“America will never be a socialist country,” Donald Trump declared in his State of the Union address. Someone should alert Trump that America is now a hotbed of socialism. But it is socialism for the rich. Everyone else is treated to harsh capitalism.
In the conservative mind, socialism means getting something for doing nothing. That pretty much describes the $21 billion saved by the nation’s largest banks last year thanks to Trump’s tax cuts, some of which went into massive bonuses for bank executives. On the other hand, more than 4,000 lower-level bank employees got a big dose of harsh capitalism. They lost their jobs.
Banks that are too big to fail—courtesy of the 2008 bank bailout—enjoy a hidden subsidy of some $83 billion a year, because creditors facing less risk accept lower interest on deposits and loans. Last year, Wall Street’s bonus pool was $31.4 billion. Take away the hidden subsidy and the bonus pool disappears.
Trump and his appointees at the Federal Reserve are easing bank requirements put in place after the bailout. They’ll make sure the biggest banks remain too big to fail.
Trump is promoting socialism for the rich and harsh capitalism for everyone else in other ways. Since he was elected, GM has got more than $600 million in federal contracts plus $500 million in tax breaks. Some of this has gone into the pockets of GM executives. Chairman and CEO Mary Barra raked in almost $22 million in total compensation in 2017 alone.
But GM employees are subject to harsh capitalism. GM is planning to lay off more than 14,000 workers and close three assembly plants and two component factories in North America by the end of 2019.
When he was in business, Trump perfected the art of using bankruptcy to shield himself from the consequences of bad decisions—socialism for the rich at its worst—while leaving employees twisting in the wind.
Now, all over America, executives who run their companies into the ground are getting gold-plated exit packages while their workers get pink slips.
Sears is doling out $25 million to the executives who stripped its remaining assets and drove it into bankruptcy, but it has no money for the thousands of workers it laid off.
As Pacific Gas and Electric hurtles toward bankruptcy, the person who was in charge when the deadly infernos roared through Northern California last year (caused in part by PG&E’s faulty equipment) has departed with a cash severance package of $2.5 million. The PG&E executive in charge of gas operations when records were allegedly falsified left in 2018 with $6.9 million.
Under socialism for the rich, you can screw up big time and still reap big rewards. Equifax’s Richard Smith retired in 2017 with an $18 million pension in the wake of a security breach that exposed the personal information of 145 million consumers to hackers.
Wells Fargo’s Carrie Tolstedt departed with a $125 million exit package after being in charge of the unit that opened more than 2 million unauthorized customer accounts.
Around 60 percent of America’s wealth is now inherited. Many of today’s super rich have never done a day’s work in their lives.
Trump’s response has been to cut the estate tax to apply only to estates valued at over $22 million per couple. Senate Majority Leader Mitch McConnell is now proposing that the estate tax be repealed altogether.
What about the capitalist principles that people earn what they’re worth in the market, and that economic gains should go to those who deserve them?
America is on the cusp of the largest inter-generational wealth transfer in history. As rich boomers expire over the next three decades, an estimated $30 trillion will go to their children.
Those children will be able to live off of the income these assets generate, and then leave the bulk of them to their own heirs, tax-free. (Capital gains taxes don’t apply to the soaring values of stocks, bonds, mansions and other assets of wealthy people who die before they’re sold.)
After a few generations of this, almost all of the nation’s wealth will be in the hands of a few thousand non-working families.
To the conservative mind, the specter of socialism conjures up a society in which no one is held accountable, and no one has to work for what they receive. Yet that’s exactly the society Trump and the Republicans are promoting for the rich.
Meanwhile, most Americans are subject to an increasingly harsh and arbitrary capitalism in which they’re working harder but getting nowhere, and have less security than ever.
They need thicker safety nets and deserve a bigger piece of the economic pie. If you want to call this socialism, fine. I call it fair.
Robert B. Reich is Chancellor’s Professor of Public Policy at the University of California at Berkeley and Senior Fellow at the Blum Center for Developing Economies. He served in the administrations of Presidents Gerald Ford, Jimmy Carter, and Bill Clinton. He was Secretary of Labor from 1993 to 1997. He was a member of President-elect Barack Obama’s economic transition advisory board.
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