|THE PIG ECONOMY|
|Rupert J. Ederer
Ruskin (1819-1910), in many ways a tortured soul, once referred to economics as
"the pig philosophy." The English writer, artist, and social critic
was referring to the economic thinking which prevailed at the time in Victorian
England—the so-called classical economics, also known as Manchester
liberalism. It was shaped by the likes of Adam Smith, David Ricardo, Thomas
Malthus, John Stuart Mill, and Jeremy Bentham; and it stemmed directly from
Enlightenment philosophy. The resultant laissez-faire capitalism was based on a
false notion of natural laws applied to economic life. Thus, human labor came to
be treated like just another commodity whose price was determined by the
so-called "laws of supply and demand." The same market laws governed
wages, as determined the prices of wheat and pork. Society, like the physical
universe, supposedly operated in accordance with laws designed by the deists'
dispassionate "Architect of the Universe," when He created the world.
Hence there could be no greater mischief than to have men mess with the working
of such laws. That is how the solemn pronouncement <laissez faire, laissez
passer; le monde va de lui meme> got into classical economic thought and into
economic life: It was a brainstorm of the French physiocrats, deists who also
were the first to call themselves <les economistes>. As a consequence the
hallowed principles of just price and fair wages for work, along with the
long-standing distinction between legitimate interest and usury, were tossed out
as relics of the pre-enlightened medieval era.
Fortunately for England and for its cultural offspring, the infant United States, these were to be the first beneficiaries of the unprecedented burst of technological genius that started in the late eighteenth century and came to be known as the Industrial Revolution. Unfortunately for the aggressive and thriving Anglo culture, it was at the same precise point in history that Manchester liberalism-the pig philosophy-became its prevailing social gospel: self-interest pursued without social restraint, regulated only by equally unrestrained competition would automatically lead to maximum well-being in the national economy. This was unfortunate for two reasons: first, because of that philosophy the unquestionable blessings of technology came to be enjoyed increasingly by an ever diminishing number of citizens, specifically by the rising capitalist class.
Secondly, people made the mistake, then and now still, of attributing the undeniable blessings of the providential explosion in technical know-how to the depraved philosophy of economic liberalism. As Pope Paul VI said, "It would also be wrong to attribute to industrialization itself evils that belong to the woeful system which accompanied it." (<Populorum Progressio> #26)
By and by, England's rebellious colonists across the Atlantic fell victim to the same "pig philosophy." However, the colonials also soon became the beneficiaries of vast and fertile rich farmlands beyond the frontiers of the original thirteen colonies. In New England, with its harsh geographical endowment, nature was in many ways as niggardly as it was in old England. However, things were different in the rich lands beyond the Alleghenies. There the fertility and the sheer vastness of the area made it possible for farm families to at least sustain themselves, even in the cyclically recurring periods of economic hardship which came to characterize the capitalistic era. Inevitably though, the ruggedly individualistic farm folk, hard-pressed by hostile economic conditions, learned the art of cutthroat competition when they delivered their surplus crops to glutted markets in rivalry with their neighbors. Needless to say, they were not organized among themselves, because such action was one of the very few no-no's of the prevailing free market ideology.
Christianity's healing graces came to flow ever more sparsely in the Anglo culture during the centuries following the Protestant revolt. Hence the important social teachings which developed on the European continent during the latter part of the nineteenth century had scant impact in Great Britain while Manchester liberalism grafted onto the Industrial Revolution was gradually turning British mills and mines into a "bloody hell." There was no Hitze, no Vogelsang, no Toniolo, and no Bishop von Ketteler. Consequently, social criticism fell predominantly to literary figures like Dickens, Carlyle, Ruskin, and later on to Fabian socialist types like H. G. Wells and George Bernard Shawl Among such, the tendency was toward romanticist solutions like surrealistic communes of the Owenite stripe, or Fabian socialist schemes. Even the giants of the Oxford movement like Cardinal Newman, G. K. Chesterton, and Hilaire Belloc did not generate solid social teachings in the tradition which was to lead into and flow from <Rerum Novarum>. Because of the ambience in which they were forced to operate, these great men did their best work in the area of apologetics, defending their Faith in an extremely inhospitable climate.
