What Really Happened


When John McCain tried to recover from his comment that the fundamentals of the economy were sound, he tried to explain the gaffe away by saying that in his view, the working people of America were the fundamentals of the economy.

Oddly enough. McCain was probably more accurate than he intended. No, I am not coming to the defense of John "Keating Five" McCain, and personally, I think his correct answer was more accident than insight. The working people of a nation are the primary fundamental force in the economy, self-delusions of Gordon Gekko wannabes not withstanding. No road gets paved, no crop gets harvested, no factory or office operates, no pyramid gets built, except by the hands of the working people. Absent a dedicated and enthusiastic population of workers, all world leaders are just posturing buffoons gesticulating and shouting to empty spaces.

Here in the United States, workers are treated as if they are an inexhaustible resource. Use them; there is always another. Save the whales but not the workers. Plenty more of those guys where they came from.

Since the advent of "Scientific Management" and the MBA degree, a post WW2 gift to boom-times America by Harvard Business School, we have grown a generation of managers disinterested in the actual process of making products. Management and workers meet at the PERT charts and seldom anywhere else. Over time, the quality of American manufactured products began to decline. "Made in America" began to lose some of its luster as other nations began to manufacture products superior in quality. At the end of WW2, the United States had 27 companies that manufactured TV sets, which were the best in the world. Today, the last American brand is Zenith, and they are owned by a Korean company.

In the 1980s it became apparent that decades of MBA managers who had NOT been promoted from within the workers had produced an unforeseen side-effect; the United States had forgotten how to manufacture products! Our MBA managers, trained to be interchangeable from one industry to the next, lacked the in-depth insight that comes from growing up with a product, and often simply did not see the flaws in the products whose creation they purported to manage.

It is human nature to trivialize or minimize that which one does not know, and as MBA managers grew into corporate officers, they carried their lack of respect for the products into the executive suite. The end result was a corporate culture that ceased to grade their performance on the basis of quality products and instead kept score using the price of their company stock. Products ceased to be the main focus of America's corporation and were relegated to the status of "necessary evil" as the socially required entry ticket to the gigantic open-air casino called Wall Street.

As American products continued to decline in quality and foreign manufactured products displaced them in the stores, American corporations, rather than address the problem with manufacturing, hit on the idea of closing the US factories and sub-contracting the manufacture of products to the very countries whose manufacturing was already surpassing that of the United States. It was a quick fix, with even quicker profits for those first few companies to taker advantage of offshoring.

Then, as more companies started offshoring their manufacturing (aided by generous tax credits from the US Government) a funny thing started to happen. Retail sales began to decline in the US. We started seeing one disastrous Christmas shopping season after another (culminating in the current year where the holiday goodies started showing up in stores in August). US companies had forgotten a simple truth than Henry Ford had recognized more than a century ago; your workers are also your customers. Ford made a point of paying his workers a high enough wage that they could afford to buy the cars they were building. Those working class drivers became Ford's best advertising, and Ford and the community around him prospered.

But today's managers, unconcerned with community, workers, or even really the quality of products in their rush to produce the highest "score" on the stock ticker, went on sending manufacturing jobs to other countries. Retail sales continued to decline. Corporate culture still couldn't or wouldn't see that the problem was of their own making. Your workers are your customers. You cannot lay off workers without laying off your customers. It's the same group. Regardless of the layers on layers on layers, every investment sooner or later got down to the workers either being able or not able to earn enough money to buy things. By the 1980s, it was obvious that while the top 1/5 of the nation's population were doing well, the standard of living was in decline for the lower 80%. But rather than address the issue of our lost manufacturing, government and corporations papered it over the the "service economy", the ludicrous idea that we could return the nation's workers to prosperity by doing each other's laundry for a fee. Of course, the service economy created new tax opportunities for the government., which made it look like things were improving, but the reality is that without new money coming into the system from product sales, all the service economy did was accelerate the flow of money from private to government hands.

Then the real-estate bubble frothed up, the adjustable rate mortgages started to jack up the rates, and decades of self-serving greed began to pull the economy down. And the real bitch of it was that it was still reversible at that late date, but it is a funny thing about rich people; they are okay with sacrifice for the common good as long as someone else does the sacrificing. Remember, for most of them, those dollar signs are the only thing they have to feel good about themselves.

