Transcript: Creating a Middle Class rant, 04 December 2008

Thom explained that a middle class is necessary for a democracy, that a middle class is not a normal thing, and the ways one can be brought about.


Thom Hartmann's Creating a Middle Class rant, 04 December 2008


What you saw during particularly the latter years of the Victorian period and throughout Europe, as well, was that there was a growth in the middle class and it was in large part because Britain was brutally enforcing an industrial policy. They said to India, for example, 'it is fine for you grow cotton, you may grow cotton, please grow cotton, we need cotton to fuel the factories in the United Kingdom where we make clothing which we sell all over the world, but it is illegal for you in India to spin that cotton into cloth, into thread, to weave that thread into cloth or to make that cloth into clothing'. That's why Mahatma Gandhi's logo was a spinning wheel. It was a crime; you would go to prison if you made clothing in India when the British controlled it during the Victorian era. And that's how Great Britain got rich. And that's how many countries, many industrialized countries get rich, is by keeping their supply companies, countries, rather, the Third World countries, keeping them as nothing more than suppliers of raw materials and not, I mean, in the case of of Great Britain and India, they actually had laws that made it illegal to make clothing. The way that other countries have done it is simply using tariffs, you know, and that's how we did it.

And Friedrich List in 1848 [1841 - ed.] wrote a brilliant book on this topic, pointing out the whole idea of free trade is nonsense and he coined this phrase, 'kicking away the ladder'. And he said what a country does when it reaches the point that UK had during the Victorian era when you actually, when you're importing all these raw materials and then you're forcing those people that are selling you the raw materials to be the customers for your finished goods, in other words, they're supporting your manufacturing base, is you kick away the ladder so they can't climb the same ladder you do did. And the way you do that is by putting import tariffs on manufactured goods and export tariffs on raw materials. And that's what the UK had done. That's what we did for years. That's what Japan does, it's what China does, it's what South Korea has done, and frankly it's rational policy. Where it gets irrational is when you do it the way the UK did it that time with India, you know, enforce it as law.

Instead, enforce it as an economic policy and let every country around the world do that and then you'll have what Adam Smith talked about, which is where those countries that have a natural advantage, or as David Ricardo referred to, a comparative advantage, those countries that have a natural advantage in a particular area will prosper in that area. So, you know, in Smith's example from Wealth of Nations you've got a country that has a natural, you know, it's naturally easy to have sheep live there, that country's going to make a lot of sweaters and they're going to do well making sweaters. You've got another country where it's to grow grapes, that country's going to have a great wine industry. Yet a third country where it's easy to grow cows and make cheese, you have a good cheese industry. All three of those companies can trade with each other, you know, without a lot of tariffs and everybody gets wine, cheese and gets to sit around wearing a sweater. But if two of those three countries can make cheese, then it becomes incumbent on those two countries to start protecting their cheese industry or there's only going to be, you know, one's gonna wipe out the other. And, you know, that's kind of econ 101 and that's that's what happened during the Victorian era.

...

Okay, here's here's the deal. We have to have a middle class in the United States if we're going to have a functional democracy. This is, you look around the world. OK, we went to Iraq which, by the way, twenty years ago had a middle class, more or less, but let's not get into that debate. We went to Iraq and we bombed them basically back to the stone age. And now they don't have reliable water, they don't have reliable electricity, they don't have a functioning middle class, and we think they're going to have a functioning democracy? It ain't going to happen. You can't, I mean, look at any country in the world; you cannot have a functioning small 'd' democracy, or a republic if you want to use the Republican talking points that we should call this a republic rather than a democracy, because it sounds more like Republican. You can't have a functioning democratic republic without a functioning middle class, it's just that simple.

So how do you achieve that? Because a middle class is not a normal thing. It requires intervention in the marketplace. What is normal is for there to be a small, and going all, going 7,000 years ago for, you know, in Sumaria with Gilgamesh all the way up to today, what is normal is that there is a small, very wealthy elite, there is a small mercantile middle class and there is a large class of the working poor. That is what's normal and you can look at most of the economies around the world that are so-called free market economies, we refer to them as Third World countries, and that's what you'll see, because that's what laissez-faire capitalism, absolutely unregulated Libertarian capitalism, that's what it will always produce. It'll destroy the middle class, other than the butcher, the baker, the candlestick maker; the few folks who own their own small businesses and the family farm. That's it. And everybody else is the working poor.

So how do you build a middle class? There's only two ways. One is, you limit the supply of labor. This is what happened after the Black Death in the fourteen hundreds, and a middle class emerged because a third of Europe died off. It's a lousy way to do it, but it's what happened. It was called the Renaissance. People had time on their hands. A middle class emerged.

Another is that you massively and dramatically increase the wealth of the country. England did this with their policies relative to India that we were talking about in the last hour. Most of Europe did this by robbing, raping and pillaging North America and Central and South American, in particular all that gold that the Spanish took in the sixteenth and seventeenth centuries. And it raised the wealth level in Europe to the point where a middle class emerged and you had the second great middle class in Europe; it was called the Enlightenment. And then that middle class kind of went away.

And then the third way to make a middle class is what Franklin Roosevelt came up with, what John Maynard Keynes came up with, which is to say, the purpose of an economy is to serve the people, not the other way around. And so you have to have, it's just like a football game, you know, the purpose of a football game is to play a football game. And so you have rules; you have very specific rules and a football game is not a soccer game and it's not a baseball game. It's got its own specific rules. And so you create the rules of an economy that say, basically the first goal of this economy is to help create a middle class, so we're going to allow unionization. In fact we're going to encourage it. We're going to have a minimum wage. We're going to say to companies, 'you know, if you're not gonna pay at least a decent wage, you have no right to be doing business in our economy'. We're going to protect our domestic economy with tariffs and so-called protectionist measures to keep domestic manufacture in this country.

And we're going to stop compensating CEOs with stocks so they start thinking like, as they have been for the last 26 years, and this is what's wrong with Detroit, because they're so highly compensated with stock rather than with paychecks, they're behaving like stockholders, they're thinking what's best for the next quarter, what's best for the next six months, what's best for the next year? Well, what's best for the next year is to make great big cars that are very profitable. It's not the best thing for the company; not the best thing for the long run, but it's the best thing for the stockholders. And when you turn senior executives into stockholders, and you cause them to start thinking like stockholders, they start behaving stupid. And that's what we've seen the Big Three, among others.

So anyhow, in today's Financial Times, here, Henry Paulson's off to China and he's begging; the headline, "Paulson in last stand against weaker renminbi", ... the currency in China. China, this is an example, again, you know. China is building a middle class, actually, by protecting their domestic economy. And they're using trade legislation to do it, to a large extent. By sacrificing trade legislation what we've done is, we've said we're gonna do this instead with what's called monetary policy. We're gonna drive down the value of the dollar, drive up the value of other currencies and therefore it'll be more expensive to import things and therefore there will be an incentive for domestic manufacture.

The problem is, it's like trying to trying to attack a fly with a shotgun rather than a, you know, a fly swatter. I mean, because it changes the entire spectrum of goods that are being made. So Paulson's going over to China to beg the Chinese not to change the value of their currency relative to the dollar, knowing that if they do, you know, Chinese goods could become even cheaper in the United States, which is going to destroy even more of our jobs because we're relying on a stupid monetary policy as a way of regulating trade rather than a trade policy that says, as it did from 1791 until the 1980s, here's 22,00 different items that we're gonna have specific tariffs on. I mean, this is, China is getting it; they're building a middle class. We're destroying ours.

Transcribed by Sue Nethercott.

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