Meanwhile, first-hand observation of the plight of the English workers in the mills and factories of Victorian England fired the revolutionary zeal of Friedrich Engels whose wealthy German father operated a textile mill in Manchester. Karl Marx, Engels' mentor who was banished from the continent for his inflammatory writings, also brooded over what he saw in England where he wrote and published the first volume of <Das Kapital> in 1867.
Not many years later, another exile from the Continent, cut from an entirely different cloth, also witnessed the plight of the English workers and came up with a radically different solution—solidarist economics. Heinrich Pesch was sent to England in 1885 as a Jesuit scholastic, to complete his theological studies. Pesch had to leave Germany because of Bismarckian <Kulturkampf> laws against Jesuits. His studies at Ditton Hall near Liverpool enabled to him to observe firsthand the demoralizing conditions under which people had to work in the leading industrial centers—Liverpool, London, and Manchester. This was all still prior to Leo XIII's definitive commentary <On the Condition of Labor>. What Heinrich Pesch saw in England led to his lifelong study of how the workers' plight could be alleviated. As he noted later in his monumental <Lehrbuch der Nationalokonomie>, capitalism was destroying family life among the workers. That has now been achieved.
Inevitably, the predictable result of a "pig philosophy" put into operation on a broad scale over a prolonged period of time would be a pig economy. Based on recent Federal Reserve studies, scholars are discovering that our United States at present compares very unfavorably with the other leading economic powers in the way wealth and income are distributed. For example, the wealthiest 1 percent of American households owns nearly 40 percent of the nation's wealth. These are people who enjoy a net worth of at least $2.3 million. By contrast, the wealthiest 1 percent of households in Great Britain whence we inherited the "pig philosophy" has 18 percent of that nation's wealth.
Britain has, of course, gone through a "socialistic" shakedown in the years of Labor Party rule and criticism following World War II. (In the early 1920s, the top 1 percent there owned 59 percent of all wealth!) Things do not improve much as we broaden our base to include the wealthiest 20 percent of our population, which includes all with holdings worth over $180, 000. These own 80 percent of the national wealth. That leaves the remaining 80 percent of our population sharing just 20 percent of our nation's wealth. Scarcely a middle class society!
Aside from inheritance and occasional rare interventions by "Lady Luck," accumulated wealth is generated for the most part from current income; and the picture there is, if anything, even less encouraging. Figures on the 1993 income of families reveal that the wealthiest 5 percent got 20 percent of all after-tax income, while the top 20 percent earned 48.2 percent. That leaves 80 percent of our population sharing the remaining 51.8 percent. Perhaps their plight is made less severe by the fact that the bottom 20 percent must settle for only 3.6 percent of after-tax income!
One tell-tale indicator of how income distribution gets so badly distorted is the way we remunerate our corporate executives in comparison with other countries. In wealthy, non-socialistic Japan manufacturing executives on average earn ten times more than their workers. Our corporate elite are paid twenty-five times as much as their workers on average. In 1994, 65 percent the CEO's of America's largest publicly held companies received compensation of at least $1 million. The top three, heading relatively obscure firms, got $39.6 million, $28.98 million, and $25.2 million respectively.
At the opposite end of this picture we find that our nation's poverty rate is now the highest in ten years. This translates to 15.1 percent of our population who earn at below the poverty level, including some 11 million households on food stamps. Apparently, these "poor relatives" are the embarrassing element which, it is now being widely proposed, we should simply disown. George F. Will, the syndicated apologist for free market capitalism, commented that the kind of harsh inequality portrayed in the aforementioned Federal Reserve study "offers upward mobility equally to all who accept its rewarding disciplines." That resonates remarkably with, "If they have no bread, let them eat cake." So much for economic Darwinism. Ebenezer Scrooge couldn't have expressed it better. Meanwhile, the breadless and cakeless ones are not heard.
They don't own or write for newspapers, if indeed they can afford a newspaper at all.
