This is a guest editorial from Dangerous Minds reader Em, expanding on some pointed commentary he’s made elsewhere on this blog. Em—who’ll keep his last name to himself, thank you very much—works in the financial industry:

I guess in every country you can find large numbers of people that truly believe something that just isn’t true. The US is special, however, in that we seem quite capable of believing things that are not only directly contrary to the truth, but that would actually result in the self-destruction of the very proponents of those ideas if they were allowed to completely run amok in our social, economic or political policies. Worse than this, the proponents of those same self-destructive policies will often demonize those that oppose them, applying a host of labels that they often successfully get to “stick” with surprising tenacity. Thus, people concerned with global warming are “liberals,” those proposing that a public health option should be made available are “socialists,” and those wanting a better break for the unions are often just labeled out-and-out communists. Sometimes, the vitriol and rhetoric are just so damned ignorant and self-defeating that you are tempted to turn tail and head back to the UK or elsewhere in Europe where things may not be perfect… but at least they are on average rational.

Of all of the issues out there that have gotten turned around and completely distorted, there’s one issue that, the more you look at the numbers and the facts, the more quickly you’ll move from angry laughter through bitter rage and then into sheer seething disgust. In a nutshell, that issue is the impact that the unions have had on federal taxes and which states are net receivers of federal tax money, and which are net donators. Playing with some numbers, I stumbled upon a fact that I suppose some economist out there somewhere must know, but that I’ve never seen mentioned. It is in my mind, at least, shocking, but before I go there let me remind us of a few basics, hum?

One interesting fact that some people are aware of is that the Red States (ie, those that tend to vote Republican) are almost invariably debtor states or (as I like to call them) hobo states, in that they take more federal funds than they deliver in taxes each year. You know the states –Georgia, North and South Carolina, Virginia, Tennessee, New Mexico, Arizona and so on. These are the states always looking for (and getting!) a handout and yet where citizens are famous for declaring themselves “proud” and “self-reliant.” Conversely, the Blue or donor states (New York, California, Massachusetts, Illinois, Wisconsin, Minnesota, Oregon and so on), these are the states that pay more in taxes to the federal government that they receive. These states tend to vote Democrat in presidential elections.

On the surface, of course, it certainly looks like the Red States vote Republican in order to pump tax money out of the Blue States into the hobo states’ hungry coffers. That much has been commented on by many and analyzed in fascinating detail by sources such as this one.

But I got to asking myself: What precisely, is the real source of wealth in the Blue States? Why is it that these states have so much extra cash that they can afford to be net donators of federal money to the Red States? And why are the Red States invariably in need of a handout? One could, of course, do some complex analysis around the concentration of big industries in certain areas, or perhaps look at per capita wealth concentration and then try to piece together some larger picture out of countless details. A bigass computer simulation wouldn’t seem inappropriate in this context.

Or it could be something far simpler than that. Anyone who has read my pieces on Dangerous Minds will know that I’ve been ranting about how the middle class is actually the engine of job creation and that one critical means by which the middle class has in effect been “capitalized” is through the unions and union wages. Looking across the pond, it’s no mistake that some of the most highly unionized countries in the world (Germany and Sweden) were in effect able to fund the bailout of the near-collapse of the EU. In other words, in countries like Germany and Sweden the middle class actually have money, and this disposable income in the hands of the many has a multiplicative effect on wealth creation.

So the question becomes: Is it true here in the US? In other words, could it possibly be that the main reason the donor/Blue States have extra cash with which to provide the Hobo/Red States with what is in effect a perpetual bailout is that the Blue States are more heavily unionized? At this point, the answer shouldn’t come as a surprise, but what did come as a surprise to me at least, was just how extreme the differences are. Consider the following table I generated showing the top 11 states in descending order of union membership matched with their federal tax outlay ratio. In other words, New York State is the most highly unionized state in the lower 48, followed by Washington and California and so on.

 
See that column on the right? That’s the ratio of federal tax dollars received to those paid. In other words, for every dollar of Federal taxes paid by residents of New York, they receive a mere 79 cents. What is hilarious is that the top 11 most-Unionized states happen to be the states that receive the least in Federal tax benefit compared to what they pay. In other words, the union states are the wealthy donor states. That these states have a surplus is obviously due to the increased wages of the unionized themselves, but also because of all the additional spending driven by disposable income. Perhaps more importantly, new jobs will be created in the donor states as some union employees attempt to strike out on their own and become suppliers to the industries in which they were employed.

