Quite a few readers excitedly sent a link to a Bloomberg editorial, “Why Should Taxpayers Give Big Banks $83 Billion a Year?” which summarizes a study by Kenichi Ueda of the International Monetary Fund and Beatrice Weder di Mauro of the University of Mainz that the editors used to extrapolate that the five biggest US banks are “barely profitable” if they weren’t able to borrow at artificially cheap rates thanks to the market perception that they are too big too fail.And they are hardly unique - it seems to me like there is hardly any area of the economy at all which is not ultimately supported though the government in some way. Consider:
We know that passenger airlines are a permanent money sink, as this post shows. In fact, statistics show that over the lifetime of the airline industry, their net profit has been negative, yet despite the fact that we need air travel, we still operate these in the private sector, just with endless bailouts.
In January 2009, the Federal government used $24.9 billion of the $700 billion bank bailout fund to rescue two of the Big 3 :
•$17.4 billion for General Motors and Chrysler.
•$6 billion for GMAC.
•$1.5 billion for Chrysler Financial
That wasn’t the first, or only, time this happened – Chrysler was bailed out by the federal government in 1979. In addition, Harley-Davidson was bailed out to the tune of several billion dollars, along with other “private sector” companies:
According to a new disclosure by the Federal Reserve, Harley-Davidson was given a previously secret $2.3 billion bailout during the fall of 2008 and winter of 2009. We’ve previously reported that Harley borrowed nearly $1 billion in emergency operating capital from Warren Buffett at 15 percent interest during the same period and has since upped that amount to nearly $2 billion from other lenders. The disclosure of this emergency aid by the Fed gives a new indication as to just how close Harley was to the brink during the darkest days of the financial crisis and a new indication of how much American taxpayers spent to keep it open.http://hellforleathermagazine.com/2010/12/harley%E2%80%99s-secret-2-3-billion-taxpayer-bailout/
The bailout provided to Harley is just a drop in the bucket of $9 trillion total emergency aid just disclosed by the fed, other recipients include everyone from the usual Wall Street suspects to McDonald’s, foreign banks and even the South Korean government.
And, of course, cars are massively subsidized by roads, freeways, regulations and licensing, gasoline subsidies, etc.
The massive raft of farm subsidies is now legendary. Entire Web sites are devoted to this boondoggle, but one thing to note is that during the “fiscal cliff” nonsense earlier this year, there was talk of milk prices spiking to around 7 dollars a gallon without the subsidies:
WASHINGTON — Forget the fiscal crisis and the automatic budget cuts. Come Jan. 1, there is a threat that milk prices could rise to $6 to $8 a gallon if Congress does not pass a new farm bill that amends farm policy dating back to the Truman presidency.
The government sets a minimum price for milk to cover dairy farmers’ production costs. Lost in the political standoff between the Obama administration and Congressional Republicans over the budget is a virtually forgotten impasse over a farm bill that covers billions of dollars in agriculture programs. Without last-minute Congressional action, the government would have to follow an antiquated 1949 farm law that would force Washington to buy milk at wildly inflated prices, creating higher prices in the dairy case. Milk now costs an average of $3.65 a gallon.And that's just the tip of the iceberg:
Since 2008 farmers have received annual subsidies of approximately $17.3 billion to support commodities such as wheat, corn, grain sorghum, barley, oats, upland cotton, long-grain rice, medium-grain rice, soybeans, peanuts, and other oilseeds, and cheddar cheese, butter, and nonfat dry milk. In 2008, $4.2 billion went to subsidizing corn alone - the one vegetable on that list, which, according to Michael Pollan, doesn’t even make it to our table on a cob. Among its primary uses are producing rapidly fattening cows and ethanol, both multi-billion dollar industries.Certainly the health care and college “industries” are propped up by government loans, subsidies and transfers, and those fields are what we’re counting on to “create jobs”. In fact, health care is the only field which has created jobs during the past decade. How many people could afford the extortionate prices of health care without government help, especially since typically those who need the most healthcare are those with the least ability to pay for it (unlike any other ‘free market’ product)? How many people could pay the extortionate prices for their county-club university/sports leagues without loans?
We’ve already discussed all the subsidies which keep the energy industry profitable. And much of the country, especially in small towns and rural areas, is employed due to the military-industrial complex and government jobs, which are obviously taxpayer-supported. And government subsidizes the poverty wages paid by giants like Wal-Mart:
California taxpayers are spending $86 million a year providing healthcare and other public assistance to the state’s 44,000 Wal-Mart employees, according to a new study by UC Berkeley’s Institute for Industrial Relations.
The study, “Hidden Cost of Wal-Mart Jobs,” found that the average Wal-Mart worker required $730 in taxpayer-funded healthcare and $1,222 in other forms of assistance, such as food stamps and subsidized housing, to get by.
Even compared to other retailers, Wal-Mart imposes an especially large burden on taxpayers. Wal-Mart workers earn 31 percent less than the average for workers at large retail companies (more than 1,000 employees), the study found, and require 39 percent more in public assistance.
It seems like nearly every operation of capitalism is subsidized in some way, or else it would fail. Can we really be said to be operating in a "capitalist" economy at all? Despite all this fear of socialism and widespread hatred of the government, isn’t government money the only thing keeping “capitalism” afloat? Are we not really already a socialist economy right now? How many CEO’s who are made rich by this system are going to want to dismantle it, despite their constant refrain that “government is the problem, not the solution?” It seems like that’s really just pablum for the masses, whereas these guys are plenty OK with pulling the levers to get enough government largesse to keep their "private" businesses going, while at the same time manipulating the government to give them ever more tax breaks to "create jobs."
