Swans Commentary » swans.com December 1, 2008  



Society's Moral Hazard


by Jan Baughman





(Swans - December 1, 2008)  In all fairness, one shouldn't criticize Barack Obama for failing to keep his campaign promises while he's still just president-elect, but one can't help but notice that his proposal to increase taxes on the wealthy, a topic that provided his rivals much fuel for criticism in the campaign, has quietly disappeared from the script, and he may instead just passively let the Bush tax cuts expire. "You can't raise taxes in the midst of a recession," we are warned by those in the know (i.e., the ones who would stand to see their taxes raised). And yet, as state and local governments struggle to meet their budgets in the face of the economic and housing meltdown, their immediate response? Raise taxes. Raise the scope and rate of sales tax (temporarily, they say); increase college tuition (a proposed 10% in California); cut social services; cut jobs...apparently, you can raise taxes during a recession, you just have to stick it to the right people. The sacrifice Obama would impose on those making over $250,000 per year would be "the same or lower tax rates than they paid in the 1990s," which could be interpreted as an increase from 35% to something less than 39.6%. (Compare and contrast 1951 to 1963, when the top marginal tax rate ranged from 91 to 92 percent, or 1964 to 1980, when it was 77 to 70 percent. The wealthy must have suffered tremendously during those decades!) As for the eagerly-anticipated middle-class tax cuts -- $500 for workers and $1000 for working couples -- remember Bush's economic stimulus package? Me neither.

How many years, how many generations, and how many recessions are we expected to endure before our beloved Reagan's trickle-down economics begin to drip into our pockets, or we finally wake up and say no to the trickle-up reality?

Back to our state and local governments' quagmire, Obama/Biden currently propose a $25 billion stimulus for the states to prevent them from having to make the aforementioned cuts and raises, an amount that wouldn't even solve California's projected $28 billion deficit, or 29 states' combined budget shortfall of $48 billion.

As Hank Paulson doles out billions to his finance cronies who contributed to this crisis, the Senate Banking Committee in its schadenfreund excoriated the Big Three auto executives for their excesses, while the livelihood, pensions, and health care benefits of millions of workers across the country who are directly impacted by the industry's fate hang on the line. They are asking for twenty-five billion. Is it enough to save them? A better question might be: Can we afford not to try, while we're tossing billions around and hoping some will stick? Is it not better to save those who actually produce tangible products and create real jobs, rather than those who profit from ethereal financial schemes at the expense of the vulnerable? So far, it seems the intent of the bailout package is to open up the credit market so that We The People can take out more loans -- student loans, car loans, mortgages -- and dig our holes even deeper.

As an aside, though it's really not, my 2007 Chevy Aveo with twenty-five thousand miles and a cracked head gasket has languished in the dealer's shop for three weeks now. In the middle of both weeks one and two, I called the service rep, who could not or would not explain the delay. At the end of week two I paid a visit to the service manager, who gazed into my eyes sympathetically and listened to my frustrations empathetically, took my name and number, and promised to call me in the morning with an explanation. Never heard from him. This is a dealer who, before the meltdown, would call me without fail just to thank me for the oil change. I finally learned, after registering a complaint with Chevrolet Customer Service, that the replacement part is en route on a slow boat from Korea, expected to arrive by December 5 -- a Friday -- which means two more weeks at best. The Chevy employees are frozen, along with their unsaleable cars, in limbo. Would I buy an Aveo again? Probably not. Would I buy a car from a bankrupt General Motors? Definitely not!

There are 32 Americans among the world's top 100 billionaires. Thirty-two people, maybe the size of your extended family, whose net worth totals $573.3 billion, or 80% of the dollars Hank Paulson asked us (the taxpayers) to give him to bail out the US economy. Four of these people come from one family alone -- the Waltons -- and their combined $76.6 billion would be more than enough to make up those states' budget deficits. Is it uncomfortable for Larry Ellison to know that his personal $25 billion could help keep General Motors, Ford, and Chrysler afloat so they can fix their business model and perhaps protect the livelihood of millions of people?

There has been much debate over the moral hazard of the current financial bailout. Yet, where is the debate over the moral hazard of a society that is designed to risk the good of the whole -- free (and quality) education, food security, guaranteed pension, health care, elder care -- for the benefit of the few? What of the 37 million Americans who live in poverty so that 32 people can amass five hundred and seventy-three billion dollars, or when the Walton family's $76.6 billion was built on Wal*Mart's success through, according to Sam Walton himself, a very low-wage, low-benefit model of employment?

While the current administration continues its seemingly random efforts to jump-start the economy without addressing the systemic flaws that brought us to this apex of insanity, We The People are left wondering, who will bail us out, knowing full well the answer. What have we come to that our lives are so impoverished and our desire for material objects so powerful that we line up for hours and literally stampede for a bargain, while the few profit from our losses? That is the real moral hazard we should be debating, while we stampede the offices of the upcoming administration and those of our state and local governments to demand real, substantial change, and not in the form of $500 or $1000 with which we're told to go shopping.


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Published December 1, 2008