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Economic Inequality in America: Transfer of Wealth- Part 4

January 30, 2019

Economic Inequality in America: Transfer of Wealth- Part 4

Government Role in the Economy

How an Uncorrupt Government Functions:

  • Promotes economic stability and growth through changes to fiscal policy (tax rates and government spending programs), and changes to the monetary policy (interest rates) through the Federal Reserve, which affects the amount of money in circulation (inflation).
  • When the federal government wants to increase/decrease money in circulation, it raises or lowers the interest rates, which are the fees that borrowers pay to use money. When interest rates are low, people borrow more, which means more money in circulation and higher inflation rates; when interest rates are too high, consumers borrow and spend less, which means less money in circulation and lower inflation rates.
  • A period of high unemployment, high inflation, and government deficits in the 1970s weakened confidence in controlling the economy through fiscal policy (taxes and government spending). From that time forward the government transitioned to controlling the economy through monetary policy with changes to interest rates. This type of borrowing and spending market favors financial institutions, lenders and owners of capital that benefit from low interest rates. Over time, as interest rates increase, borrowers may be unable to meet the higher cost on their borrowed money, which is what lead to the housing market collapse in 2007 when interest rates on shaky mortgages increased drastically.
  • The government boosts widespread economic prosperity through social spending programs that contribute to the populations wellbeing through funding healthcare, infrastructure, national security, police force, firefighters, and education.
  • Enforces regulation of labor markets to prevent corporate exploitation of the population and damage to the environment; determines laws on private property, laws that promote competition, and laws that discourage monopolies from forming, called anti-trust laws.
  • Reduces and corrects market failures; promotes policies that lead to low unemployment rates, and encourages price stability through subsidies for specific industries.
  • Promotes policies that minimize inequality to stabilize society and prevent class warfare.
  • Intervenes when prices on products are kept artificially high by corporations or by multiple corporations that conspire with each other to overcharge consumers. (The pharmaceutical industry consistently inflates prices on life-saving medications, but a law from the Medicare Prescription Drug Price Negotiation Act of 2003 prohibits the government from negotiating for lower prices on behalf of the general population). Purpose is to preserve competitive marketplace to protect consumers and smaller businesses from abuses of money, power, and corruption by larger corporations.
  • Attempts to protect worker’s rights by strengthening unions and bargaining power.
  • Protects the environment and consumers from predatory and destructive corporate behavior, action, fraud, and exploitation.
  • Encourages competition by discouraging monopolies from developing with laws like the Sherman Antitrust Act of 1890. This Act prevents corporations from forming trusts with other corporations in order to unfairly control the market with uncompetitive practices. A trust is an arrangement by which stockholders in several companies transfer their shares to a single set of trustees; this leads to the destruction of competition and a greater likelihood that monopolies may develop, which leads to a loss of jobs, increase in prices, fewer options.
  • The Clayton Antitrust Act of 1914 further detailed provisions laid out in the Sherman Antitrust Act and established the U.S. Federal Trade Commission, a government agency with the power to investigate violations of antitrust legislation.

After the stock market crash and Great Depression of the 1930s, President Franklin D. Roosevelt crafted the New Deal, a set of policies and programs meant to stimulate wider economic growth and prosperity for all income levels, and protections for American workers against their employers. Part of the New Deal consisted of strengthening labor unions and collective bargaining rights and provided funding to establish Social Security and other safety-net programs to assist the regular workforce.

The New Deal invested in national infrastructure and stabilized prices in the agricultural industry; established child labor laws, shorter work-week hours, and hourly pay guarantees with a federal minimum wage. To prevent further financial corruption from corporations, the New Deal established the Securities and Exchange Commission (SEC) to oversee the stock market; and also created the Glass-Steagall Act, which prevented commercial and investment banks from combining to use the general population’s bank deposits (savings accounts) for their own profit. President Roosevelt enacted 47 policies and programs from 1933 to 1939 to stabilize the American economy and lift the population out of the Great Depression.

The Legislative Process

All Legislative Powers herein granted shall be vested in a Congress of the United States, which shall consist of a Senate and House of Representatives.

