This is a guest editorial from Dangerous Minds reader Em, expanding on some pointed commentary he’s made elsewhere on this blog. Em—who’ll keep his last name to himself, thank you very much—works in the financial industry.

Many commentators have attempted to draw parallels between the Egyptian protestors in Tahriri square and the protestors in Wisconsin’s state capital, where the republican governer Walker has introduced legislation that would (among other things) remove the right of state workers to collectively bargain. Such commentators have done a better or worse job, but in any event didn’t appear all that convinced by what they had written, despite the feeling that there at least seemed to be similarities that could not be explained by coincidence alone. Of course, the protestors in Egypt are largely (but not exclusively) Muslim, and live in a developing economy that has never experienced first-world standards of living, while the Wisconsin protestors are predominantly white and hail from families that have experienced first-world standards of living for several generations. It would appear, therefore, that any similarities are superficial and any comparison between the two groups more poetic rather than substantive.

What the protestors in Tahriri Square as well as the public Union workers in Winsconsin have in common is the rejection of a commonly repeated narrative about how wealth is created. In this commonly repeated narrative, it is necessary to concentrate capital in the hands of a few, who will then use that capital to create businesses and generate wealth, which will trickle down to the many. In order to get this alleged wealth-pump moving, impediments to wealth concentration such as labor movements must be removed, and indeed (according to the common false narrative), the history of wealth generation in developed countries such as the USA is precisely the history of overcoming these pesky impediments. What the protestors in both Wisconsin as well as the Arab world have done is reject that narrative as well as the bogus and half-baked economic theory that is often sold as part of it.

A corrollary to this theory of wealth generation is that civil liberties such as free speech are a luxury, and should be suspended for the sake of the greater good, until wealth starts to flow and incomes rise significantly. This is a particularly pernicious part of the package, because no doubt countless men and women workers have resigned themselves to a life of incredible toil in order to (they believe) move their society forward. Inequities, injustices as well as the suspension of civil liberties were tolerated because they appeared necessary to move their country ahead into greater levels of wealth for everyone.

What the third world protestors in Tahriri Square and elsewhere in the Arab world have done, along with their compatriots in the Wisconsin State Capital, is reject this set of lies and the false either/or choice it presents of civil liberty versus economic progress. Though they may not be able to articulate it, the protestors have finally looked upon the general character of those that hold the levers of power and chose to regard the false choice they have proferred as a lie, which it is.

The first part of this larger-scale lie is that Labor has played no significant role in the generation of wealth in the developed world. In fact, empowering workers has been equated with command-driven soviet and communist models, which were arguably equitable by making everyone equally poor. In this narrative, the US has generated its unprecedented wealth precisely by defeating the evil specter of organized labor. Wealth, it is told, has been created by allowing capital to be concentrated into the hands of the wealthy, who best know how to wield it, thereby creating jobs and new wealth. What is not stated in this view is that the wealthy classes are regarded as almost a divine class, having been born (and not made) and appointed by God.

The reality, of course, is different. In developed economies, the vast majority of wealth has been created in the last hundred years or so. Scratch any millionare and you will see someone with fairly working-class roots, though perhaps it’s necessary to go back a generation or two. But the point is that wealthy individuals and families were not always wealthy, but got that way through a combination of risk-taking, hard work, capital investment, and luck. In other words, wealthy people were made and not born, and accumulated their wealth initially as members of the working class.

That wealthy people are the primary engine of job creation is demonstrably false, the evidence of which is readily found in the results of Bush’s tax cuts. The argument from the so-called right continues to be that, in placing more capital in the hands of the wealthy, jobs will be created and wealth will flow down and tax revenues will necessarily increase. However, the reality is the opposite: the fact that Bush’s tax cuts left Barack Obama with a significant deficit (even prior to the bank bailouts) is proof that this idea is at best flawed and at worst a lie: Jobs and wealth are not created by the few but, rather, by the many. This suggests that America’s Labor Union movement of the early 20th century may have been responsible for a large percentage of wealth generation, in that it placed an unprecedented abundance of capital into the hands of the middle class.

An interesting set of facts to examine is how certain pro-labor developed economies have performed during the 2008 fiscal crisis. Looking at two of Europe’s most labor-dominated economies, Sweden and Germany, we find that these two countries fared far better than most other european economies that had far less enrollment in labor unions. Although Germany (with 26% union enrollment) has taken on an approximately 4.5% deficit (compared to GDP), it has done so in order to come to the aid of Greece and other troubled economies in the EEU, while planning to return to the black by 2012. Sweden (at approximately 75% union enrollment), likewise, has deliberately taken on a temporary deficit in order to assist with the bailout of Iceland. It would appear, therefore, that the countries with some of the heaviest union pariticpation in the world sailed through the fiscal crisis with nary a scratch. The conclusion is that the working classes in these countries actually contributed significantly to economic stability and growth, and that the labor movements therein allowed capital to be placed into the hands of many, resulting in the generation of real economic growth and wealth.