How about at the bottom? You got it. Here’s a table of the least unionized states in the US, with their corresponding federal tax ratio:

 
With the notable (though marginal) exception of Texas, 10 of the 11 least unionized states in the lower 48 happen to be those that eat the most in federal tax money compared to what they pay.  Is this surprising? Maybe. But if you’ve paid any attention to all of the anti-Union rhetoric that has always flown around, then you will not only be surprised but disgusted. Some of these hobo states are precisely the ones that have launched persistent, long-term attacks on their unions.

More than the rhetoric, though, are the implications. The right has always proclaimed that unions kill wealth by pulling capital out of the hands of the wealthy, who have some innate and God-given talent to create more wealth and jobs. But what we see here is precisely the opposite: By pulling wealth out of the middle classes that they receive in the form of union wages, the rich inhabitants of those Hobo states have by no means made up the tax difference. In fact, they have converted their state into a hobo state, that the working unionized people in the Blue States must be taxed to support. Put in another way, every time a union is disbanded or disempowered in one of the hobo states, those of us living in the Blue States must in effect shell out more in order to cover their increasing tax gap.

At this juncture it may be worth comparing union membership to the other method of redistributing wealth: Taxation schemes. While in the short run increasing taxes on the wealthy will almost certainly be necessary in order to make a dent in the huge national deficit, what this analysis points to is that the real, “private” method of income redistribution is through the unions, where there is no Federal middleman. In other words, if we consider middle class capitalization as a necessary prerequisite for wealth creation, then the “left wing” method would be through taxation, but the right should consider union membership as the “private” non-governmental solution to the same problem.

An easy solution, therefore, presents itself: Examining the data across all 48 states, we can fairly easily assert that the breakeven level of union membership in a state (ie, for them to convert from a hobo state to a donor state) is somewhere between 10% to 15% of union membership. So how about this: Let’s push for a law that prohibits net Federal money from flowing into states with anything less than 10% union membership. Problem solved. Any state with union membership lower than this level is welcome to keep their federal tax proceeds but no more blue state money will be poured into their bottomless troughs.

The notable exceptions to this analysis are, of course, Alaska and Hawaii, both with high levels of union membership (with 23 and 22 percent union membership respectively). The additional costs associated with geographically remote and/or vast stretches of unpopulated territory are high enough that even high levels of union membership don’t push them into the black. But as long as they remain states of the US, it will probably be necessary to pump in federal funds, though care should be taken to encourage high levels of union participation less the drain on federal money becomes far greater than it is today.

So if federal money is generated directly or indirectly by the unions in the donor states, what form does the aid take as it goes into the hobo states? Ah, that’s a question better answered elsewhere, but the answer is fairly easy to guess. I’ll give you two hints, though: Hint number one is ‘Afghanistan’, and hint number two is ‘Iraq’.

About the author: Em was a founding member (with John Cale and others) of the New York punk band Doppler Effect in the early 1980s. After living in China in the late 80s, Em worked in the physics and electrical engineering space until 2002, at which time he moved into the financial world. In July, Em returned to the US after having lived in London since 2006 and is a member of the UMOUR art/event collective. He blogs at The Magic Lantern, his"litterbox of the soul.”

Previously on Dangerous Minds:
Occupy Wall Street: A Banker Explains What Really Happened to America

Mad Max in America: Our Republican Future?

 
This is a guest editorial from Dangerous Minds reader Em, expanding on some pointed commentary he’s made elsewhere on this blog. Em—who’ll keep his last name to himself, thank you very much—works in the financial industry.

Many commentators have attempted to draw parallels between the Egyptian protestors in Tahriri square and the protestors in Wisconsin’s state capital, where the republican governer Walker has introduced legislation that would (among other things) remove the right of state workers to collectively bargain. Such commentators have done a better or worse job, but in any event didn’t appear all that convinced by what they had written, despite the feeling that there at least seemed to be similarities that could not be explained by coincidence alone. Of course, the protestors in Egypt are largely (but not exclusively) Muslim, and live in a developing economy that has never experienced first-world standards of living, while the Wisconsin protestors are predominantly white and hail from families that have experienced first-world standards of living for several generations. It would appear, therefore, that any similarities are superficial and any comparison between the two groups more poetic rather than substantive.

