the quality and service that previously existed trading it for fewer employees at lower wages doing peoples work they don't even know how to do. Corporate crying time is fast approcahing when even the rich stop making big money to lavish on Washington lobbyists and campaign contributiona snd the political media consultants... meanwhile other countries are increasing quality and valued goods as we become a military banana republic with nothing but high tech weaponry we can't afford to run and doesn't work very well and our demo wars will be less shock and awe and more hide and try not to fight for these multi-national corporations any longer and hope to stay alive.
Meanwhile the real thing this century will be learning how to live within the means of our planet sustainably without all the over-consumption BS we are brainwashed for. And learning how to five a zero population growth economy without poisoning our planet and strengthed basic systems for surviving climatic and natural disasters.
Tomi Johnson
Tue, 2011-05-10 05:48
Since we seem to be commenting with "pie-in-the-sky" economics, I recommend we place a moratorium on all wars, we forgive all consumer mortgage debt and let banks start all over again with their plan to enslave Americans by granting 10 year max mortgages at 1% interest for folks who have bad credit scores. Make corporations with most profits hire 1 person for every $100k in bonuses paid to money grubbing CEOs; rent out vacant, foreclosed homes and condos owned by banks to people living below poverty line for $300 per month, eliminate credit cards and give families living in poverty a $1,000 food card. Sell fuel efficient cars (1 per family) for under $10k, make cable tv free and Internet hook up free, pay moms to home school kids, give out free diet plans/assessments to families that have members suffering from cancer, diabetes, kidney or heart problems. Turn Mississippi River wetlands into rice paddies after cleanup. Have books previously listed and other alternative economic textbooks for viewing free on the Internet. PRAY. (Message sent from iPad may contain misspellings)
Jeff Popova-Clark
Mon, 2011-05-09 20:11
Ravi,
The world's natural resources can no longer afford an American middle class.
We must impoverish them in order to decrease their ravenous consumption
of the world's resources. However, we can afford about 1-10% of the US population to live a decadent lifestyle, so we'll let that continue.
Once we've impoverished the majority of americans we will be able to let
a small proportion of elites from around the world to live a good lifestyle
with the limited resources we have. We just need to make sure that the
impoverished majority think its in their own interest. Luckily we
have public relations expertise honed over decades to take care of that.
Ravi, think of the environment.
Jeff Popova-Clark
Jeff Popova-Clark
Mon, 2011-05-09 20:11
Ravi,
The world's natural resources can no longer afford an American middle class.
We must impoverish them in order to decrease their ravenous consumption
of the world's resources. However, we can afford about 1-10% of the US population to live a decadent lifestyle, so we'll let that continue.
Once we've impoverished the majority of americans we will be able to let
a small proportion of elites from around the world to live a good lifestyle
with the limited resources we have. We just need to make sure that the
impoverished majority think its in their own interest. Luckily we
have public relations expertise honed over decades to take care of that.
Ravi, think of the environment.
Jeff Popova-Clark
Robert Hunter
Mon, 2011-05-09 17:15
For reading, I suggest "Shock Doctrine" by Naomi Kline. This scheme has gone world wide, it is taking longer in Europe because the people are better educated & they are used to fighting for what they need, but, from Greece (socialist) to the UK (conservative) the screwing over of the working class is the same. Politics are a joke, the game is rigged & the propaganda would put Goebbels to shame. When you find a way to get the working class to support their own interests rather than their oppressors I will believe there is some hope. Short of that, the only hope is in the streets, even the Unions are a part of the system in the USA. You have to admire the Taliban (not for what they believe) but for standing up to & defeating the mightiest military machine in the world NATO & I don't believe their leaders will sell the people out like the leaders of Vietnam or S Africa did.
dale sturdavant
Mon, 2011-05-09 06:53
Chinese imports sharply compounded the demand/supply imbalance--with the complicity of the US manufacturers who off-shored production and jobs under the WTO regime, and US retailers (Walmart, etc) who sourced there.
Thus much new supply added to US market with declining demand and even more debt.