Meanwhile, in the US, we have the opposite: Falling union enrollment and huge budgetary deficits incurred during the fiscal crisis. Given the budgetary deficits that existed as a result of the Bush tax cuts, is it still reasonable to conclude that placing more capital into the hands of the wealthy will actually result in additional job creation? The circumstantial evidence says no, but a deeper analysis reveals that such an assumption may have actually brought about the fiscal collapse itself.

As union enrollment collapsed in the US and real wages declined, capital fled the middle class which therefore also lost the ability to generate new small-to-medium-sized businesses. Partially as a result of weakened labor, both manufacturing as well as service jobs were moved overseas thus further depleting capital resources from the middle class along with job creation. As capital concentrated into the hands of the wealthy (who had no place to put it), they sought new opportunities and found them in the form of tthe American dream: Home ownership. Because real economic growth was rapidly draining out of the middle class, Wall Street stepped up to the plate and created new financial instruments designed to allow the wealthy to invest in what would have otherwise been very risky deals. Through the creation of a whole plethora of derivative securities (such as Collateralized Debt Obligations), the underlying riskiness of the ‘sub-prime’ housing market was in effect trapped and tamed, thereby allowing fund managers to invest in double-A rated securities magically derived from large groups of underlaying risky mortgages.

An obvious and inherent problem in this risky housing market was that it was essentially a big game of musical chairs: I would borrow money to buy your house, while you borrowed money to buy mine. We now had houses that were worth more than we bought them for, so we did it again. And again. And again. If this feels unreasonable and like a perpetual motion machine, you are correct: this couldn’t continue, and it didn’t. As for those AA-rated CDOs, they fell apart as they had not been stress-tested for scenarios like, well, reality. On Wall Street no one had wanted to know what the real risks were, because Basel II rules would have required the banks to hold far large amounts of capital in reserve, making the CDOs and other derivatives not worth the risk.

In a sense, then, it could be argued that the failure of the banking system was caused directly by the flight of capital away from the working and labor classes, and due to the overconcentration of capital in the hands of the wealthy few, who did not know what else to do with it. An unregulated Wall Street did exactly what it was supposed to do (create new investment vehicles that direct capital at new opportunities), and any dissenting CEO would be quickly replaced.

One important conclusion to draw from this is that, by empowering workers and trade unions, capital is placed into the hands of the many and, through this means, new wealth is generated. The idea that strong labor merely communistically disperses capital (thereby making everyone poor) is a lie. Of course, the demise of the Soviet Union and larger-scale failure of command economies tempts one to believe that labor is somehow an enemy to wealth, but this is simply untrue and is an untruth that has been weaved into a strategy of divide-and-conquer as well the suspension of civil liberties.

Wisconsin is similar to Tahriri Square in that the vast majority of working people have recognized that the commonly-chanted narrative of organized labor as enemy of wealth is a lie. In both cases, the People have recognized that the choices being offered are not the only choices, and that the suspension of civil liberties actually means the continued poverty of most, while a small number of extremely wealthy people look for ways to utilize their uselessly huge piles of capital. If this is the case, then why sacrifice freedom of speech or the right to assemble or collectively bargain? All this can do is needlessly continue suffering while strengthening the State, which gets drafted into serving a small minority. It is that minority that believes that wealth is a zero sum game, even though it isn’t, and that empowering others necessarily means a loss of wealth for ones’ self, even though it is precisely through the widespread availability of capital that new wealth is created.

About the author: Em was a founding member (with John Cale and others) of the New York punk band Doppler Effect in the early 1980s. After living in China in the late 80s, Em worked in the physics and electrical engineering space until 2002, at which time he moved into the financial world. In July, Em returned to the US after having lived in London since 2006 and is a member of the UMOUR art/event collective. He blogs at The Magic Lantern, his"litterbox of the soul.”

(thumbs up)

Eustace:
You made it all the way through? Damn you’re a glutton for punishment!

No it is not or was it ever reasonable to assume that putting more money ito the hands of the wealthy, would mean more job creation.  Everyone knows that the milk of human kindness runs through the veins of the wealthy. Well half human kindness, half lindt white chocolate. nice work Em.