In a strictly egalitarian society, the percentage of income earned would correspond exactly with the percentage of the population, i.e. 5 percent of the people would earn 5 percent of the income and so on. No sensible person proposes that. Different people bring varying levels of ability, property acquired by work or inheritance, energy, and intense activity to the national economic effort. On the other hand, if income were distributed simply according to the differing levels of native ability, its distribution would assume a shape approximating that of the now infamous "bell curve." Small numbers of people have very low levels of ability, so that incomes based solely on that would be very low. At the other side of the curve, small numbers of people have very high levels of ability, so that based on that criterion alone, they would enjoy very high incomes. Once again, we cannot expect such an income curve to be realized because other legitimate factors besides native ability enter into the economic mix. These would include acquired ability as well as productive wealth derived from inheritance or from past effort, along with just plain luck. both good and bad.
Putting the economists' toys aside, however, who can look with equanimity at the kind of income distribution that applies now in what we used to call our "affluent society?" Is it unpatriotic to call attention to our economic shortcomings, and even to contrast our badly skewed income distribution pattern to more equitable ones in the other advanced economies in the world where, one must add, market economies are also in place?
There is something badly out of order here, and it cries out for remedial action by those who are in positions of influence in our economic system. However, all indications are that help is not on the way!
Right now demagogues are at work tampering yet one more time with our tax system.
It seems that our so-called statesmen have been running away from fiscal responsibility like scared rabbits ever since Walter "Who" warned voters that, if elected president, he was going to have to increase their taxes to deal with mounting annual deficits. So now we are faced with the pathetic spectacle of proposing to repeat the disastrous tax policies of the Reagan-Bush era. The Gingrich crew promises what all citizens, especially the wealthy ones who will benefit the most, love to hear: lower taxes, along with, you guessed it, the promise of balanced budgets. So we are headed back to that old Laffer- Kemp - Reagan "magic," which put this country in a hole it cannot possibly get itself out of except by the most drastic Draconian devices! Now President Clinton, a consummate politician, and mindful of Walter Who's plight, is no Harry Truman, nor for that matter a John F. Kennedy. He has already indicated that he is prepared to join the stampede into more fiscal irresponsibility. After all, the first rule of democratic politics is to get elected and then re-elected. Over the years, I grudgingly came to accept the validity of Winston Churchill's barbed remark that "Democracy is the worst possible system of government except for all other forms." Watching the antics of our politicians in the face of the present fiscal challenge, I am now convinced that democracy will no longer work at all in such circumstances! Indeed, there are snake oil salesmen even now preparing the tax cut medicine in a new attractive packaging called the "flat rate tax." Everyone pays at the same rate regardless of income. Concessions are made only at the very lowest income levels where people are so far out of the economic mainstream that nothing much matters there anyway. The figure that is being proposed now to yield the kind of revenue present fiscal needs call for is 17 percent. You don't have to be, to use an overworked bromide, a rocket scientist to figure out who gains the most from a flat income tax rate of 17 percent. The squeals of protest against the rates Clinton got through Congress in 1993 come from those with incomes between $140,000 and $250,000 who must pay at the 36 percent rate, and from those who are fortunate enough to have incomes above that level, so that they must pay 39.6 percent. The fellow living in the Maytag box is scarcely concerned in any case, nor probably is the underemployed worker who is paying income tax on his unemployment insurance. To the others of the dwindling middle class, who will not benefit from a cut to the 17 percent rate, an appeal is being made to the great simplicity of the flat tax. The new, improved tax form, we are told, will be the size of a postcard. The glaring hypocrisy lies in the fact that some of the same people who are proposing such a disastrous tax policy are at the same time supporting a balanced budget amendment!
The case for flat tax rates is often based on the pretext that Marx and Engels in the <Communist Manifesto> proposed a "heavy progressive or graduated income tax," as one of the "despotic inroads on the rights of property," that would eventually "wrest, by degrees, all capital from the bourgeoisie ...." The trouble with false prophets is that they often deal in half-truths more so than in total depravity. For example, the <Manifesto> proposal also calls for the "centralization of the means of communication and transportation in the hands of the State." Lots of countries which are by no means socialistic do that. One has to wonder whether our chaotic, near-bankrupt airline and railroad systems are faring better than, say, Lufthansa or Swissair, and the fast and efficient railroads of France and Germany. The Marx-Engels program also called for "free education for all children in public schools." We offer that in the U. S., even while we allow parents to double tax themselves by establishing alternative schools. In other words, not everything the socialists proposed was 100 percent wrong, or else they could scarcely have fired up half the world over the past century. Nor was the pig philosophy 100 percent right. It gave rise to the "pig economies" which always supplied the Marxists with plenty of ammunition.