What the protestors in Tahriri Square as well as the public Union workers in Winsconsin have in common is the rejection of a commonly repeated narrative about how wealth is created. In this commonly repeated narrative, it is necessary to concentrate capital in the hands of a few, who will then use that capital to create businesses and generate wealth, which will trickle down to the many. In order to get this alleged wealth-pump moving, impediments to wealth concentration such as labor movements must be removed, and indeed (according to the common false narrative), the history of wealth generation in developed countries such as the USA is precisely the history of overcoming these pesky impediments. What the protestors in both Wisconsin as well as the Arab world have done is reject that narrative as well as the bogus and half-baked economic theory that is often sold as part of it.

A corrollary to this theory of wealth generation is that civil liberties such as free speech are a luxury, and should be suspended for the sake of the greater good, until wealth starts to flow and incomes rise significantly. This is a particularly pernicious part of the package, because no doubt countless men and women workers have resigned themselves to a life of incredible toil in order to (they believe) move their society forward. Inequities, injustices as well as the suspension of civil liberties were tolerated because they appeared necessary to move their country ahead into greater levels of wealth for everyone.

What the third world protestors in Tahriri Square and elsewhere in the Arab world have done, along with their compatriots in the Wisconsin State Capital, is reject this set of lies and the false either/or choice it presents of civil liberty versus economic progress. Though they may not be able to articulate it, the protestors have finally looked upon the general character of those that hold the levers of power and chose to regard the false choice they have proferred as a lie, which it is.

The first part of this larger-scale lie is that Labor has played no significant role in the generation of wealth in the developed world. In fact, empowering workers has been equated with command-driven soviet and communist models, which were arguably equitable by making everyone equally poor. In this narrative, the US has generated its unprecedented wealth precisely by defeating the evil specter of organized labor. Wealth, it is told, has been created by allowing capital to be concentrated into the hands of the wealthy, who best know how to wield it, thereby creating jobs and new wealth. What is not stated in this view is that the wealthy classes are regarded as almost a divine class, having been born (and not made) and appointed by God.

The reality, of course, is different. In developed economies, the vast majority of wealth has been created in the last hundred years or so. Scratch any millionare and you will see someone with fairly working-class roots, though perhaps it’s necessary to go back a generation or two. But the point is that wealthy individuals and families were not always wealthy, but got that way through a combination of risk-taking, hard work, capital investment, and luck. In other words, wealthy people were made and not born, and accumulated their wealth initially as members of the working class.

That wealthy people are the primary engine of job creation is demonstrably false, the evidence of which is readily found in the results of Bush’s tax cuts. The argument from the so-called right continues to be that, in placing more capital in the hands of the wealthy, jobs will be created and wealth will flow down and tax revenues will necessarily increase. However, the reality is the opposite: the fact that Bush’s tax cuts left Barack Obama with a significant deficit (even prior to the bank bailouts) is proof that this idea is at best flawed and at worst a lie: Jobs and wealth are not created by the few but, rather, by the many. This suggests that America’s Labor Union movement of the early 20th century may have been responsible for a large percentage of wealth generation, in that it placed an unprecedented abundance of capital into the hands of the middle class.

An interesting set of facts to examine is how certain pro-labor developed economies have performed during the 2008 fiscal crisis. Looking at two of Europe’s most labor-dominated economies, Sweden and Germany, we find that these two countries fared far better than most other european economies that had far less enrollment in labor unions. Although Germany (with 26% union enrollment) has taken on an approximately 4.5% deficit (compared to GDP), it has done so in order to come to the aid of Greece and other troubled economies in the EEU, while planning to return to the black by 2012. Sweden (at approximately 75% union enrollment), likewise, has deliberately taken on a temporary deficit in order to assist with the bailout of Iceland. It would appear, therefore, that the countries with some of the heaviest union pariticpation in the world sailed through the fiscal crisis with nary a scratch. The conclusion is that the working classes in these countries actually contributed significantly to economic stability and growth, and that the labor movements therein allowed capital to be placed into the hands of many, resulting in the generation of real economic growth and wealth.

Meanwhile, in the US, we have the opposite: Falling union enrollment and huge budgetary deficits incurred during the fiscal crisis. Given the budgetary deficits that existed as a result of the Bush tax cuts, is it still reasonable to conclude that placing more capital into the hands of the wealthy will actually result in additional job creation? The circumstantial evidence says no, but a deeper analysis reveals that such an assumption may have actually brought about the fiscal collapse itself.