Thanks for this, Em and DM. Brilliant and timely.

And, might I add, nice CV. I feel like such a slacker.

Check out Greece today

http://www.youtube.com/watch?v=fI-YxjVGpVQ

from AP:

‘The Athens rally, attended by anywhere from 20,000 to 100,000 people depending on the source of the estimates, was the epicenter of a 24-hour labor strike that shut down public transportation, tourist sites, and crippled the nation.

Organized by the two largest unions in Greece, the protests were held in response to austerity measures enacted by the government in exchange for a massive bailout from European countries and the IMF.’

How does this fit in with whats happening in other parts of the world like Egypt, Bahrain, Libya and um…Wisconsin?

Jack up commerce. Walk out on the job. Stop buying stuff. and play hooky till wal-street takes notice and puts the government’s wheels in motion.  Kick commerce in its bollocks. Time to reallocate.

Em: a lot of good points and insight, but from an editorial point of view it’s a bit wordy and repetitive.  It would have hit harder with some editing.

Check this out-

http://libcom.org/news/report-madison-fascists-unions-us-north-22022011

This article makes all the connections between Whats happening in Wisconsin and the rest of the world. Very long but brilliant and extremely illuminating. The one thing i can’t understand is with so much popular opposition to this thing, how were the Republicans able to sweep the last elections in Wisconsin?

O.k. Its late. I’ve waded through this thing and I have to reverse my former position. They(the protesters, strikers, etc.) are gonna lose this thing in Madison. Its just a matter of time. Unionized public sector workers only represent 6% of the workforce. The rest of the workforce is resentful of them since they pay out the ass for what the public sector gets for cheap, and it played a huge factor in the repubs getting elected. The teachers are going back to work soon. The repubs have a majority and their gonna ram this thing home. Thats democracy folks.

The silver lining is that as the middle class fades away the population becomes radicalized. FUCK CAPITALISM.

Nice to see Dangerous Minds living up to it’s name. Great article, thanks Em!

Nice piece and you make some good points. But you missed on the analysis of the real estate bubble. You mistook a symtom or response function, like house flipping, for an underlying disease or driving function. In this case the huge trade deficit(trillion per year by 2007) that forms the genesis of the housing bubble. Chinese investors needed to buy huge amounts of american debt to cover the FX flow. It did not matter how risky the mortgages were they needed more. This much distortion would have wrecked any capital market. With your background in Physics and FInancial Engineering you are well equipped to follow these underlying dynamics. Lets get the discussion going in the right direction.

Helpful exposition. Thanks Em!

Rosko said…

“Em: a lot of good points and insight, but from an editorial point of view it’s a bit wordy and repetitive.  It would have hit harder with some editing”

Agreed. I kind of banged it out late at night but now that I read it there’s a bunch of stuff I coulda chopped and some points that could have been made clearer, like…

Selikson said…
“But you missed on the analysis of the real estate bubble. You mistook a symptom or response function, like house flipping, for an underlying disease or driving function.”

Well, I kind of agree too, but there were limitations of time and space and I wanted to weave this into the story in a way that emphasized this aspect of things.

Put in another way, given the various economic pressures, all desire to actually truly comprehend the risk of these “Weapons of Mass Economic Destruction” (as Warren Buffet called them) was squelched. I guess my secondary point was that Wall Street wasn’t so much solely responsible as it was complicit, an enabler. In other words, it made the consequences of the inevitable (bubble burst) much, much worse.

Shane- a quick correction. In Wisconsin, a touch over 24% of residents identify themselves as “union households”.

As to “how did we elect this guy.”  Someone in a previous thread said that Koch only gave the legal Wisco max of 43k. Partly true; Koch Bros gave 1 mil to the Republican Governors Association that was funnelled right back to Wisconsin.  So we had a large amount of money coming in to demonize the dem. candidate.  Who, truthfully, was a very weak candidate.

In Wisconsin there is a internecine battle of Milwaukee/Madison vs. the rest of the state.  The population centers are in the cities, but the rural areas hold more sway in the Legislature. These areas are traditionally more conservative.  Culturally, the rhetoric is that Milwaukee sucks up the state taxpayers dollars to pay for it’s poor/urban/crime/immigrant issues.

The reality of race is very real here.  Outside of the MKE/Racine/Kenosha you don’t see many people of color.  Green Bay/Sheboygan/Wausau/Eau Claire have large Hmong populations. And the natives experience with these groups is often painted as negative.

