The Fine Print: How Big Companies Use "Plain English" to Rob You Blind (41 page)

Contrast this with the economics of Adam Smith, who recognized that competitive markets, and the signals they send about price, are at the heart of economic improvement. Smith saw competition as the great enforcer that harnessed the human desire to improve one’s lot for the good of the whole society. And both he and his successor in the next great generation, Jeremy Bentham, argued for policies that benefit the majority, not the politically connected few.

If trickle-down is such a great philosophy, how do we explain the fact that after spending more than 40 percent of all the money in the world devoted to health care, we rank thirty-seventh in the quality of our health care and we still have roughly 50 million people without health insurance? In 1981, when Ronald Reagan took the oath of office, per capita health-care costs equaled 23 percent of the average salary of the bottom 90 percent of Americans. By 2007 it had risen to 49 percent with all signs pointing to a growing share of the economy going to big, inefficient but stunningly profitable health companies.

How is it that the United States ranks forty-seventh out of 224 countries in infant mortality, doing far worse than Canada, Japan, the European Union and even Cuba? Why are we forty-seventh in life expectancy at birth, according to the CIA, behind Japan, most of Western Europe and even Jordan?

Why are we forty-sixth in the world in the share of our economy spent on public education?

Why is it that forty years ago we were the greatest creditor nation in the world and now we are the biggest debtor nation?

Why is our current account deficit, measuring how much more we import than export, so large that in 2009 we ranked dead last among 190 countries? Our $378 billion shortfall is the equivalent of taking $5,000 a year from every American family of four and sending it overseas. This shortfall was greater than the combined current account deficits of Australia, Brazil, Canada, France, India, Italy, Spain and the United Kingdom.

At the other end, the top three current account surpluses were in China ($297 billion), where our manufacturing base has moved; Germany ($168 billion), which uses a competitive market philosophy to keep its economy both robust and fair; and Japan ($142 billion).

That we rank from middling to dead last among nations by so many measures represents poor choices, especially letting big business damage and destroy competition, escape tax burdens and push down wages.

RESTORE INTEGRITY

Our challenge is to restore rules and infuse our business culture with respect for integrity. Honesty benefits not just customers, but honest businesspeople who understand the real costs they must bear and are willing to do so. But when government makes it possible for some employers to avoid paying promised wages and to ignore environmental, safety and other rules, then the bad practices of the greedy few become the norm.

The typical problem is abuse of power while pursuing profit. The world isn’t black and white, but our policies should aim for the lightest possible shades of gray. We have far too many executives who destroy shareholder wealth and shortchange hardworking subordinates while enriching themselves beyond reason. We have too few effective remedies for victims of abusive pricing, as we saw in the story of Barbara Keeton, her overpriced car and the threats by Wells Fargo to take away her home. We have too many big business structures that strip resources from utilities, making them more costly, less reliable and sometimes downright dangerous. And we should never have a hands-off “make your numbers” management ethos like Warren Buffett’s that prompts people far down below to ask Bob Manning or anyone else to die.

The concepts we need to reintroduce into our culture to avoid sinking into an unprincipled pit—in which all that matters is money—can be summed up simply.

We need companies (and executives) who are candid. Fair. Forthright. Honest. Loyal. Prudent. Reasonable. Transparent. Reliable. Responsible.

We need to acknowledge that rules define society. When the absence of rules allows businesses to lower their standards toward the lowest common denominator, then, in time, that is what we will get. Accounting rules that lack integrity may produce short-term gains, but the whole market will gravitate toward these bad practices—as it has done.

Under the banner of deregulation, many of the rules that protected customers against abusive practices, from price gouging to unreliable service, have been swept away. The idea that profits should bear some relationship to costs is under attack. So is access to justice, as we saw with the arbitration system. We need to reverse those trends.

In the world today, those who abuse markets get rich off their abuse and taxpayers are forced to correct the egregious errors and thefts that are enabled by unregulated securities, unregulated lending, unregulated
insurance and unregulated derivatives. In all of these financial abuses and crimes it is fat fees that drive the deals, not noble stewardship of other people’s assets as a banker, broker or executive.

Time-tested regulation of banks, securities firms and insurance companies can prevent disasters while fostering economic growth. Honest audits can catch control frauds early.

We need to recognize that dogmas are bad for democracies. The Federal Reserve, U.S. Treasury and the major academic centers and foundations all reinforce neoclassical economics while paying little to no attention to its critics, known collectively as the heterodox economists. But it was the heterodox economists who spotted the high-tech and housing bubbles and warned of their dangers; they warned about control frauds and derivatives gone wild and numerous other problems. The neoclassical economists failed to issue warnings and, after the fact, insist that no one could have seen these disasters coming.

Our economic dogma, our campaign finance rules and our failure to recognize the need for sound economic policies are leading us away from prosperity and into a poorer future. We need to make smarter choices based on more diverse thinking. We need policies that recognize the natural human tendencies to abuse power and to covet riches at the expense of millions of others. If we choose to, we can improve our lives, our economy and our future. We can have a robust economy in which there is plenty of work and in which everyone who wants to work can; and those who work hard and handle their money prudently will live long and prosper.

