The Not So Free-Market Economy
Edward G. Ryan, the chief justice of Wisconsin’s Supreme Court, warned the graduating class of the state university in 1873: “The question will arise, and arise in your day, though perhaps not fully in mine, ‘Which shall rule – wealth or man; which shall lead – money or intellect; who shall fill public stations – educated and patriotic free men, or the feudal serfs of corporate capital?’”
One of my favorite Dr. Seuss books is The Lorax. Perhaps is because with eloquent subtly he uses personification to illustrate the danger of corporate greed upon both the environment and human beings. The beauty of the story concerns how the choices we make impact everyone around us. The idea of the inter-connectedness of mankind is a congenial thought when talking about world peace, but runs into difficulties when we talk about the economic well-being of others. The current plight of American economics is one that is rigged and riddled with greed while the idea of freedom morphs into a chimera. So this begs the question: is the Lorax of today the 2007-2008 crash and the continued economic exploitation of our plutocratic government? And more importantly, is anyone listening to the Lorax?
So that I don’t sound too dramatic, here is the current picture. By 2007, the year before the crisis, the top 0.1 percent of America’s households had an income that was 220 times larger than the average of the bottom 90 percent. While recovery for the bottom percentage of Americans has been a Sisyphean feat, the wealthy have bounced back resoundingly. The wealthy had more to lose in stock market values, but those recovered well and relatively fast: the top 1 percent of Americans gained 93 percent of the additional income created in the country in 2010, as compared with 2009. Furthermore, if we consider the Walton family of Wal-Mart, the six heirs to the Wal-Mart empire command wealth of $69.7 billion, which is equivalent to the wealth of the entire bottom 30 percent of U.S. society. For the sake of brevity, I won’t divulge into the working conditions and wage disparity of the average worker at Wal-Mart, or the externalities of labor exploitation in factories in the East in order to maximize shareholder profits. And through all of this, the median household income is still the same as in the mid-seventies when adjusted for inflation. Unbelievable.
This is country that spends more on our prisons than education. A country that is sitting and watching large pharmaceutical companies rake in billions while hundreds of thousands of Americans can’t afford to fill their prescriptions. A country that appears completely content that the crash that not only created a vast loss in American’s retirement accounts, but also $6.5 trillion loss in housing valuations. Lastly, and unbeknownst to most Americans, the extreme poverty of people living at least one month of the year on 2 dollars a day person or less, the measure used by the World Bank for developing countries – had doubled since 1996, to 1.5 million. The “poverty gap,” which is the percentage by which the mean income of a country’s poor falls below the official poverty line, is another telling statistic. At 37 percent, the US is one of the worst ranking countries in the Organization for Economic Cooperation and Development (OECD), the “club” of the more developed countries, in the same league as Mexico (38.5 percent). The Lorax has been warning us for a while, but we’re not listening.
The Free-Market That Isn’t Free
With the rabid social inequality in our society today, it begs the question: how free are we? I mean, we’re told we live in a “free-market” society with “free enterprise,” with “freedom of contract,” “free trade,” and “free speech.” But when we dig deeper into the policies that are being implemented, it appears that the one’s tilting the scale in their favor is government officials, Capitol Hill lobbyists and corporate lawyers. When we’re dealing with a rigged system, freedom looks completely different to the hedge fund manager and the Wal-Mart employee.
As economist Robert Reich notes, most political debates soon turn to whether the “free market” is better at doing something than government. As Reich states:
“Few ideas have more profoundly poisoned the minds of more people than the notion of a “free market” existing somewhere in the universe, into which government “intrudes.” In this view, whatever inequality or insecurity the market generates is assumed to be the natural and inevitable consequence of impersonal “market forces.” What you’re paid is simply a measure of what you’re worth in the market. If you aren’t paid enough to live on, so be it. If others rake in billions, they must be worth it (Saving Capitalism, 19).”
The question typically left to debate is how much government intervention is warranted. Conservatives want a smaller government and less intervention; liberals want a larger and more activist government. One’s response to it typically depends on which you trust most (or least): the government or the “free market.” But this dichotomy is utterly false. There can be no “free market” without government. A market – any market – requires that government make and enforce the rules of the game. In most modern democracies, such rules emanate from legislatures, administrative agencies, and courts. Government doesn’t “intrude” on the “free market.” It creates the market. Yet the interminable debate over whether the “free market” is better than “government” makes it possible for us to examine who exercises this power, how they benefit from doing so, and whether such rules need to be altered so that more people benefit from them. So who exercises the power?
Who Exercises the Power?
