Financial Responsibility in a Financially Irresponsible Economy
(The following is a transcript of a talk I gave at San Quentin State Prison on February 2, 2012.)
This afternoon I’d like to begin our conversation with a single question: what does individual financial responsibility look like in an economic system that cannot help but to behave in financially irresponsible ways? To approximate an answer we must first challenge traditional notions of individual financial responsibility like balancing a household budget, establishing good credit, and securing employment. These components are central to the idea of financial responsibility, but they only tell one half of the tale.
For example, how many times have we blamed ourselves for what we’re been told is a personal shortcoming, deficiency, or flaw? How many times have we heard that hard work is the linchpin of financial security? And how many times have we thought that if we merely changed our “irresponsible behavior,” then we’d be on the fast track to success and stability? We should have little patience for theories of financial responsibility that divorce what are thought to be as poor individual decisions from the context in which they are made. As human beings we make our own history, though not always under conditions of our choosing. That said, this afternoon I’d to frame our discussion around such “social conditions not of our choosing.” I hope that this back and forth dialogue will help to bridge the gap between the "individual" and "institutional" forms of financial responsibility. People are never just people, but rather we’re people in places, societies, cultures, and political organizations. We're all part of larger social systems that shape our ways of being, doing, and feeling.
So what exactly is the relationship between creature and culture? Between you and me? Between you and we? And what responsibilities do we, as individuals, have to the communities in which we live? I submit to you that financial responsibility is bi-directional: we are responsible to society to the same degree that we must hold society accountable. If this is true, (and I believe it is), then what happens when society, the state, or the government fails to meet its minimum responsibilities to its citizens? What happens when we find ourselves living in a state of social insecurity? Living in a financially irresponsible economy? What does personal financial responsibility look like under these conditions?
And so, instead of beginning our conversation on the theme of credit cards, interest bearing bank accounts, personal budgets, and government bonds, I suggest that we together begin at a slightly higher altitude, one that will allow us to link personal struggles and challenges with larger socio-economic trends and traumas. I propose beginning with a few introductory comments on our current economic system: American capitalism. What is it? How does it work? Under what assumptions does it labor? In what concrete ways does it affect our lives? And in what ways does it affect the lives of “free citizens” and incarcerated populations differently? I plan to address many of these questions with your help through dialogue on our current economic crisis—some call it a recession; others call it a bust cycle, others still, a downturn. Capitalism is inherently unstable, that’s why we have so many words to describe its natural fluctuations.
So, what exactly does personal financial responsibility look like within a financial system that cannot help but behave irresponsibly? Let’s begin with our current crisis. The recession officially began in December, 2007. We’re slowly but surely creeping into our fifth year of large scale financial duress.
Please allow me to place this recession in the context of U.S. economic history. Ours is the second major breakdown of capitalism over the last 75 years and according to the National Bureau of Economic Research there have been eleven other economic downturns since the Great Depression in 1929. So how exactly did we arrive at this place?
Let’s together trace the formation of U.S. capitalism and the myths that justify and obscure its failures. In some senses the United States is truly exceptional (though not for the reasons that we’ve been told), and here’s why: From 1820-1970 the United States was a country that provided wage earners with rising real wages decade after decade. I define a wage as the money we get paid adjusted for the prices we pay as consumers; it is a measure of how much “stuff” we can buy for an average hour of work. There has been no other capitalist economy in the history of the world that has been able to deliver this type of diffuse prosperity. Of course, prosperity in this country has always been produced and distributed unevenly as a result of race, gender, sexuality, and class. This is indisputable. The reality of rising real wages brought many people, both voluntarily and involuntarily, to the United States and generated a unique ideology—that of the “American Dream.” Of course, you know what Malcolm X had to say about the American Dream? Or George Carlin? Most people of color and poor whites know that the fiction of the American Dream is just that, a dream. The “American Dream” is a fiction for those who toiled as slaves or servants or indentured workers, for those who were forced to hand over hour after hour of free labor without any form of meaningful remuneration. Despite these very real gruesome histories, wages for the interracial mix of working- and middle class Americans increased every decade for 150 years.
So what actually accounted for rising real wages from 1820-1970? The answer is fairly simple. There was a labor shortage. Europeans came voluntarily and involuntarily to what we now call the United States and exterminated the indigenous community and pilfered their land. Shortly after, Europeans discovered that land here was irrigable and so the colonies became a good place for wealthy white men to do business. As businesses began to grow, bosses eventually decided that they needed more workers and ripped Black Africans from their continent and incentivized the transport of poor white indentured servants from Europe. Each of these populations was necessary for the growth of the early U.S. economy. But every time businesses tried to grow their profits they couldn’t. There simply weren’t enough workers for maximum capacity production. So business leaders had to induce more and more people to immigrate to the colonies. How did they do it? The answer: high(er) wages. Poor Europeans could make more money in the colonies than in their motherland. But it wasn’t just enough to pay higher wages than European countries; employers also had to continue to raise wages year after year to keep workers from simply quitting their jobs and moving west to farm land. This was always seen as a legitimate threat since early European immigrants were farmers before immigrating to the U.S. The U.S., therefore, was always in a labor shortage. This resulted in consistently high wages relative to the rest of the world.
Then, beginning in the 1970’s the labor shortage stopped and hasn’t ever resumed. Why? There are at least three reasons. 1) The American business community discovered the utility of the computer and automated technologies. Many workers could be replaced with automation. (Consider the self-checkout option at local supermarkets.) Automation, in short, makes workers redundant. 2) American businesses began to react to 150 years of rising real wages and left the United States to hire cheaper workers elsewhere. They often ventured to countries without well-enforced fair labor laws. And, 3) As demand for jobs plummeted, the number looking for employment increased. Two groups entered the workforce in droves around this time. Adult American women moved into the workforce primarily because of the Women’s Liberation Movement that insisted upon a different sort of self-definition vis-à-vis formal labor market integration. Secondly, the United States passed more relaxed immigration laws encouraging immigrants—particularly those from Latin America— to enter the labor market. Together, this created an opportunity for employers to keep wages low and since 1978 real wages have not risen by a single cent.
What happened to the collective American psyche when 150 years of higher wages stopped? Economist Richard Wolff writes that “we experienced a trauma and like all traumas it grew more insidious because we never talked about it.” As a nation we’ve failed to recognize our decline in real wages; no U.S. President in modern history has ever gone to the American people to address it. And so what happens when social traumas are left unacknowledged? The answer: We try to handle them individually. It’s always a very dispiriting state of affairs when human beings try to solve social problems with individual decisions, but, alas, since 1970 Americans have adopted two individual strategies for dealing with this trauma.
First, we began working longer hours. Think about it: If we want to maintain a stable level of consumption but all of the sudden we’re getting paid less, we must work for longer periods of time.
According to the Bureau of Labor Statistics American working people do more hours of paid labor than the working class of any other county. U.S. workers labor nearly 20% longer than those of western European countries. (We’re also 5% of the world’s population but consume 65% of the world psychotropic drugs. Why? Because we’re working ourselves to death.)When we don’t see social problems as collective we internalize them and begin to ascribe them to personal failures or shortcomings. We tell ourselves things like “if only I worked harder…” “I wish I would have gone to college” etc, etc..
The second strategy the American working class pursued to cope with the end of rising wages was to borrow inordinate sums of money at high interest rates on the credit card. The average U.S. household debt –with mortgage—now hovers around $117,000. Adjusted for inflation, this figure has grown by over 400% since 1980. And what was the source of cheap credit? Corporate profits financed the creation of Visa and MasterCard.
Here’s the ironic portion of the story: During the last thirty years that wages were flat, the productivity of labor (how much stuff on average per hour an employee produces) kept rising because workers were better trained and had better technologies at their disposal. What employees gave to their employers—productivity—kept going up and up, but wages stayed flat. And what do we call the difference between productivity and wages? Profit. Though U.S. productivity has grown by 300% since 1978, wages have stayed flat.
As you can guess, employers began making more and more money around this time because they paid their workers less and less. Beginning in the 1970s the salaries of the top executives were 30 times that of workers, now they’re 370 times of a worker. That means the CEO of an average Fortune 500 Company makes more in one day than her worker earns in one full year. (Mitt Romney, for example, earned over 40 million dollars over the past few years from his work with Bain Capital. His income tax rate in 2010 was 13.9%, which is less than I pay. Here’s why? There are two different types of income tax: taxes on wages and taxes on capital gains. The highest marginal tax rate on wages is 35%, for capital gains, 15%. The wealthiest 1% of Americans “earns” nearly 80% of their income from sources other than wages.)
Then, beginning in earnest in the 1990’s many companies that extended their profits in the 70’s and 80’s began investing their money in hedge funds. In order to stay competitive with one another hedge fund managers began to speculate on risky types of investments. These investments are called asset backed securities and they were the proximal cause of the economic collapse of 2007. An asset backed security is a stock on other people’s debt. Billion- and millionaires were essentially taking bets on whether or not the working class would be able to pay back our car loans, student loans, and mortgages. And once workers couldn’t pay back our debts, the system collapsed like a deck of cards. The government reacted quickly (though undemocratically) and purchased many of these toxic asset-backed securities to the tune of $ 7.7 trillion with little oversight or accountability.
Here’s the catch: The U.S. Government didn’t really have enough money to bail out the banks. Where did it find it? Well, there are only three ways for government to obtain money: 1) Taxes. Both George W. Bush and Barack Obama as refused this option. 2) Print it! The U.S. Federal Reserve did print a few million dollars but decided against more because it could have potentially generated inflation which would have driven up the costs of goods and services. 3) Borrow it. And borrow we did. Since 2008 the U.S. government went on a borrowing binge to deal with a disaster created by an earlier borrowing binge. We now have a national debt of close to $15 trillion and currently pay anywhere between $50-90 billion each month on interest alone.
Beginning in 2009 many governments around the world began to look like they weren’t very reliable debtors because their debts were growing faster than their incomes. Their ability to repay wasn’t keeping pace with their debt and so lenders began to refuse providing loans. As a result, cash strapped governments required new revenue sources to repay debt. Unfortunately, if politicians fail to raise taxes, (which they routinely do) then cuts in government services are used to divert public money to pay off the debt incurred by bailing out the banks. In Europe it is called austerity; in the United States it’s called fiscal conservatism. We’re hell-bent on cutting government spending exactly when people are suffering the most. Case in point: Over the last year the U.S. has decided to contribute 7% less to public education while politicians claim that “investing in our future through a top-notch educational system is the best way to compete in a global economy.” How is this sensible when 12 of the 15 million students in school attend public schools and will constitute our future work force?
But our collective ability to solve a present crisis is premised on our willingness to see the past clearly enough. To this end, we’d do well to learn about the policies that pulled people out of insolvency and food insecurity during the Great Depression. What exactly did President Franklin Delano Roosevelt do in the 1930’s? Well, in 1934 Roosevelt went on the radio and basically said that “if the private sector cannot or will not hire millions of workers, then there is no alternative but for the federal government to do it” and from 1934-1941 Roosevelt created and filled 12.5 million jobs. And how did FDR get the money for the New Deal? He petitioned corporate leaders. He made a deal with the titans of business and said “the survival of capitalism depends on your willingness to pay your fair share.” What were the corporate taxes that Roosevelt imposed? In 1944 for every dollar the federal government raised on individual incomes it raised $1.50 on corporate incomes. Today, for every dollar that the government gets from individuals, it gets 25 cents from corporations. What about wealthy people? The highest income tax Roosevelt won was a 94% personal income tax. By comparison, the highest marginal tax on income today is 35%. In fact, FDR’s 94% tax rate was actually a compromise, as Roosevelt initially insisted upon a 100% tax rate for incomes over $25k. How was Roosevelt able to strike such a deal? One significant reason is that workers at the time were politicized, organized, and poised to mobilize. Union membership, for instance, in the 1930’s and 40’s was close to 50%, today that percentage is closer to 11%.
In the absence of strong collectivities today we have little influence in forcing anything that resembles a federal jobs program. President Obama and members of Congress continue to claim that they’re providing incentives for the private sector to hire people, but this is a failed policy. The private sector is currently sitting on $1.9 trillion in unused profits while 25 million people remain un- or underemployed. In fact, corporate earnings have not been higher since they peaked in 1964.
So what exactly can we do? What exactly can you do? What does it mean to be financially responsible in an economic configuration that can’t help but to behave irresponsibly? And what does it mean to be financially responsible within the confines of a repressive institution? Organize. Mobilize. Write to your congressperson demanding an increase to the federal minimum wage. Work to repeal legislation that requires drug testing for H.U.D. grants. Insist upon your right to educational programming while incarcerated. Claim your right to vote upon parole or probation. And perhaps more importantly, cook with one another. Eat with one another. Build community together. Read literature and have conversations with one another that advance your understanding of the world and your place in it. And demand from the world an equal measure of what you’ve contributed. As Malcolm X once said, “intelligence is a form of self-defense.” And since self-defense is a form of preservation and preservation is a form of deep love, then our ability to love others in communion with ourselves is the origin of meaningful responsibility, financial or otherwise. Thank you.