As Great Britain learned in the period after World War II, if the electoral process will not bring fiscal discipline, the buck will stop at the water's edge! Foreigners are not impressed with our performance, and what is happening to the American dollar is reminiscent precisely of what happened to the British pound a half century ago. By the end of WWII it was replaced as the dominant world currency by the American dollar—just as the dollar is now being replaced by the mark and the yen. These are the currencies of countries where, among other things, in come is distributed far more equitably than in the United States, and where programs decried here as "socialistic," are taken for granted. For example, in Germany universal health care has been a foregone conclusion for over a century. The four- to six-week vacation for workers, even new entrants into the workforce, is standard. Also, family allowances—<Kindergeld>—are firmly in place. Our government, instead, provides "health care" money to exterminate our unwanted <Kinder> before they are born. Consequently, something like a middle class society is clearly in place in the nations of the European Economic Community. Here, it has been nipped in the bud.
It must be noted in fairness that the mal-distribution of income and wealth did not crop up overnight. Our income and wealth distribution patterns were never good, as is apparent from the table below. However, the irresponsible and flawed fiscal policies of the Reagan-Bush era demolished what was left of fiscal integrity, and it did not help income distribution, as a comparison of the figures for 1980 and 1992 indicates.
A detailed examination of the causes of such mal-distribution would require more space than these pages permit. Yet, such figures provided annually by our Census Bureau, should dispel any naive, jingoistic suppositions that we have here the accomplished society. The attempts to reestablish laissez-faire, free market capitalism that are ongoing over the past decade and a half have merely highlighted and aggravated an already far from optimum situation. It appears that the working and middle classes were given a brief respite during the period marked by World War II, its immediate prelude, and its prolonged aftermath. That aftermath includes the Korean War, the Vietnam War, and the Cold War. Without being too cynical, one could toy with the view formerly suggested by some Marxist critics, that our capitalistic economy can maintain relative prosperity only under the impetus of major wartime, government spending. Indeed, now that we are out from under the Cold War, it's getting easier for those of us who have some recollection of the Great Depression to begin experiencing a discomforting <deja vu>. Ultimately, it was the national trauma of the Depression and the fear of relapse after the cessation of wartime expenditures by the federal government that prompted Congress to pass the largely symbolic Full Employment Act of 1946.
At the same time, the sad plight of labor unions at present is sharply reminiscent of the 1920s, known in the textbooks as the "period of welfare capitalism." It was a period when unions had to gain acceptance and to battle, sometimes literally, for survival without the benefit of any legislative protection for the right of workers to organize. At the same time employers, the more benevolent ones at least, were assuring their employees that the capitalists would see to their welfare, and that outside (i.e. union) help was unwelcome and unnecessary. The velvet glove held out paternalistic practices like company unions, shop picnics, profit-sharing plans, and the open shop campaign billed as "the American plan." Inside was the iron fist which included, aside from harsh strike breaking tactics, spying on and blacklisting "troublemakers," i.e. union agitators.
Also there was the infamous "yellow dog contract," a common condition for being hired, requiring the worker to sign an agreement that he would not join a union.
Now the United States work force was never unionized or even prone to unionize to the same degree as were workers in major European industrial nations. Even at its peak during the World War II era, union membership never exceeded 30 percent of the non-agricultural work force. At the same time, the influence of unionism during that period was more influential in the economy than the figure indicates for at least two reasons.
First, key industries were highly unionized, like steel, automobile, mining, and transportation and communications. Also, wage rates and working conditions in non-union companies were affected by the unions even when they were excluded as evidenced in the anxiety of employers to pacify their workers and keep unions out.