Article I, Section 1, of the United States Constitution

The Creation of a Law

  • Only members of the House of Representatives or Senate may introduce a bill.
  • Four types of legislation: Bills, joint resolutions, concurrent resolutions and simple resolutions.
  • Step 1-Introduction of a Bill: Members of the House or Senate draft, sponsor and introduce bills for consideration by other members of Congress. Bills may have one sponsor or multiple ‘co-sponsors’ from other members of Congress that support the bill in question.
  • Step 2- Committee Action: A House or Senate committee is assigned to study the bill according to its subject matter. The committee will conduct research, talk with related experts, determine the bill’s impact on existing laws and on the government’s budget, revise/make changes to the bill. The bill may be referred to a subcommittee for consideration before the full committee.
  • Step 3- Floor Action: After review from a committee, the bill is returned to the full House or Senate where it was introduced for further debate on the changes. Members may propose further changes to the bill called, ‘mark-ups,’ add or take away text, or alter the bill altogether.
  • Step 4- Vote: House and Senate vote on their respective versions of the bill.
  • Step 5- Conference Committee: The bill must be approved by both Chambers of Congress through a ‘conference committee’ that comprises members from both the House and Senate to negotiate and resolve any differences in the bills through a ‘Conference Report’ that must be agreed to by both Chambers before consideration by the President.
  • Step 6- Presidential Action: If the President agrees with the bill, he/she may sign the bill to become Public Law; if the President disagrees with the content of the bill, he/she may Veto it, in which case the bill may return to Congress for reconsideration. If the President does not make a decision about the bill within 10 days, it becomes law; if the session of Congress ends during the 10 after the bill is sent to the President and he/she does not sign, the bill is automatically vetoed. This is known as a ‘pocket veto.’ Congress may override the President’s veto with a two-thirds majority vote in both the House and the Senate.
  • Step 7- Creation of Law: The Office of Federal Register assigns the Public Law a specific number and the Government Printing Office prints a copy of the new law. The law is organized and filed away with similar laws.

Government Regulation

Government regulation of the business sector stands as a major point of debate and contention in a capitalist society for those that subscribe to a total free market, or laissez-faire (hands-off), and self-correcting, system of enterprise, profit, growth, consumption, and trade. Business profits drive company growth, and government intervention to impose health standards, rules, or laws on businesses may harm the type of continued growth that corporations seek for their shareholders. For a cold, amoral, corporation, profits represent the sole reason for existence; anything that interferes with that profit growth- including standards that protect the environment and human population- is quickly challenged by corporations and their lobbyists who infect the federal government with bribes and manipulation of public policies.

It is not that corporations do not care about human life or the environment, but that our system of government and our society at large view money and profit as our primary object for survival, our purpose for existence, and reason for living a fulfilled life. In the United States, in a capitalist society, money signifies freedom, power, and control; those that have money, want more; those that lack money, want more, as more money means more freedom to do what others, without the financial funds, cannot; and for a corporation whose actions harm human health or the environment, any individual or government that impedes on its profit growth with laws and regulations appears as a threat to its corporate freedom.

Government intervention in business sector would not be required if the human beings that run the corporations were completely rational, logical, intelligent, benevolent, moral, and omniscient actors that foresee the consequences of their actions and the harm that their profit-seeking decisions will have on human health and environmental health; but the actions of fossil fuel corporations, financial institutions, pharmaceutical industry, military-industrial complex, private prison industry, show that corporations require regulation to prevent human suffering and infringement of life, liberty, and happiness.

Survival of the human race and protection of the planet Earth represents the primary reason for existence, not whether or not a corporation extracted finite resources and charged a premium for the use of those resources to an unassuming population while generating growth on their previous year’s profits.

Holistic, purposeful, and non-invasive government regulation encourages technological growth and innovation, as corporations must correct and improve on their past mistakes to meet higher standards that cause less harm to people and planet; regulation corrects market failures and prevents predatory corporate behavior that harms human health or the environment, like the regulations imposed on the fossil fuel industry to prevent air and water pollution; or regulations on the agricultural industry, which puts pesticides, herbicides, antibiotics, hormones, and other chemicals in the food that Americans consume; regulations on the financial sector to prevent banks and lenders from exploiting the poor and middle class with actions that lead to the 2007 collapse of the financial system; standards for the pharmaceutical industry to prevent corporations from creating untested, harmful, and potentially deadly medications.

