“Rebooting the American Dream.”
Thom Hartmann Here with an excerpt from my book “Rebooting the American Dream: 11 ways to rebuild our country.”
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.