Why pay dues to an "outside" agency, and risk time lost due to strikes and labor disputes, when one's employer is offering a decent wage, shop picnics, and or even a profit-sharing plan (sometimes in lieu of a decent wage!)?
The tenuous pro-union climate established during the early New Deal years and during the early '40s, began to change soon after World War II In 1947, the landmark Taft-Hartley Act was passed over President Truman's veto. That law and subsequent legislation, like the Landrum Griffin Act of 1959, reflected in part growing public disapproval of the way union power was being used. It is an unfortunate fact that some union leaders had also learned the "pig philosophy" all too well from employers with whom they dealt. When they got power, they sometimes acted in the same socially irresponsible manner so as to give unionism, which never enjoyed the full favor of the image-makers in our society, a bad name. That made it easier for legislators to "lower the boom" just a scant twelve years after the Wagner Act had for the first time effectively protected the right of industrial workers to organize. In any case, notwithstanding the impressive gains in government employee unionism since the 1960s, the lot of unions has not been a happy one, especially after Ronald Reagan provided an example of effective strike-breaking early in his administration.
The weakening of organized labor, it is generally agreed, has contributed significantly to the decline of the middle class, especially at its lower income levels. That was reinforced by the mass exodus of industries, first to the South, where unions were weak or absent, and then to low-wage countries in our own hemisphere and eventually also in Asia, where instances of actual slave labor have been discovered. What remains is an anomalous mixture. On the one hand, there is a well-paid elite made up of persons at the higher managerial levels, certain professions, and the outrageously overpaid entertainment figures including those in the media and in professional sports. There are also the parasitical types who actually produce little of value-the raiders and takeover artists. They devote their considerable energies to seizing industries already in place to add them to their conglomerations, to fatten their profits, and sometimes even just to titillate their economic megalomania. In the process they often displace thousands of workers. Not infrequently such actions devastate entire communities which depended heavily on some factory which the wheelers and dealers decided to wipe off the "chessboard" like pawns in the takeover game.
Now we have a growing class of people who must combine two or more incomes to survive, including the vast numbers of minimum wage workers who staff our fast food industry and the redundant shoe stores and dress shops in our shopping plazas. Even those who are "lucky" enough to earn a paltry seven or eight dollars an hour cannot begin to support "comfortably" a worker and his wife and children, as Pope Leo XIII described the function of the just wage more than a century ago! Ironically, the growing numbers of underpaid, underemployed, or unemployed are once again looking invidiously on certain categories of workers who were looked upon a few years back as underpaid and unenviable, like teachers, policemen, and other civil servants. That is frighteningly reminiscent of the Depression of the '30s when such persons were regarded as among the fortunate because, as the saying went, "They have their steady paycheck."
The mal-distribution of income apparent in the statistics published by our own government agencies demonstrates the point I made in a previous article in <Fidelity>.
The <solidarity> implicit elsewhere in economic life, as in the production process, is put to its severest test in the income distribution process. When it comes to dividing up the proceeds of what people have cooperated to produce and to sell, the pig philosophy inserts itself. Unless it is kept under control, a pig economy results! That is where the top 20 percent of income earners grab more of the national income than is left for the bottom 60 percent!
In any case, whatever one may think about the income and wealth distribution studies that are now gaining some attention, they should not be shrugged off as the work of "Marxist cranks." No one who has recently gone through the experience of the Reagan-Bush failed promise to do the impossible by "voodoo economics," should be inclined to fall for yet another pitch by still other "snake oil salesmen." Whether one likes Clinton or not, he drew attention at a recent press conference to a glaring fact of American economic life. The interest on the amount added to our national debt since 1980 is by itself equal to our present annual $200 billion plus budget deficits.
The tax cut by John F. Kennedy in the early '60s, which inspired the Laffer-Kemp-Reagan policies, was in order and probably overdue. It finally made an end to the very high rates imposed during the Roosevelt administration to help finance World War II.
(The top rate actually reached 94 percent briefly in 1944.) Except for those high rates, of course, the inflation occasioned by the pressures of wartime finance and by the shortages of consumer goods during and immediately after the War would have far been worse than it was. Furthermore, the steeply progressive tax rates amounted to a conscription of wealth at a time when young and able-bodied men were conscripted to put their lives on the line for the rest of the nation. They were compensatory rather than confiscatory.
