By RICHARD KAMEI
(First published in The Rafu Shimpo on Sept. 13, 2011.)
On Aug. 14, 2011, The New York Times published an op-ed piece written by Warren Buffett titled “Stop Coddling the Super-Rich.” In the article, he provides logical reasons as to why we need to raise taxes on the super-rich.
I have no problem with this particular view. In fact, I believe that it is a necessary but partial solution to ease some of the pain and suffering various sectors of our society are currently experiencing. My concern, however, is that it may be seen as “the solution” instead of carefully examining the fundamental causes of our current economic crisis and working toward more substantive long-term solutions.
It is important to keep in mind that Warren Buffett has been able to enrich himself within a system that has created great levels of inequality. In the United States, the top 1 percent owns approximately 40 percent of all wealth and the top 10 percent (which includes the top 1 percent) owns nearly 70 percent of all wealth, which translates to the top 1 percent owning more wealth than the entire bottom 90 percent.
Therefore, some may perceive Buffett’s plan for a partial solution of a systemic problem as ultimately serving his interests — that is, the preservation of a system with inherent contradictions and limitations that created our current economic (and environmental) crisis. Although only Buffett knows his true motives, which may indeed be altruistic, we must not be distracted from taking a more systematic approach to understanding and solving our current crisis.
In order for capitalism to survive, it must constantly grow. The capitalists must extract surplus value and continually reinvest it. Of course, this situation has built-in contradictions and limitations. For the purpose of this essay, I will be brief and only cover a few areas. The fundamental ways by which capitalists gain profits is by the exploitation of labor, appropriation of natural resources, and the application of technology. Here, I will only deal with the exploitation of labor.
The lower wages in relation to the cost of living that we began to see in the United States starting in the 1970s created a potential crisis in overproduction. To deal with this crisis, various methods were applied to ensure at least a minimal level of spending by consumers. One method was to create a credit-industrial complex so that people could borrow the money and pay it back later with interest often at ridiculously high rates. The housing bubble and other speculative bubbles also tie into this strategy. An excellent book on the topic is “The Great Financial Crisis: Causes and Consequences” by John Bellamy Foster and Fred Magdoff (2009).
Foster and Magdoff (2009) explain that by the 1980s there were limited opportunities to invest in the real economy/real production. Therefore, new opportunities and financial instruments had to be created to absorb the surplus value and to allow for continued growth. We are now all too familiar with financial instruments such as collateral debt obligations and credit default swaps. The capitalist class used their connections and money to influence legislation in order to ensure maximum profitability.
The following deregulatory acts were passed: The Garn-St. Germain Depository Institutions Act of 1982 (which deregulated the savings and loan industry and allowed for adjustable rate mortgage loans); the Financial Services Modernization Act of 1999 (which replaced the Glass Steagall Act of 1933 and allowed for an institution to serve as a combination commercial bank, investment bank, and insurance company); and the Commodity Futures Modernization Act of 2000 (which, in the words of Robert Scheer in his book “The Great American Stickup,” guaranteed “not only the legality of the new conglomerates but also the dubious financial products that were at the center of their anticipated profit”).
The changes brought on by deregulation made massive default on the loans inevitable because the lenders were no longer concerned about the borrower’s ability to pay back the loans since the loans were bundled into mortgage backed securities and sold to investors.
When the defaults began, corporations like Goldman Sachs went to AIG who, by the way, also made large profits by insuring the risky investments through what is called credit default swaps. Unfortunately, AIG did not have the money to pay the corporations so the government stepped in to bail out the well-connected companies at full value for their monumental mistakes, while middle-class and working-class Americans paid and continue to pay the heavy cost.
In conclusion, I still agree with Buffett that our government needs to “stop coddling the super-rich.” However, we must not lose sight of the long-term goal to raise awareness of the root of the problem, as opposed to only addressing the branches and the leaves, so that we can work together democratically to create a more humane and sustainable system.
Richard T. Kamei is an assistant professor of sociology at Glendale Community College. The opinions expressed are not necessarily those of The Rafu Shimpo.