Our newspaper generally focuses on local issues. But when considering the economic health of our community, it’s important to examine both local and non-local economic factors. This means recognizing that two economies exist in the world today: a feral one and the real one.
Our hopes, joys, and dreams reside in the real economy. The capability to raise healthy kids and build families who live in happy and productive communities depends upon the real economy. The ability of our young adults to leave home and find meaningful work is here, too. But the feral economy, so named by Richard Murphy, a tax expert from the United Kingdom, is abusing and eating our real economy.
The feral economy is the land of hedge funds and exotic financial derivatives invented by the “best and brightest” financial engineers. It maintains an army of financial vigilantes who cannibalistically attack any store of value they can plunder, be it Gordon Gekko-style assaults on healthy companies or coordinated battle plans to devalue currencies, even in their “home” countries. All of this destructive activity is simply in the interest of greater and greater fees and profits, producing little real value.
Local hero Van Jones has a great line about Americans today: We voted for peace and prosperity but we got war and austerity. The reason for the austerity meted out to real-economy denizens is to be found in the voracious appetite of the feral economy. A report from the Brookings Institution found that over the last 25 years, the average American is working more hours yet making less money. A report from J.P. Morgan this month admits that most corporate profits have come directly from reductions in wages and benefits, noting that “labor compensation is now firmly negative in real terms.” Put these reports together and we see that all of the benefits from the extra work that we have been doing over the last generation, including the increasing percentage of women in the workforce, has gone straight to corporate profits.
Life, not surprisingly, is good in the feral economy. Corporate profits are high and, as recent reports comparing the balance sheets of Apple and the US government pointed out, some global companies are “awash in money,” holding more cash than many sovereign countries. Leaders of these corporations receive nine-figure salaries and the use of the corporate jet for life. The feral elite live as truly global citizens with homes on the picturesque islands of Thailand and in the ski villages of the European Alps. And in their favorite cultural capitals, they are eating up Gucci and Louis Vuitton handbags and such.
Meanwhile, it is not a happy time in the real economy. Unemployment is awful. The true unemployment rate, which includes discouraged workers and others not counted as part of the headline unemployment rate, is 16.1 percent. The average duration of unemployment rose for the third straight month and is now at a record 40.4 weeks — double where it was in January 2009. So, one out of every six of your friends, on average, is out of work and has been for ten months. That’s ugly.
The strains to our social fabric are becoming more evident, too. The effects on the poor are cruel. And, in California, the middle class is under stress through cuts to those common amenities that make for a healthy community, such as libraries, parks, education, and infrastructure.
Now, the super-wealthy have always done better than the rest of us. But things feel different today.
Slowly but surely, the feralists are creating a new world order. Claiming a need for “free” trade, the feral elite are reshaping global governance, as corporations are gathering more legal clout in international tribunals than countries. Central American nations are especially at risk in our hemisphere, as the feral economy is reducing them to vassals. A new international legal regime, civil and criminal, is forming that protects the worldwide interests of the feral economy over the real economy. Ever wonder why there are so many attacks on even the concept of unions today? It is not because they are archaic Luddite vestiges of an industrial past, but because unions are the most effective source of collective workplace action in the real economy. The feralists are determined to stamp out this source of resistance.
Now, when making an argument such as this, an understanding of the dialectic of the general and the particular must be respected. Some do benefit from the feral economy. Those in feral-land need an army of service providers throughout the globe. So, at the top of the employment ladder, if you are smart, lucky, connected, and hard-working, you can make a lot of money being a lawyer or plastic surgeon or investment advisor to the feralists. For this service you get a good life, sending your kids to the best private schools and vacationing near the villas of the feral elite. But even for these “winners,” changes are coming, as with the many boomers who thought they had saved enough for retirement but now are not so sure as they are called on to support their parents and adult children.
To be fair, at this point in the downward slope of the real economy, many in our community do earn enough to support a healthy family, especially if they have one of the public sector or education jobs that the “tax-cutters” have not been able to eliminate. Every once in a while, those in this group, which is bigger in the Bay Area than many parts of our country, can afford to buy a Gucci bag or take a loved one to a fancy restaurant in the City. Some will always be lucky, as seen in the high demand today for programmers in Silicon Valley. And there are diversions galore for us, from wine and music festivals to the latest iPad.
But 40 percent of employed Americans work in service jobs today, where it is increasingly difficult to survive.
Importantly, the existence of the dual economies has ethical consequences. One of the most grotesque differences between the two worlds can be seen in the uneven meaning of a promise. Promises must be kept to the feralists, but not to those of us in the real economy. Politicians of both parties have steadfastly kept their promises to the feralists to keep tax rates low on the wealthiest and not to seriously threaten their tax avoidance schemes. But for those in the real economy, promises are made to be broken. Last week, US House Majority Leader Eric Cantor spoke of the retirements and health care of the Americans who live in the real economy. “Promises have been made that frankly are not going to be kept for many,” he told his pals at the Wall Street Journal. Younger Americans will just have to adjust, he argued.
Keeping a promise, I guess, is no longer part of the American Dream — if you live and work in the real economy. Make no mistake about it: This is a big problem for future moral action. Our kids are influenced by the world around them, and convincing them to keep promises is very hard when they are surrounded by stories of promise breakers.
An especially striking example of the different meaning of promises can be seen in the nation’s most recent municipal bankruptcy in Central Falls, Rhode Island. We in the Bay Area are no strangers to municipal bankruptcy — see Vallejo. In Central Falls, two types of financial promises had been made, one to bondholders of municipal debt and the other to the retired town employees. Guess which promise is being honored and which is being broken? A newly passed Rhode Island law states that the bondholders have to be paid in full before the retirees. And if a city official does not toe the feral line, he or she literally faces statutory personal financial liability and ruin.
With the best public relations money can buy and a compliant press, the feralists cleverly argue that it is a good thing that corporate profits are healthy and that bondholders get paid back before retirees. They claim that since we are all increasingly responsible for our retirements and are counseled to count on the stock and bond markets to provide this money, increased corporate profits and asymmetric fulfillment of promises are good for us. “Give us a dollar,” the feralist financiers sing, “and we will return some shiny copper pennies that jingle in your pocket.” And, they argue, appealing to the dominant cynicism, that the real problem isn’t them but our fellow participants in the real economy, who don’t deserve to have a first home or a healthy pension. Framed by the lack of visible viable alternatives, too many have fallen for this masochistic subterfuge.
Personal responsibility and consequences for criminality are also different in the two lands. Barclay’s Bank recently admitted that it is getting as much as 90 percent of its profits from feral activity. Here, criminality is rife and the rule of law seldom applies. The writings of the economist James K. Galbraith are intellectually stout on this point. When Wells Fargo was caught falsifying loan documents and tricking lower-income families into taking out predatory home loans, causing them to lose thousands of dollars and their homes, the bank received a $105 million fine and restitution payment — a pittance of the bank’s annual revenues. No jail time resulted and the Federal Reserve did not even require an admission of guilt, leaving the company to blame the matter on a “relatively small group” of low-level employees. Of course, crime exists in the real economy, too, but here it has real consequences. The scandals of prison overcrowding and the recent strike in the Pelican Bay prison that revealed the inhumane use of solitary confinement show what awaits three-time offenders in the real economy.
Given these dual dimensions, each of us must not only take steps to protect ourselves from the disorder, but must also decide where we stand on these two economies. Do we join together with others in our community to build the real economy in which we live and love, or do we desperately try to cling to the side of the feral yacht as it goes out to sea? Prior to the 2008 crash, many argued that the feral economy was our only hope. Now, it is impossible to honestly claim that it is not the root of the problem.