Of course the free market libertarians insist all our problems will be solved if we just eliminate all government meddling in the economy and let the invisible hand sort it all out. But didn’t all of these backstops and subsidies get created precisely because the free market failed in the first place? Weren’t farmers pouring milk into sewers because they couldn’t get a decent price for it in the days before subsidies? Weren’t family farms going bust left and right during the depression? Weren’t there bank runs and stock market crashes under “free market” principles? Didn’t the banks and airlines fail due to deregulation, not overregulation? Why would the free market fix any of this? Isn’t that more faith than reality? If anything, the “free market” is even more unstable and prone to booms, busts, panics, crashes and, failures than the jerry-rigged government-hybrid Frankenstein's monster.
In reality, if we listen to their mad fantasies, we would be headed toward a complete and total collapse of the economy. By collapse, I mean wrath of God type stuff; cats and dogs living together, mass hysteria. Is that really what these guys want? If banking, automobile and motorcycle manufacturing, the military, public schools, the energy industry, agribusiness, health care, and universities all went bust, what are people going to do for work? Will the “free market” fix all of this? We’re already in an unemployment crisis under the status quo. Are there enough jobs at Google and Facebook for all of us? Would people simply accept over 50 percent unemployment while "the rot is purged from the system" over a few decades or so? Will they passively accept 8 dollar milk? And “resilient local economies” isn’t much of a solution either. Are there enough local jobs to absorb the millions of people currently working for these industries as they fail? The notion, so common in Peak Oil circles, that we’ll all get jobs laboring on farms when the hospitals close, the automakers and airlines go under and the banks fail, is ridiculous.
Can’t we really say that capitalism cannot function without the government? That’s why I always say that capitalism is the single largest government project in the history of the world. Maybe it’s not socialism that’s failing. Maybe socialism is the only workable system. Perhaps we shouldn’t go running to the free market to save us, we should just accept the system as it is and take it to its logical conclusion. The problem isn’t that these things are propped up by government money (where else does money come from, after all), the problem is that they take all this money while giving nothing back. The one-percent beneficiaries get ever richer while hoarding money, awarding themselves huge bonuses, firing staff in the name of efficiency, paying subsistence wages, dodging taxes, distributing propaganda, running up the costs of basic items, and inveighing against any social welfare program for people besides themselves. They take advantage of every public amenity (including the military, police, transportation, and government-sponsored research) while giving nothing in return, making taxation simply a from of wealth transfer from all of us to the wealth class, instead of the price paid for a civilized society. Taxation has become a form of tribute to our "job creator" aristocracy. It’s socialism all right, but in reverse.
The problem isn’t government money – it’s clinging to these free market myths that are simply fairy tales spun by the one percent. Since “we” are subsidizing all of these companies, maybe “we” should have a say in how they are run and who get the dividends. The “free market” is just a self-serving myth and always has been.
This may be a naïve question, but if government can only spend what it takes in in taxes from the private sector, as conservatives never tire of asserting, what does it mean that half our industries are only alive and profitable due to government spending in the first place? And if every major industry is only profitable with subsidies, where is the money coming from? The truth is, they need government, and they know it. They’re just terrified that we may actually take back control of it. Printing money has always been OK for them, and has been for decades, just not for us. For us there's "austerity."
Here’s a good article that makes the same point. I advise you to read it in full:
But if the poor are dependent on the state, so, too, are America’s rich. The extraordinary accumulation of wealth enjoyed by the socioeconomic elite — in 2007, the richest 1 percent of Americans accounted for about 24 percent of all income — simply wouldn’t be possible if the United States weren’t organized as it is. Just about every aspect of America’s economic and legal infrastructure — the laissez-faire governance of the markets; a convoluted tax structure that has hedge fund managers paying less than their office cleaners; the promise of state intervention when banks go belly-up; the legal protections afforded to corporations as if they were people; the enormous subsidies given to corporations (in total, about 50 percent more than social services spending); electoral funding practices that allow the wealthy to buy influence in government — allows the rich to stay rich and get richer. In primitive societies, people can accumulate only as much stuff as they can physically gather and hold on to. It’s only in “advanced” societies that the state provides the means to socioeconomic domination by a tiny minority. “The poverty of our century is unlike that of any other,” the writer John Berger said about the 20th century, though he might equally have said it of this one: “It is not, as poverty was before, the result of natural scarcity, but of a set of priorities imposed upon the rest of the world by the rich.”
The irony isn’t only that the poor are condemned for being dependent on the state while the rich are not. It’s also that the rich get so much more out of their dependence on the state than the poor. Without the support of the state, poor people’s quality of life would certainly drop, but only by degrees: their lives would go from bad to worse. Take the state’s assistance away from the rich, however, and their lives would take a serious plunge in comfort. No wonder rich people are on the whole conservative: the most ferocious defenders of the status quo are usually those who are most dependent on the system.
So, the question should not be why Americans loathe and fear dependence on the state, but rather: why do Americans loathe and fear some forms of state dependence but not others? Why is state dependence condemned when evinced by the poor, but tolerated, even unrecognized, when enjoyed by the rich? What justifies this double standard?Dependents of the State (New York Times)