These regulations represent strong and well-intentioned government intervention for the public good; but some regulations become excessive, unnecessary, and harm the private sector from functioning as a free, capitalist society should, which interferes with social and economic progress. This leads some presidential administrations towards deregulation of certain industries to remove arbitrary and constricting government laws that harm and impedes too much into the private sector.

The purpose of some deregulation contributes to the improvement of the general public, who may benefit from less bureaucracy and big government in areas such as starting a business or other entrepreneurial endeavors. But some government deregulation removes standards imposed on the financial sector or fossil fuel industry, which may place human beings and the environment in danger from a lack of oversight and from the carelessness of corporations in issues dealing with profit over costly health and safety standards that interfere with unfettered profits.

Certain deregulation increases the likelihood of corporate failure from taking unnecessary and unsafe risks at the expense of consumers, the general public, the planet. Deregulation of the fossil fuel industry causes blindness and ignorance of outcomes, as money, dominance, ego, and power corrupts the industry from making rational or moral decisions based around scientific evidence and logical behavior.

Deregulation of the financial sector gives greater power and control to predatory lenders and banks to take greater risks with your savings account without the fear that they will suffer losses of their assets because they know that the government (taxpayers) are there to bail them out if they lose everything, as the repeal of the Glass-Steagall Act- which separated commercial and investment banks- shows. The Glass-Steagall Act was a smaller provision in the U.S.A. Banking Act of 1933, which was implemented to protect the public’s savings after the risks taken by financial institutions lead to the stock market crash and Great Depression in 1928.

Repeal of the Glass-Steagall Act in 1999, which contributed to the financial collapse of 2007, is like giving the keys of your car to someone that you know will use it to rob a bank that holds your entire savings account; they might get away with your car and your money, or they might crash your car and be captured by the police; instead of admitting their guilt and accepting punishment, the robbers make a deal with the police that allows them to escape, free of punishment; in return, the bank robbers that used your car to steal your money blame you for allowing them to use your car in the first place, knowing that they intended to use your car to steal your money; the bank robbers then use your money and their political and legal influence to escape punishment while you are left without your money, without your car, without your home, as you must find ways to defend yourself from legal action and find the funds to repair the damages to your car, without your savings, and without your job.

The lack of intelligence, understanding, and foresight that leads to this type of deregulation is a result of corporate control and financial dominance over our political system. When corporations possess the financial means to own their favorite politicians, these politicians possess the political means to deregulate these same industries that carry the potential to harm people and the planet. In this sense, government deregulation for the benefit of the corporate sector falls in a similar, but more corrupt category, as government regulation for the protection of the general public; the issue comes down to government intervention in order to tilt the scale towards one side over another. Our corporate government- filled with greedy, self-centered, and sanctimonious ego-maniacs- will always choose to protect corporations over the health and safety of the people.

In a society that places widespread human health and environmental protection over private corporate profit, governments impose proper regulations; but in a society dictated, run and owned by corporations for the benefit of corporations, deregulation that puts the public and the Earth’s ecosystem at greater risk is preferred as long as profits for private corporations increase. In this type of corporate-dominated society, the general public takes all the risk, to their health and to the planet’s health, but receives none of the private profits; and when deregulation of the fossil fuel industry and financial sector causes destruction to the environment or to the loss of people’s savings accounts and homes, these same people are left paying for the corporations failure with tax increases and subsidies. Valuable lessons are lost and the same corporations double-down to commit the same mistakes in order to neglect the expensive cost of restructuring their business with safer corporate standards, as the idea and importance of a self-correcting free market diminish with government promises of taxpayer funded bailouts.

The American government puts a corporation’s health and survival over human health and prosperity. Corporations and the government form a symbiotic relationship where one cannot exist without the intervention of the other. Our current government of corruption, inefficiency, red tape bureaucracy, bribes, predatory campaign finance laws, and ignorant elected officials with zero concern for the advancement of the public and the nation do not represent the type of leadership that Americans in the twenty-first century require.