Rather than take the long hard path back to knowing how to manufacture products (most top American manufacturing experts had already been lured to other countries), Wall Street decided to make money itself the product. They took money (or debt), repackaged it, spun it around, piled it into interesting artistic shapes, tied a ribbon around it, and re-sold it. The theory was that if you had enough money and shook it back and forth hard enough, it would grow all by itself. And in the arcane world of corporate bookkeeping, it looked like it was working.

Except that what was really going on was that corporations were actually accumulating debts and selling them as investment opportunities, simply assuming that someone else would eventually have to square the accounts. But again, American manufacturing was clearly on the wane. We were not exporting enough products (no, not even bombs and bullets) to pay for all the excess debt piling up around Wall Streets favored get rich quick schemes.

Yes, a lot of Wall Street executives got very rich, and this attracted a lot of sharp operators to play the game, but they played it with the companies where We The People worked to pay our bills, and as those companies continued to downsize and lose jobs to boost immediate "profits", Wall Street came up with every more complex financial "products", all of which concealed a dark secret; Wall Street's money was all borrowed, and as grandiose as the wealth of certain individuals such as AIG's Maurice Greenberg may look to ambitious traders, it pales before the reality that Wall Street's total debt exposure is almost $600 Trillion (with a 'T'), almost one thousand times the promised (but probably underestimated) cost of the latest taxpayer funded bailout. The harsh reality is that Wall Street owes (and is unable to pay) more money than the entire nation is worth.

So now comes the fascist economy where profits are private but losses are socialized and anybody who objects gets a boot in the face.

But setting aside the costs of the bailout and the reality that the American taxpayer has run out of money and CAN'T find the cash to save Wall Street, there is an aspect of this sub-prime mess and bailout nobody is looking at.

Our nation's workers are its wealth. As mentioned above, the workers are the fundamental force of our economy, something Wall Street forgot. But those workers have to be motivated to be productive, and right now, it's hard to get enthusiastic about another 14 hour day when everything you ever thought you worked for vanishes in the blink of an eye as your company gets raided, your pension plan vanishes, your job evaporates and the guys who did it skip out with a $40 million severance package.

At the end of World War One was a period called the "Lost Generation". Popular culture recalls them as the "beatniks" and tries to deride them as worthless bums, but the reality is that the Lost Generation was a symptom of a terrible malaise that infected the entire population. Even though we had won the war against Germany, personal experience had shown that it did not matter how hard you worked to acquire material wealth; it could be gone in a moment by the orders of some government somewhere. It was a nihilistic time where people survived but did not try to excel.

So here we are in the United States at the dawn of the 21st Century. Millions of Americans have seen a lifetime of work invested in their homes evaporate before their eyes while Wall Street's royalty wallows in riches. Careers to which workers have devoted a lifetime are vanishing and the promised "retraining" amounts to asking if the customer wants fries with that order.

Americans are worse than broke, they are discouraged. The bailout sent a clear message that no matter how hard you work, the government can plunge you into deeper debt with the stroke of the pen or the vote of a congress inextricably linked with Wall Street itself. Black Tuesday may have plunged the United States into the Great Depression but it was a sense of hopelessness; the feeling that nothing one could personally do would improve things that kept us in that depression until WW2. The American Dream is a nightmare. Worse, for most Americans it turned out to be a cruel lie. A mortgage is just another form of rent; your home can still be taken from you with the flick of a banker's wrist or eminent domain.

So the cost of the bailout is more than money. The cost of the bailout is the spirit of the American workers. How can we expect them to be enthusiastic builders of cars, TV sets, washing machines, of pyramids, of wars, if they have seen first hand how the proceeds from their work can be taken from them with barely a moment's notice? At a time when our nation most needs the spirit of the American worker, the government has dealt that spirit a crippling blow. At a time when we all need to work together, the government has in effect told the workers that they are unimportant in the greater scheme of things. And in that fatal mistake, in that dismissal of what even McCain states is the core fundamental of the economy, in that careless and reckless moment of pride that goeth before the fall, lies the doom of the US itself.


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