Very low wages in China--until recently only 1/20th those in the US, slightly more after wage hikes-- combined with selling these products in "first world" markets provided the gross imbalances that were already plunging our middle class into declining living standards even before radical deregulation led to "casino capitalism" and crashed the world financial system.
Now we need to start over, toss out the WTO and rebuild, perhaps along the lines sketched in Bill McKibben's "Deep Economy" or David korten's "Agenda for a New Economy." but that entails a mass movement with the early Tea Party's passion, but much better informed, far more democratic, and not coopted by billionaires or demagogues.
R C
Mon, 2011-05-09 06:07
Ravi Barta: thank you. Yes, it is simple, obvious but it is not in the plans. As the leaders of the greatest predatory capitalism home this is not to be. If we took care of the american people as exclusionary to world predatory capitalism we impose, it would be unjustifiable to economically enslave other peoples? The low level americans have not woken up to the fact they will be sacrificed for predatory capitalism.They cannot be example of democracy as we see the shut down attempts of collective bargaining throughout our country!! To bring americans to their knees...Predatory capitalism has fully circled back to its home roots. RodMcShank is right_-- if they leave b/c they do not want to pay taxes and offshore these jobs and offshore their profits untouchable, they cannot sell their products here!! How about time for new companies to start up and stay here? Who is to prevent this? Why do we have to behold to the international corporatists.These international corporatists as ErikPrince will move to Bahrain, and enjoy playing golf with princes and maybe their wives can have tea with the new princess Kate. They will not suffer. We will.
Geri Mellgren-Kerwin
Mon, 2011-05-09 13:21
Thank you Mr. Bahtra. Nobody in politics today has even suggested that the American working people receive a long-delayed (30 years)raise. They enjoy life in the pockets of the low-wage predatory capitalist tyrant. To recognize the realities of a healthy economic system, the US must first decide that human life is more important than money, that the nation is more important than some individual predators, that a national economy means more than a global one, well, you get the idea. It is about basic values as much as sound economic principles we can count on you Dr. Bahtra to provide.
Terrance Newton
Sun, 2011-05-08 18:06
Very good article and great suggestions. However, what stands in the way unfortunate are cowardly millionaire politicians, an unprincipled sellout supreme court, and a oligarchy/corporate media.
All these greedy bastards listed above will rather destroy this system themselves than allow the American people to exercise our constitutional rights.
Our best move is to start planning for the eventual collapse of this over leveraged economic system backed by phony fiet counterfeit currency.
Roddie McShank
Sun, 2011-05-08 17:59
If we institute a steep tax on outsourcing, won't the businesses affected simply uproot themselves and move their capital to a different country? Wouldn't that also be true in the case of raising corporate taxes and eliminating loopholes? Hasn't the mobility of capital always been the problem?
Brucee nichols
Sun, 2011-05-08 17:55
Sounds like we need to grow up. We need a new vision for America. We have to change.
"When I was a child, I spoke as a child, I understood as a child, I thought as a child: but when I became a man, I put away childish things."
First Corinthians 13:11.
**** A New Vision for America ****
Read “Common Sense 3.1” at ( www.revolution2.osixs.org )
FIGHT THE CAUSE - NOT THE SYMPTOM
mysterioso mysterioso
Sun, 2011-05-08 15:03
Ravi - do your homework. 9/11 was not launched from Afghanistan. Its been stated many times that Germany was the country where 9/11 was planned and possibly France or Spain. Also, read "The Creature From Jekyll Island". The real culprit is central banking.
cheyenne bode
Sun, 2011-05-08 12:26
GOOD ARTICLE...EVEN THOUGH AMERICAS ECONOMIC THEORIES(Friedmanism)BROUGHT DOWN ITS ECONOMY AND OTHERS THAT FOLLOWED ITS LEAD...THOSE CONSERVATIVES IN GOVERNMENT ARE STILL CLINGING TO ITS RAGGED HIDE..IT SHOWS THAT INTELLIGENCE DOES NOT ALIGHT ON THOSE UNWILLING TO ADMIT THEIR ERRORS..IT LEAVES THEM WITH AN IDEOLOGY WITH NO RELEVANCE..THEY ARE ORPHANS OF FOOLISHNESS...
Lorenzo Canizares
Sun, 2011-05-08 11:44
This says it all!
All this suggests that we should move toward the tax structure of the 1950s and 1960s. Today, the top-bracket income tax rate is 35 percent. Suppose we were to raise this rate to 45 percent for annual incomes above $250,000, and to 70 percent for incomes above one million, then the income tax yield would rise from $1 trillion to $1.5 trillion, or by $500 billion. Thus, any dollar earned above $250,000 will be taxed at the rate of 45 percent; similarly, any earned above a million will face a rate of 70 percent, so that average tax rates will be well below the top rates, which will still be below those in the 1960s. For corporations, we could go back to the old rate of 45 percent tax on corporate profits, while eliminating loopholes. We would then collect about 5 percent of GDP or some $750 billion, which would bring in extra revenue of $600 billion. Thus, higher taxes on affluent families and businesses will raise our revenue annually by $1.1 trillion. Slashing defense spending and oil and agricultural subsidies would reduce government spending. This way we can almost eliminate our budget deficit, which is currently running at an annual rate of $1.2 trillion.
eileen fleming
Sun, 2011-05-08 11:41
What we the people are up against is the collusion between The Industrial Media Government Military Security/Surveillance Complex which would collapse IF America honored its commitment to upholding the UN UNIVERSAL DECLARATION OF HUMAN RIGHTS and We the People Seized OUR RIGHTS!
"We hold these truths to be self-evident: That all [people] are created equal; that they are endowed by their creator with certain unalienable rights...that, to secure these rights, governments are instituted among [people] deriving their just powers from the consent of the governed; and, whenever any form of government becomes destructive of these ends, it is the RIGHT of the people to ALTER or to ABOLISH it." -July 4, 1776, The Declaration of Independence.
http://www.youtube.com/watch?v=kRAifoqt9g8&feature=channel_video_title
Robert Stanfield
Sun, 2011-05-08 10:37
Amen. What is disturbing is that other than Robert Reich, I have heard of no other economist has said the obvious. And other economies that has adopted this kind of income disparity have become "Banana Republics" mired in poverty, violence and no growth. That often quoted "Liberal", Henry Ford who raised wages to $5/day so his employees could afford his cars.
Tennessee Ernie Ford so eloquently expressed
Some people say a man is made outta mud
A poor man's made outta muscle and blood
Muscle and blood and skin and bones
A mind that's a-weak and a back that's strong
You load sixteen tons, what do you get
Another day older and deeper in debt
Saint Peter don't you call me 'cause I can't go
I owe my soul to the company store
I was born one mornin' when the sun didn't shine
I picked up my shovel and I walked to the mine
I loaded sixteen tons of number nine coal
And the straw boss said "Well, a-bless my soul"
You load sixteen tons, what do you get
Another day older and deeper in debt
Saint Peter don't you call me 'cause I can't go
I owe my soul to the company store
I was born one mornin', it was drizzlin' rain
Fightin' and trouble are my middle name
I was raised in the canebrake by an ol' mama lion
Cain't no-a high-toned woman make me walk the line
You load sixteen tons, what do you get
Another day older and deeper in debt
Saint Peter don't you call me 'cause I can't go
I owe my soul to the company store
If you see me comin', better step aside
A lotta men didn't, a lotta men died
One fist of iron, the other of steel
If the right one don't a-get you
Then the left one will
You load sixteen tons, what do you get
Another day older and deeper in debt
Saint Peter don't you call me 'cause I can't go
I owe my soul to the company store
John Oakes
Sun, 2011-05-08 12:07
And the straw boss hollered,"Well, damn your soul" is the version I remember. Folksongs tend to get 'cleaned up' to make them more palatable, but losing some of their bite in the process.
Eric Lane
Sun, 2011-05-08 08:47
Brilliant. Finally someone who can verbalize what we all know. Thank you, Dr. Batra.
Vicky James
Sun, 2011-05-08 07:18
VERY well written and informative... now if people would just read it and pay attention to what it's saying, we might be able to get somewhere in this country