On the other hand, the tax cuts by the Reagan administration, especially the second one in 1986, were unnecessary and unwise, especially in view of the announced intention of intensifying Cold War spending. The Kennedy tax cut brought the top rate on personal income tax down to 70 percent by 1964. The first of Reagan's tax measures, the Economic Recovery Tax Act of 1981, cut the top rate down to 50 percent, along with significant reductions in the corporate and capital gains tax rates. The second deficit-defying tax measure passed in 1986 brought the top rate down to 28 percent. Such fiscal folly led to the historically unprecedented increase in the national debt which now approaches $5 trillion, along with further distortion in our already bad income distribution pattern in favor of the well-to-do. At the country clubs and among the forests of masts that one sees at marinas along our coastlines there is little real suffering caused by taxation. The pain is largely symbolic. As usual, it is the poorer sectors of the population which do the real suffering.
If we keep compounding the annual deficits to where the mounting interest alone begins feeding on itself so as to make continuing deficits inevitable, we are heading for economic catastrophe. I have not yet heard anyone, including the demagogues who are again advocating tax cuts, seriously propose any way to come to grips with our staggering national debt which is so large that realistically there are even now only two ways left in which we can rid ourselves of it. One is simple repudiation. That implies breach of contract on a massive scale, along with the attendant destruction for a long time to come of our national credit. Nations, like Russia after the overthrow of the Czars, have done this. The other way is to simply print money to pay off the debt, as Germany did to deal with the impossible situation facing it after WWI. That avoids the legal formalism of breach of contract but, in effect, it amounts to the same thing. The vast amounts of new money cranked out to pay a debt that is so large, would in short order render the outstanding money supply as well as savings, debt contracts, etc., worthless because of the skyrocketing prices which accompany runaway inflation. In effect, therefore, such inflation amounts to a gigantic tax, with scant deference to the subtleties of distributive justice. The pious ongoing proposals for a balanced budget amendment is pure demagogic fluff, and cannot be taken seriously. That is especially so because the same politicians who promote it are at the same time proposing tax cuts for the wealthy! Nero could have taken violin lessons from these geniuses!
I have long been a firm believer that the great teaching popes of the Catholic Church over the past century are the prophets of our time. For example, I marvel at the prophetic vision of Leo XIII's statement that the separation of church and state (widely confused with religious freedom) is a "fatal theory" when I ponder the gigantic ongoing abortion holocaust. Now, faced with the imminent collapse of our own economic system, I reflect on the vision of Paul VI expressed in his encyclical <Populorum Progressio>. In it he made an urgent appeal to the rich nations to help the poor nations reach the level of economic development which the blessings of modern technology make possible, instead of squandering their wealth on costly armaments and wasteful extravagance. The pope called that "solidarity in action at this turning point in human history." (PP # 1) Halfway through he begged "that those in authority listened to Our words before it is too late!" (PP #53) And he ended his Cassandra-cry with the appeal: "We ask you, all of you, to heed Our cry of anguish, in the name of the Lord." (PP #87)
More than a quarter century has gone by, and the urgent plea went largely unheeded.
Instead, the <Wall Street Journal> denounced <Populorum Progressio> editorially as "warmed over Marxism." Small wonder. This was a call to remedy the mal-distribution of income among nations on a world-wide scale. And the world had not then, nor has it now, caught up with the prophetic warnings against the mal-distribution of income within national economies by Leo XIII and Pius XI. It should be painfully clear by now that neither a national economy internally, nor the economy of our world grown small since World War II, can prosper in the face of rampant injustice. Whether it is recognized or not, <solidarity>, i.e. interdependence, is a fact of life within a national economy and also among nations. Recognizing that and acting accordingly is what the <virtue> of solidarity is all about.
Percentage of Income Received by Each Fifth and the Top 5% U. S. Families
Taken from the October 1995 issue of "Fidelity" Magazine, 206
Marquette Avenue, South Bend, IN 46617.
Provided Courtesy of: