Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if Labor had not first existed. Labor is superior to capital, and deserves much the higher consideration. -Abraham Lincoln
Believe it or not, we used to share Lincoln's belief in the value of labor. In fact, Labor Day began in 1882 to honor those "who from rude nature have delved and carved all the grandeur we behold."
Oh have we ditched that commonsense notion! Today, we worship wealth while labor is just another "input," a way to maximize production and profit. We even have a theory of global "comparative advantage," which holds that we're better off if that "input" is in some faraway nation where wages are low and we don't have to see the factories that are poisoning workers and the environment.
We have so devalued labor that we hardly notice when millions of people lose their jobs. If you take a close look at government reports, you'll see that 29,732,000 of our fellow Americans are unemployed and underemployed, giving us a real unemployment rate 18.55 percent.
But not to worry, we are told. Labor doesn't really matter anymore in the grand scheme of things. What matters is wealth, especially Wall Street wealth.
Lincoln thought labor created wealth. Now we think Wall Street creates value and wealth by moving money around, by buying and selling money instruments, and by passively investing accumulated wealth.
Take the Madoff scandal. Investors honestly believed they were entitled to double-digit returns every month, without fail, for doing absolutely nothing. They became easy prey to a swindler. All Madoff did was build on what he saw happening on Wall Street: Investors were flocking to fantasy finance instruments like synthetic CDOs that had almost no connection to any real assets. Madoff took it one step further: Instead of giving his gullible investors financial instruments that were almost worthless, he gave them nothing at all. And he got away with it because everyone wanted to believe in the magic of wealth creation.
We began building our sandcastles in the sky in the 1970s, when economists and policy-makers fell in love with the idea of deregulated markets. Organized labor was a constraint. Taxes on the wealthy were a constraint. Regulations on finance were a constraint. The answer was so simple: eliminate the constraints and unfetter the markets. This would bring new efficiency and new wealth to our economy. All boats would rise. Instead, it marked the end of labor as Lincoln knew it.
We weren't paying much attention as real wages for the average worker declined over the next three decades. We were too enthralled by our orgy of fantasy finance. So much money gushed to the top of the income ladder that the wealthy literally ran out of real world investments. Deregulated Wall Street "financial engineers" solved this problem by creating new derivative financial products for people to invest in. Bubbles inflated everywhere. Tangible assets didn't matter anymore, since it turned out we could make money from money, indefinitely and without any serious real world constraints. (Forgive me again for leading you to The Looting of America, which recounts this whole outrageous story.)
Not only did our free-market fetish destabilize the economy, but it saddled us with an aristocracy of wealth and waste that now blocks us from solving our problems. The wealthy are determined to hold onto their fictional profit-making activities and astronomical salaries -- even if it means forcing the rest of us to bail them out again with trillions of dollars in subsidies and toxic asset guarantees. With wealth they can buy the political process. But they also can shape our minds. They want us to believe that they are the natural rulers of our universe and that we are powerless to change it.
Our free-market love-affair also broke the bonds that connected the top and the bottom of our society. The wealthy have no clue what it's like to live like most Americans do each day. A few statistics tell it all:
• In 1970 the ratio of compensation between the top 100 CEOs and the average worker was 45 to 1. By 2006 it was a whopping 1,723 to one.
• By 2007 there were about 400,000 tax payers with adjustable gross incomes over $1 million. They had about as much income as the bottom 67 million tax returns! That's the worst distribution of wealth since 1928 - no coincidence there.
• Today the top 400 billionaires have enough wealth (more than $1.56 trillion combined) to endow all of our public colleges and universities so that tuition would be free... forever.
Unfortunately, we seem to have learned very little since it all came tumbling down just about a year ago. We had a golden opportunity to slap taxes and fees on unproductive Wall Street speculation. We could have instituted real salary caps on an industry that we've bailed out from top to bottom. We could have shut down the fantasy finance casinos. All of this was possible because the financial sector had collapsed, right before our eyes -- along with the entire free market theory of finance. But what did we do instead? We lavished them with trillions of dollars in cash, no interest loans and asset guarantees...and got nearly nothing in return.
This Labor Day is a happy one for the super rich and Wall Street firms enjoying renewed profits and bonuses. They know they will not face a populist revolt. They can sit back and collect the money, while 30 million unemployed and underemployed people struggle to get by. They'll continue to get away with it as long as we believe that it's OK to get double-digit returns by gambling with taxpayer-secured money.
How long are we going to keep believing that someone like Andrew J. Hall, an oil speculator, is entitled to $100 million from a bank that is totally on the dole (our dole)? So much for the value of real labor in the real economy.
How long are we going to allow Wall Street to make up new casino games that not only are utterly and completely insane but also add nothing at all to society? (For the latest, see "Wall Street Pursues Profits in Bundles of Life Insurance" -- about new securities that bet on us dying -- the sooner, the better.
But, I'm not ready yet to go from Labor Day to Wall Street Day. I fear that our economy will collapse again -- maybe soon -- if we don't find ways to employ our people productively. In fact, I'm fairly certain that no nation can survive for long if it fails to find sufficient work for its own. Maybe you'll make it to retirement without too much suffering. But there will be hell to pay for our kids if we don't tackle our obscene distribution of wealth.
So Happy Labor Day! Maybe this year we can gain a little of Lincoln's respect for the worth of his fellow citizens. It's a good time to take a moment to value our brothers and sisters who do all the things that need doing every day. And maybe we'll even begin to see that there's something wrong with accumulating wealth by doing nothing productive at all.... and believe once again that we can do something about it.
Les Leopold is the author of The Looting of America: How Wall Street's Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It, Chelsea Green Publishing, June 2009.