The power backing the “free market” lies with the wealthy elite in or close to those in government. Under the guise of “freedom,” the rest of America sits on the sidelines watching astonishingly at escalating campaign contributions to back particular candidates and their agendas, burgeoning “independent” campaign expenditures, growing lobbying prowess, platoons of lawyers and paid experts to defend or mount lawsuits, public relation campaigns designed to convince the public of the truth and wisdom of the policies they support, think tanks and sponsored research that confirm particular positions, and ownership and economic influence over media outlets that further promote particular goals. Under these circumstances, arguments based on the alleged superiority of the “free market,” “free enterprise,” “freedom of contract,” “free trade,” or even “free speech” warrant a degree of skepticism. The pertinent question is: whose freedom?
Illusion of Freedom
Our freedom is dictated by the government officials and their squadron of lobbyists and lawyers who represent corporate interests. The “free market” is a delusion of freedom that is-what-it-is because of policies of the elite. Need more proof? Ask yourself why in Stockholm, Sweden you can get high-speed internet in every inch of the city (for around $20/month) but in the U.S. Comcast has an increasing monopoly such that they can ratchet up prices and limit your choices in order to deepen their pockets. By the way, Comcast and other cable operators spend millions of dollars each year lobbying and contributing to political campaigns (in 2014, Comcast ranked thirteenth of all corporations and organizations reporting lobbying expenditures and twenty-eighth for campaign donations).
Want another example? Most jobs will have you sign a contract agreeing that you will go to arbitration, rather than take your complaint to court – if you have experienced some form of abuse. And here’s the catch: your company selects the arbitrator. According to a recent study, employees complaining of job discrimination got relief only 21 percent of the time when their complaints went to arbitration but 50 to 60 percent of the time when they went to court.
How about the countless times you are prompted to check off ‘you are agreeing to the terms and conditions’? I have yet to meet somebody who reads every word and can actually understand the legalese in those agreements. When consumers sued several hotels and online travel agencies for allegedly conspiring to fix hotel room prices, lawyers for Travelocity, successfully defended the company in court by arguing that customers who used its site could not participate because they had “agreed” not to sue. We are told to believe that we have ‘freedom of contracts’ but this is not the truth. This is coercive. Buyers and sellers have no real alternatives when a large corporation have locked up a market through its intellectual property, control over standards or network platforms, and armies of lawyers and lobbyists. Under such circumstances, contracts are inherently coercive, or so it might seem. And contracts today are often filled with conditions (likely in small print) that deny employees, borrowers, and customers any meaningful choice. Nonetheless, large corporations possess the political and legal clout to make sure they’re enforced.
Let’s keep it going. Bankruptcy was designed so people could start over. But these days, the only ones starting over with ease are big corporations, wealthy moguls, and Wall Street, who have enough political clout to shape bankruptcy law to their own needs. In 2008, The Street’s biggest banks had bought hundreds of billions of dollars’ worth of risky products, such as subprime mortgages, collateralized debt obligations, and mortgage-backed securities. As you probably remember, the banks that were mislabeled “too big to fail” did indeed fail, and then were promptly given an estimated $83 billion dollars in low-interest loans from the federal reserve. Did the mass amount of homeowners get any help? Nope. As homeowners found themselves owing more on their mortgages than their homes were worth and unable to refinance. Yet Chapter 13 of the bankruptcy code (whose drafting was largely the work of the financial industry) prevents homeowners from declaring bankruptcy on mortgage loans for their primary residence. When the financial crisis hit, some members of Congress, led by Illinois senator Dick Durbin, tried to amend the code to allow distressed homeowners to use bankruptcy. That would give them a powerful bargaining chip for preventing the banks and others servicing their loans from foreclosing on their homes. The bill passed the House, but when in late 2009 Durbin offered his amendment in the Senate, the financial industry flexed his muscles to prevent the passage, arguing that it would greatly increase the cost of home loans. The bill governed only forty-five Senate votes, even though Democrats were in the majority. Partly as a result, distressed homeowners had no bargaining power. More than five million of them lost their homes, and by 2014 another two million were near foreclosure.
I could keep going and detail the rigged system that gives double-digit interest to student loans debt and those needing cash advances. I could outline how the corporate interests have the bargaining power over the healthcare system. Such that, by the 1980s, the anti-trust laws had dissolved in a way that hospitals began merging into giant hospital systems, capable of getting higher reimbursements from insurers. The results were a ratcheting up of health care costs, along with fewer choices. In 1992 the average American city had four hospitals; by 2014, it was served by just two.
At what point do we say “this is not right”? At what point to we begin looking into candidates voting records on issues that truly impact every individual in this country? At what point to we disavow ourselves from the lies of “immigrants as rapists and who don’t contribute” and that “the number one threat to our freedom is ISIS”? The real threat is the incremental changes to the “free market” economy in policies that tilt the scale in favor of the elite and further silence the voice and freedom of everyone else. At the beginning of this post I mentioned the warning of the Lorax in Dr. Seuss’ classic story. No matter how much the Lorax warned, no one listened – until it was too late. The warnings of the present dangers are before us in a decimated U.S. middle-class and growing economic disparity. But does this truly convict us to do something about it?
~ Wes Fornes