“Rebooting the American Dream.”

Thom Hartmann Here with an excerpt from my book “Rebooting the American Dream: 11 ways to rebuild our country.”
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My radio show has a mission statement. We don’t say it on the air, as it sounds a bit pompous, but it’s the metric against which we measure our work: Saving the world, by awakening one person at a time.

During the 1980s, when I was CEO of an advertising agency10 in Atlanta, our mission statement was to help people communicate, to make better and more open companies. Before that, in 1983, I started a travel company11 that hit the front page of the Wall Street Journal the next year and has conducted around a quarter billion dollars in business since then, and its mission statement was to help people better understand the world by traveling through it. And in 1978 my wife and I started a community for abused children12 in New Hampshire, with a clear mission statement: Saving the world, one child at a time.

For most of American history, businesses—for-profit and nonprofit—had mission statements that were broader than simply serving the interests of shareholders and CEOs and referred instead to the long-term interests of the company, its workers, and its customers.

Economics author Barry C. Lynn noted that “by the 1950s managers were wont to present themselves as ‘corporate stewards’ whose job was to serve ‘stockholders, employees, customers, and the public at large.”13 In other words, besides the stockholders, there are also the workers, the customers, and the general public, who are crucial to the long-term well-being of the corporation itself. CEOs actually rose through the ranks of the business and felt loyal to the companies they ran.

They’d often started in the mailroom as a 20-year-old and fully expected to retire with a comfortable pension, the company in the good hands of one of their younger protégé vice presidents, who was working his or her way to that CEO status.

That corporate mentality and mission was generally true all the way until the 1980s. But in the early Reagan years, something changed dramatically, and it’s devastated the American corporate landscape.

First, President Reagan effectively stopped enforcing the Sherman Antitrust Act of 1890, a law that effectively prevented cartels and monopolies and large corporations from dominating the markets.

The Reagan administration’s backing off from enforcement of the act led to an explosion of mergers and acquisitions, buy-outs, greenmail, forced mergers, and other aggregations of previously competitive or totally unrelated companies. The big got bigger, the midsized got acquired or crushed, and the space in which small entrepreneurs could start and flourish nearly vanished.

But what followed this was even worse. Starting back in the 1930s, a particularly toxic form of economic thinking—some would argue sociopathic economic thinking—began to take hold, some of it propelled by theories developed at the Chicago School of Economics by Milton Friedman (who would later serve as an economic adviser to Reagan).

By the 1980s that economic thinking had undergone several mutations, and the one that has hit America the hardest is the notion that every business in the nation has a single mission statement: maximize shareholder value and dividends.

The theory behind this was that in a modern corporation the role of the CEO and the executive-level workers is to do whatever is best for the shareholders.

To provide the incentive to CEOs and senior executives to “think like a shareholder,” tax and accounting rules were both changed and used in the 1980s to actually turn CEOs into more shareholder than employee. This was done by moving huge chunks of their compensation from payroll (cash) into stocks and stock options (the right to buy stock in the future at current prices and then quickly sell it for a profit).

Although a CEO like Stephen J. Hemsley of UnitedHealth Group made an annual salary of $13.2 million in 2007, and $3.2 million in 2009 (a year when CEO pay in the health-care industry was under a lot of scrutiny), he was awarded more than $744 million worth of stock options during the few years he was CEO. His predecessor, William “Dollar Bill” McGuire, was paid more than $1.7 billion in stock options for his previous decade of work as CEO.14

Such compensation packages are now relatively common across corporate America, having created a new CEO aristocracy as well as a totally different business climate from the way America was before Reagan.

Besides the fact that such stock option deals are extremely lucrative for these executives without making their salaries seem sky high, they have another somewhat insidious effect. Because CEOs are now first and foremost stockholders, every decision is grounded in and colored by the question

Will it immediately increase the price of my stock and the amount of the dividend income it pays?
Left in the dust are questions like What is best for this company’s long-term survival? and What is best for the communities in which we do business? Stock values are best increased by ruthlessly slashing costs (cutting employees, outsourcing to cheap-labor countries, and cutting corners in production) and increasing revenues (buying up competitors to create monopoly markets so price competition is minimized).

