, December 18, 2010
(view all comments by Shawn Sorensen)
The Rigged Game is an important, concise, accessible and for the most part objective look at why our economic system continually puts us through booms and busts.
"The Bakers of Financial Debauchery" chapter near the start of the book goes into the disconnect between CEOs and shareholders on one hand, and the actual companies they run on the other. CEOs make the headlines but can't possibly know more that a small fraction of what goes on in their ever more gigantic, publicly-traded companies. This in comparison to small business owners, who must know everything to survive. All shareholders usually want to see are increasing quarterly profits. Hively clearly explains ways corporations keep quarterly profits on the rise - from cutting worker's wages, benefits, hours and jobs, shifting manufacturing operations to countries with lower and lower wages (as has happened with companies shifting jobs to Mexico right after the passage of NAFTA, then those same jobs to countries with even lower wages, such as Chine), to getting government welfare/bailout money, to using rainy day money to beautify profit statements, to using questionable accounting practices.
The recent passage of major health care reform backs up some of the themes of the book. The 2 major flaws of the reform is that it doesn't cover all Americans and doesn't effectively control costs. These two major flaws had little to do with what ideas would be best for the health care provided to hundreds of millions of Americans, who pay by far the highest health care costs per capita in the world while falling somewhere between 30th and 50th internationally in terms of overall quality of care, and leaving millions of people without health care even after all the reforms take place in a few years, by which time costs will continue to artificially be raised higher than overall inflation. When health care providers make more and more profits, they can buy off more and more politicians.
Hively points out that many Americans were traveling to Canada to get their prescription drugs at drastically reduced prices, or ordering the drugs from Canadian companies. The drugs are often made by U.S. companies or otherwise deemed safe for Canadians. In 2003 Bush made illegal these purchases of Canadian drugs by Americans and gave U.S. citizens a trillion dollars a year to subsidize their high drug prices. Hively points to this as a grave example of corporate welfare, that is does nothing to control increasing health care prices, and doesn't cover all of the costs.
According to Hively, Adam Smith would not approve of the anti-competitive nature of corporate growth and subsequent manipulation of the political system. The record $4 billion spent in the 2010 elections, a vast majority of it going to conservative politicians, is the real "invisible hand". In the United States, political incumbents typically win elections at an average rate of 90%.
It's clear as the book continues that Hively is building up, however objectively, to a rabble-rousing critique of an economic system in need some of changes, some of them structural. Maybe it's a little of both.
I'm wondering if anybody needs demonizing, though, like the rich. If the electorate worked harder to communicate and listen and be educated, would such demonizing be rendered ineffective? In other words, would solutions that helped everyone be objectively discussed yet passionately enactec? It's tough, given the fear and anger that so often are the bigger emotions that get human beings motivated to change, to say that education would be enough. We're too much of a short-term, save-the-status-quo society. Yet a look at changing the system - what I think is the major focus of this book - seems to activate the human attributes of openness, objectivity, compassion and pro-activity.
A history lesson starts with the Great Depression in Chapter 5. With effective examples, Hively stresses the fact that during 1929 - 1932, people continually had their hours, benefits and jobs cut in order to keep dividends rising for shareholders. Company profits/dividend payments rose for 15 months straight after the stock market crashed near the end of 1929. As people were laid off, the demand for goods and services plummeted and corporate earnings went negative. Therefore, inflation was in the negative percentiles because the working and middle classes had less and less money to spend. FDR came into power in early 1933 and enacted huge public works projects, minimum wage laws, unemployment benefits, the Securities and Exchange Commission, and Social Security. These measures greatly benefited the demand sector of the economy, and business profits rose. Yet Hively contends that FDR didn't do enough spending that would have continued to improve the demand sector, and unemployment went past 15% again in 1937. Only when FDR spent more money did the economy keep rebounding. Then WWII hit, and everyone was employed.
Then Hively documents post-war America to 1970, more clearly detailing his contention that unemployment and corporate profits rise together. In other words, corporations reduce employment and business-to-business transactions in order to increase profit and keep those dividend payments to shareholders on the rise. When corporate EARNINGS rise it means more Americans are employed and can spend money, and corporate profits increase as well. But earnings can't simply rise forever. To keep profits and dividend payments rising quarterly, worker hours and benefits have to be reduced and/or people are laid off.
It's interesting to note that in the three decades after WWII, the richest 1 percent of Americans never owed more than a third of all the wealth in the country. By most accounts, that disparity is far worse now. Hence the huge backlash by both conservative and liberally-minded Americans against the late 2010 efforts to continue Bush-era tax breaks for the wealthiest Americans. As U.S. Senator Jeff Merkley said while voting against the deficit-increasing tax breaks: cutting taxes for the richest among us is one of the least effective ways to create jobs in the United States.
A no-holds-barred, eye-opening account. Hively could reference more objective source material, but the sources he uses are solid - the Wall Street Journal, the Oregonian and the New York Times, for example. His ideas are clear and show up better with the backing evidence of daily news and ragging, scheming political campaigns.