With our current political system of corruption and the economy of influence that allows major corporations to purchase publicly elected officials and implant ideas into their minds; for corporations to write laws that impede public progress and human health; or corporate actions that exploit the environment and treat the Earth’s ecosystem- the very planet we live on, which no one individual or corporation owns- as a resource to be bought, extracted, and sold back to the human population, ordinary citizens may find it exceedingly difficult to voice their disapproval and frustration at a systemically corrupt political system that favors and relies on corporations over protecting humans health and wellbeing.

Societies must consider the cost-benefit analysis of regulation: The benefit going to corporations during times of deregulation, at the cost of human and environmental health; or the benefit to humans and the planet during times of regulation, at the cost of corporate profits. The issue comes down to two competing forces with opposing cost-benefit interests, consumers and citizens vs. corporations. Our current systemically corrupt government fights for the side with the most money, rather than the side with the most votes; votes represent a part of, but not the whole, economic and political process that drives our society. The status-quo of both the republican and democratic parties represent the same corporate interests at their foundation. Politician’s political survival relies on corporate money, regardless of whether or not corporate interests contradict the social policies and identity politics that partisan politicians rely on for public support and votes during elections.

Federal Policies that Increase Inequality

  • Deregulation of financial institutions; attacks on workers unions; changes to tax code that benefits corporations at the expense of poor and middle-class Americans; federal monetary policies at the Federal Reserve; global trade policies that allow corporations to put American jobs overseas.
  • Neoliberalism: laissez-faire economic policies; deregulation of labor markets; privatization of public institutions; hawkish war policies that benefit the military-industrial complex; reduction of public utility increases income inequality by depressing wages and eliminating benefits for middle-class workers while increasing income for those at the top who work with the government to establish a separate tier of wealth and power that does not play by the same rules as poor.
  • Repeal of the Glass-Steagall Act (discussed above) by neoliberal, Bill Clinton, in 1999, as the Democratic Party turned into the corporate party to compete with Republicans. The Act was viewed as an overregulation of the banking industry that made American financial institutions less competitive on a global scale. When the act was in effect, it functioned by safeguarding consumer savings accounts at commercial banks; separated commercial and investment banking to protect consumer money from being used by banks to invest for their own profit, which lead to speculative trading and greater risks with consumers savings accounts. Too much speculation and risk caused the Great Depression in 1928 and the Great Recession in 2007; the Act established federal deposit insurance to insure consumer’s deposits in the bank. Protects deposits up to $250,000 (insured $2,500 at the time the Act was created in 1933). Starting in the 1960s, the distinction between commercial and investment became blurred; the Act began to lose its power.

Glass-Steagall Prevented Banks From:

  1. Dealing in non-governmental securities for customers.
  2. Investment in non-investment grade securities for themselves.
  3. Underwriting or distributing non-governmental securities.
  4. Affiliating (or sharing employees) with companies involved in such activities.
  • Repeal of Dodd-Frank Wall Street Reform and Consumer Protection Act in 2017: The Dodd-Frank Act was created in 2010, in response to the 2007 financial crisis. The Act sought financial stability and consumer protection; it put regulations on the financial industry and created programs to stop mortgage companies and predatory lenders from taking advantage of consumers. Most comprehensive financial reform since the Glass-Steagall.
  • Dodd-Frank required banks to increase the amount of money in their reserve; provide plans for a quick and orderly shutdown in case of bankruptcy/collapse; breaks up too-big-to-fail banks; greater oversight from the SEC to investigate banks; reforms to the Federal Reserve with greater overall transparency.
  • The Volcker Rule, a provision in Dodd-Frank, forbid banks from making certain investments with their own depositor’s savings accounts; prohibits banks from owning and investing or sponsoring hedge funds/private equity funds for their own profit. Repeal of Dodd-Frank places consumers at greater risk in the event of another financial collapse, as financial institutions are larger and control more wealth than banks controlled before the collapse of 2007. Part 5
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