So in this past election cycle, it was pretty easy for Republicans to sell the story: “Milwaukee is the cause of all our economic problems; you’re gonna vote for the Mayor of MKE for Gov?”.  For many people it wasn’t even about the politics.

This is a hyper-local anecdote-but hopefully it will help everyone understand the thinking. In the summer of 2010 a 13 year old boy was killed when a giant concrete piece of a County parking structure fell off and crushed him. Who was in charge of MKE County for the past 8 years- Scott Walker.  He decimated all the budgets for parks/property upkeep. City of MKE residents hate this guy.

A few weeks later, we were Up North. (In Wisconsin & Northern Illinois we’re all like old Russians with little dachas in the north woods.) I was at the town grocery store and everyone was talking about the incident.  Who were they blaming? The Mayor of MKE and Dem. candidate for Governor.

The point is this;  What Walker is doing is part of the national agenda for the Koch Bros and the Club For Growth; but how he got into the position to do it is all about the peculiarities of Wisconsin politics and the long-standing animosity of Urban vs. Rural residents.

Is there actually any documented evidence that tax cuts for the rich create more jobs than tax cuts for the middle class?  I ask because I recall Bill O’Reilly saying a few years ago that the boom years under Clinton were the result of tax breaks under Reagan (how convenient for the GOP, I guess in ten years if the economy turns around they will point to the tax breaks Bush II handed out as the cause.)

As a contrarian capitalist, I agree with Em, even though it is a bit long

Essentially this is about the poverty gap, and how spreading the wealth (narrow gap) is a far better economic strategy than the rampant technological neoliberalism that western governments are pushing. This is how technology is used primarily to create a surplus, e.g. “supply side” economics. True democracies have a very narrow gap, and despotic, fascist regimes tend to have very large ones. The U.S. (and Canada) are definitely going off in the wrong direction.

This is what financial capital is used for these days, rather than social projects.

Christina,

Thanks for your analysis. I’m really trying to rap my mind around this thing and its good to hear from an actual Wisconsinite.

This is from the libcom.org article that I posted earlier and is where I got that number of 6%. As I said earlier, its a great article, but unfortunately it didn’t cite a source.

‘In Wisconsin 7% of the workforce is officially unemployed (December 2010 figures). In a state of just under 6 million (5,687,000) and a labor force participation rate of 54.6%, the 175,000 unionized members of a public sector of 300,000 constitute 6% of the officially employed in the state, among which 1.9 million are casualized.

Among both full time, non-union workers, and particularly among the casualized, at least here in the that region of the old North with which we are familiar (Minnesota, Wisconsin, Illinois and Michigan), with no visible alternative to the order of capital there is enormous resentment of organized public sector workers whose wages are sometimes considerably higher than non-union workers and who have access to medical and genuine (if stingy) retirement plans that non-union workers do not. Walker won the November 2010 gubernatorial contest with 52% of the vote. Since that campaign he has continued, particularly in the past week, to argue this arrangement is basically unfair to non-unionized workers. The latter appear to agree: It was their votes, those among them who bothered to vote, that, atop the vote from middling groups and business classes, that won him the election.’

The writers point out that they’ve seen very little private sector union participation in the protests. The Greeks have shut down their country over the last couple of days through a general strike. If 24% of the Wisco workforce is union I’m just kind of wondering why something similar hasn’t happened there.

Of course, Greece is a nation and it has a heavy contingent of anti-capitalists also. Its struggle has also been going on for quite some time. I think the best hope for the situation in Wisconsin is for this thing to go national soon. With the economy continuing to deteriorate things are ripe for revolution. But, it will require participation from the under class. The unions have been slowly dismantled over the last 40 years in the U.S., so as long as its strictly a union thing its too weak. Now is not the time to get misty eyed for the middle class. We are all free or none of us are. Its all or nothing.

Also, how can we communicate with the tea party contingent. They aren’t all racist rednecks. Some of them are just working class people who’ve been duped by neo-liberal propaganda to go against their best interests. This has to be counteracted somehow or things could devolve into a civil war.

Anyway, maybe I will start a blog soon to expand on these ideas.

Shane-I’m using the 24.6% number based on a recent MKE journal/sentinel poll.  Your analysis sounds right based on actual employment numbers. This number shows where support really lies.  You get lots of “my dad was laid off in the ‘80’s from Allis-Chalmers” people who themselves aren’t in a union but ID themselves as a “union family”.

When I was in Madison on Monday, I saw large contingents from the IBEW, IATSE, Sheetmetalers and pipefitters unions.
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