If you doubt we can climb out of our deep hole, consider the end of World War II. In August 1945 Berlin lay in ruins, the work of generations lost in the mechanized horror of a war brought on by an evil regime, one in the thrall of both genetic “purity” and corporate power. Bombs had reduced Berlin and Munich and Frankfurt and other political and industrial centers to ruins. Dresden was literally burned to a crisp. Yet within a generation the Germans were prospering. Today, just sixty-six years later, their society is by many measures doing better than ours. The average German works fewer hours for more pay, runs no risk of financial ruin because of ill health and has a guaranteed base income, while the country exports far more than it imports.

The Germans achieved this by adopting economic policies that focus on competitive markets in which the government sets, and enforces, rules to keep competition vibrant. They also gave unions a real voice at the bargaining table, including a significant minority of seats on the boards of big companies.

Visit Germany and look around. That society is by no means ideal, especially in the East, where the ravages of communism still mar the physical world as well as people’s souls. But in the western parts of Germany, you will not see rusty old bridges, potholed roads, and train stations where water pours down inside the building because the roof leaks, as exist everywhere in America. The trains are clean, fast, reliable and ubiquitous, just like the trains in the Netherlands, France and Italy.

Explosions of steam tunnels (like the 2007 blast in midtown Manhattan that killed one person) and bursting water mains that wash away roads, a common event in America, are virtually unheard of in Germany. The cars on the roads are overwhelmingly shiny and sound, unlike the “beater” cars seen everyday everywhere in America, rusted hulks running on nearly bald tires and listing to one side. While 15 million Americans live in trailers and the euphemistically named “manufactured housing,” in Germany hardly anyone lives in trailers.

So how did the Germans achieve this? The Germans call their economic system “ordoliberalism.”

This German philosophy is a market theory of competitive economics that recognizes the need to limit power and the abuses that go with it.
Ordo
comes from a Latin word meaning “inner order” (as opposed to the idea of external control).

As explained by one of its critics, ordoliberalism has “passionately affirmed competitive free markets, it was motivated from the historical observation that concentrations of power in both public and private spheres distorted functioning exchange economies. Thus, the long-term viability of free markets required a rule-bound and limited yet powerful form of government intervention.”

The need for rules that ensure real competition has become an alien concept in America. As we have seen, the de facto policy in America, under the twin guises of Reaganism and the Chicago School, has allowed concentrated and largely unaccountable power, with only the most cursory government refereeing. The result has been minimal competition, oligopolies everywhere, and removal of regulations that foster candor, integrity, and a reasonable connection between cost and price.

24.
Now that we’ve
seen that big businesses artificially inflate prices, limit competition, cut services, sell fraudulent loans and even put your life at risk, what, finally, in practical terms, does all of this mean to you and me?

Perhaps you don’t use a telephone or the Internet, subscribe to cable television or power any of these electronic offerings with electricity generated by burning coal. Maybe you use neither natural gas to heat your home nor gasoline to fuel your car, so the fictitious taxes collected by pipeline companies do not take anything from your pocket. Maybe you even mulch your own garbage so the trash haulers do not gouge your wallet. If you are utterly healthy, you may not require any drugs. Maybe you have found a way to support yourself with a job independent of any corporation.

Even so, sad to say, company policies and government rules that enable price gouging still cost you.

Everyone pays for a rigged economy, in myriad ways, as it extracts money from the many and concentrates it in the hands of the few. In doing so, it squanders opportunities, wastes valuable skills, costs more in taxes and adds risks. It also helps our economic competitors by making us less efficient. Just as poor health damages the quality of life, a weakened economy damages the quality of life for all, including even the few gorging on the stolen fruit of the nation’s economic output.

The man on the street must deal with the availability of fewer jobs. You may be losing chances to tap your talents and abilities. You will earn less money than you would in a robust and competitive economy, where workers can bargain together for their pay without government giving companies subsidies to move jobs offshore. Every big merger hurts you as well, by destroying jobs, reducing competition and concentrating economic gains.

In a rigged economy, you may be tricked into thinking you are paying less in taxes, when in reality you just pay privately, typically at higher prices, for what your taxes used to cover (as we have seen with garbage collection and health care). Add your taxes and higher personal spending, and your actual burdens are heavier than those of people in other modern countries who make less and pay higher taxes, but use the wholesale buying power of government to hold down costs.

Under the false premise that tax cuts pay for themselves, when the actual numbers show they have not, government borrowing increases at every level. This means that more and more of your taxes get diverted from services to paying interest on our growing national debt.

The official numbers showing how the fruits of the American economy are being harvested and distributed got little coverage three decades ago. As the differences between the vast majority and those at the top have widened into a huge chasm, more of this news is now being reported. Still, few Americans realize that the best-off 3 million Americans make about the same amount of money as all 150 million at the bottom. Hardly anyone knows that in 2010, the year after the Great Recession ended, in a nation of 312 million people just 15,600 households enjoyed 37 percent of all the income gains.

The data on the damage being done to the vast majority to benefit the political-donor class is extensive. Let’s start with jobs.

JOBS, JOBS, JOBS

According to the U.S. Census and the Bureau of Labor Statistics reports, the population has grown about three times faster than jobs since the year 2000. The eight years of the Bush administration resulted in fewer than 3.6 million new private-sector jobs, fewer than when Eisenhower was president and the population was much smaller. This compares with 21 million jobs—six times more—created during the Clinton administration. The twenty combined years of the Reagan and two Bush administrations produced fewer new jobs than the eight Clinton years (19.4 million private-sector jobs under Reagan and the Bushes, 1.7 million fewer than under Clinton).