What’s more, the money these CEOs and executives make from the sale of the stocks they own or from the dividends those stocks pay is subject to an income tax of only 15 percent (as opposed to the 35 percent top marginal tax rate), the result of the Bush tax cuts. No wonder the rich are getting richer, the jobs are going abroad, and average workers are just plain old out of luck.
Shrink the Government by Raising Taxes

From 1985 until 2008, William A. Niskanen was the chairman of the Cato Institute, a libertarian think tank, and before 1985 he was chairman of Reagan’s Council of Economic Advisers and a key architect of Reaganomics. He figured out something that would explode Reagan’s head if he were still around. Looking at the 24-year period from 1981 to 2005, when the great experiment of cutting taxes (Reagan) then raising them (Bush Sr. and Clinton) then cutting them again (Bush Jr.) played out, Niskanen saw a clear trend: when taxes go up, government shrinks, and when taxes go down, government gets bigger.

Consider this: You have a clothing store and you offer a “50 percent off” sale on everything in the store. What happens? Sales go up. Do it for a few years and you’ll even need to hire more workers and move into a larger store because sales will continue to rise if you’re selling below cost. “But won’t the store go broke?” you may ask. Not if it’s able to borrow unlimited amounts of money and never—or at least not for 20 years or more—pay it back.

That’s what happens when we have unfunded tax cuts. Taxpayers get government services—from parks and schools to corporate welfare and crop subsidy payments—at a lower cost than they did before the tax cuts. And, like with anything else, lower cost translates into more demand.

This is why when Reagan cut taxes massively in the 1980s, he almost doubled the size of government: there was more demand for that “cheap government” because nobody was paying for it.

And, of course, he ran up a massive debt in the process, but that was invisible because the Republican strategy, called “two Santa Clauses,” is to run up government debt when in office and spend the money to make the economy seem good, and then to scream about the debt and the deficit when Democrats come into office.

So while Reagan and W were exploding our debt, there wasn’t a peep from the right or in the media; as soon as a Democrat was elected (Clinton and Obama), both the right-wingers and the corporate media became hysterical about the debt.

Comments

chuckle8's picture
chuckle8 5 years 11 weeks ago
#1

Thom almost used the words I wanted him to. I wish he would discuss the seductive part of the race to the bottom.

douglas m 5 years 11 weeks ago
#2

Imagine a world where you had to be an active employee of 40hts a week to legally hold stock.

Willie W's picture
Willie W 5 years 11 weeks ago
#3

"So while Reagan and W were exploding our debt, there wasn't a peep from the right or in the media." The left had to see what was going on. How come no peeps from them? They are as much to blame for saying nothing.

ChristopehrCurrie's picture
ChristopehrCurrie 5 years 11 weeks ago
#4

Just a few years ago, right-wing pundits were getting away with the WHOPPING BIG BOLD-FACED LIE that "governments don't create jobs." My rebuttal to that argument was that President Reagan used deficit spending to "balloon our military industrial complex" which created A LOT of jobs (and got us out of President Carter's recession). But, not surprisingly, Presdeint Reagan doubled our so-called "naitonal debt" in the process. The fact that right-wing pundits are still portraying Reagan as a "small government hero" is another example of a right-wing WHOPPING BIG BOLD-FACE LIE!

cccccttttt 5 years 11 weeks ago
#5

Tom makes a great point.

Rather than ranting against each ugly corporate behavior, which are mostly legal, aim at changing the rules under which they operate.

However, the struggle may take decades as corporate wealth will actively fight every proposed change.

In the meantime suggest looking into the [worker run] business model.

Professor Wolf, a well respected economist, makes a strong case for them and points out their real world successes.

ct

Mark J. Saulys's picture
Mark J. Saulys 5 years 11 weeks ago
#6

Never mind, gotta research that further..

2950-10K's picture
2950-10K 5 years 11 weeks ago
#7

It bears repeating....study after study shows that after $75,000 per year, people's day to day happiness no longer improves. So let's see, if McGuire only really needs $75,000 per year out of his 1.7 billion in stock options..... he should donate the remainder to the families who lost loved ones because his company was allowed to discrimininate against people with preexisting conditions, and then he needs to beg for their forgiveness.

Aliceinwonderland's picture
Aliceinwonderland 5 years 11 weeks ago
#8

It's what psychopaths do. And is this business model not psychopathic by design?

Johnnie Dorman's picture
Johnnie Dorman 5 years 11 weeks ago
#9

Right, Willie. Bill Clinton rode on the same Republican band wagon and said nothing. But I remember those like Ross Parrot, who were saying exactly what needed to be said but were ignored by much of the Democratic party.

Johnnie Dorman's picture
Johnnie Dorman 5 years 11 weeks ago
#10

Many Republicans are such economic amateurs that they don't even comprehend it all. All they know are the tag lines and bumper sticker quotes that they remember from the Reagan era.

chuckle8's picture
chuckle8 5 years 11 weeks ago
#11

I wonder why no one ever responds to my comments about empirical data.

Drive the debt to zero and destroy the economy; just ask Andrew Jackson.

Make the deficit small and wound the economy; just look at the Dow after Bill drove the deficit to zero. Also, you could ask Ravi Batra for more actual examples.

Also, the debt is not $18 trillion. It is around 100%'

Japan debt has been running around 100% for a long time. Economists use Japan as a example of how a 100% debt hurts the economy. It is hard to find an economist talking about Japan becoming the wealthiest nation in the world in 2008. Sounds like the optimal economy to me.

AnneMarie123's picture
AnneMarie123 5 years 11 weeks ago
#12

The economy in the past forty years has been going in the wrong direction with competing special interests. It's now become the war of all against all. It's not sustainable. We don't need "stuff" and technological miracles, we need a happy life, with food, medical care, education, housing, a simple but decent standard of living, with good human relationships. The current economy is trying to dupe us into craving things that make our lives less happy and less secure. When corporations first came into existence, they could LOSE THEIR CHARTER if what they were doing was not deemed to be in the public interest. We not only need to get rid of Citizens United, we need to yank corporate charters of companies that hire outside our country and pollute our land.

Ou812's picture
Ou812 5 years 11 weeks ago
#13

Chuckles, You make up too much stuff. You have lost most of your credibility. You need to cite sources. If you are expressing your opinion, say it's your opinion and don't try to pass it as fact. I will say you don't engage in name calling, bulling and some of the tactics others on this site use. Cite your sources so we all will have the benefit of what you have found. This is my opinion. Good Luck

mathboy's picture
mathboy 5 years 11 weeks ago
#14

The phrase is "bald-faced lie". Not "bold". Other than that, points for using hyphens right.

KCRuger's picture
KCRuger 5 years 11 weeks ago
#15

As bad as the advertising environment is, it is built on a foundation of cards; over half the commercials are for out-right fraud. They must be profitable by finding a few suckers & really taking them to the cleaners, because their promises are laughable. It used to be media wouldn't tarnish themselves by running rubbish like they do now. Bribing Congress, CEO's paid with options, stealing pensions etc. None of this should be legal; it's just building an unsustainable bubble. Perhaps they're creating a crash to swoop in & buy everything for pennies on the dollar. (Think Citibank stock for $1 4/2009) In any case, the legality has to change first.

chuckle8's picture
chuckle8 5 years 11 weeks ago
#16

Ou812 -- Thank you for the response, finally. I keep trying to make it easier for someone to criticize me and still no one does.

As far as sources are concerned, I thought everyone could look at the DOW. The Ravi Batra reference would be a discussion with Thom for which DAnneMarc provided me a link to the transcript. The wealth of Japan was in an article from a Santa Cruz University. I was given the article by a right winger who didn''t realize some its contents. I am trying to find it now. The fact that the debt that matters is the ratio of debt/GDP can be provided by any economist on the planet earth. If I was being funded by a billionaire, I would spend the time to make these links better.

Does anyone know the difference between austerity and reducing the deficit? Thom seems to like that Obama is reducing the deficit, but he has pointed out that austerity never works.

KCRuger's picture
KCRuger 5 years 11 weeks ago
#17

@Chuckle8: You know the answer; austerity refers to cuts made in a time lacking economic expansion. During times of economic expansion, deficits not only should be cut, they should not exist. It is debatable if this is such a time, of course. Given wages being stagnant for everybody except the top few%, I would argue no.

chuckle8's picture
chuckle8 5 years 11 weeks ago
#18

KCRuger -- Thanks for adding clarity to the conversation. I think the metrics for determining economic expansion should be those used by the Federal Reserve. The Fed uses the unemployment rate and the CPI. I have heard Thom say the economy needs help if the unemployment rate is greater than 3.8%. Robert Reich, like I said earlier, thinks the economy needs some help if the CPI is less than 4%.

That being said, I do not think our government should stop investing in the strength of our country even if we are expanding. I would like for us to be sure we have the proper sensors for Amtrak to prevent what happened in the Northeast Corridor. They said that was costing our economy a $100 million per day. I think we should be sure the IRS should be sufficiently funded. Without proper funding, the only people paying their fair of taxes are those who cannot afford a CPA/Tax Attorney. I have heard Thom say that investment in the IRS has a 6 to 1 return. Of course, I want to make sure every student with the ability is not denied an education, expanding economy or not.

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