As union enrollment collapsed in the US and real wages declined, capital fled the middle class which therefore also lost the ability to generate new small-to-medium-sized businesses. Partially as a result of weakened labor, both manufacturing as well as service jobs were moved overseas thus further depleting capital resources from the middle class along with job creation. As capital concentrated into the hands of the wealthy (who had no place to put it), they sought new opportunities and found them in the form of tthe American dream: Home ownership. Because real economic growth was rapidly draining out of the middle class, Wall Street stepped up to the plate and created new financial instruments designed to allow the wealthy to invest in what would have otherwise been very risky deals. Through the creation of a whole plethora of derivative securities (such as Collateralized Debt Obligations), the underlying riskiness of the ‘sub-prime’ housing market was in effect trapped and tamed, thereby allowing fund managers to invest in double-A rated securities magically derived from large groups of underlaying risky mortgages.

An obvious and inherent problem in this risky housing market was that it was essentially a big game of musical chairs: I would borrow money to buy your house, while you borrowed money to buy mine. We now had houses that were worth more than we bought them for, so we did it again. And again. And again. If this feels unreasonable and like a perpetual motion machine, you are correct: this couldn’t continue, and it didn’t. As for those AA-rated CDOs, they fell apart as they had not been stress-tested for scenarios like, well, reality. On Wall Street no one had wanted to know what the real risks were, because Basel II rules would have required the banks to hold far large amounts of capital in reserve, making the CDOs and other derivatives not worth the risk.

In a sense, then, it could be argued that the failure of the banking system was caused directly by the flight of capital away from the working and labor classes, and due to the overconcentration of capital in the hands of the wealthy few, who did not know what else to do with it. An unregulated Wall Street did exactly what it was supposed to do (create new investment vehicles that direct capital at new opportunities), and any dissenting CEO would be quickly replaced.

One important conclusion to draw from this is that, by empowering workers and trade unions, capital is placed into the hands of the many and, through this means, new wealth is generated. The idea that strong labor merely communistically disperses capital (thereby making everyone poor) is a lie. Of course, the demise of the Soviet Union and larger-scale failure of command economies tempts one to believe that labor is somehow an enemy to wealth, but this is simply untrue and is an untruth that has been weaved into a strategy of divide-and-conquer as well the suspension of civil liberties.

Wisconsin is similar to Tahriri Square in that the vast majority of working people have recognized that the commonly-chanted narrative of organized labor as enemy of wealth is a lie. In both cases, the People have recognized that the choices being offered are not the only choices, and that the suspension of civil liberties actually means the continued poverty of most, while a small number of extremely wealthy people look for ways to utilize their uselessly huge piles of capital. If this is the case, then why sacrifice freedom of speech or the right to assemble or collectively bargain? All this can do is needlessly continue suffering while strengthening the State, which gets drafted into serving a small minority. It is that minority that believes that wealth is a zero sum game, even though it isn’t, and that empowering others necessarily means a loss of wealth for ones’ self, even though it is precisely through the widespread availability of capital that new wealth is created.

About the author: Em was a founding member (with John Cale and others) of the New York punk band Doppler Effect in the early 1980s. After living in China in the late 80s, Em worked in the physics and electrical engineering space until 2002, at which time he moved into the financial world. In July, Em returned to the US after having lived in London since 2006 and is a member of the UMOUR art/event collective. He blogs at The Magic Lantern, his"litterbox of the soul.”

 
This is a guest editorial from Dangerous Minds reader Em, expanding on some pointed commentary he’s made elsewhere on this blog. Em—who’ll keep his last name to himself, thank you very much—works in the financial industry:

Although I’ve never been a big believer in conspiracy theories, a well-constructed one creates a narrative that pulls in a lot of facts previously viewed as having no connection. The best conspiracy theories don’t even need to be true in order for them to shine a light on what’s actually going on or, better yet, aren’t technically even conspiracies because the activity is going on in the open, even if unrecognized by many.

Consider how perfect the Tea party is on one level: They have the perfect combination of pro-big-business ideologies combined with a cynical distrust of scientific expertise to the point of even regarding mere “facts” as mind-controlling tools of the ‘liberal elite’ (whatever that is). Add to that, convictions that are built upon what are often regarded as fundamental religious principles, and you have the perfect soldier who cannot be dissuaded, cannot be convinced that they may be seriously misguided about some very significant issues because they fully believe their ideas originated within themselves.

In that sense, the fundamentalist push to reflect “Biblical literacy” within the public education system begins to look like a sinister plot designed to teach followers to shut out facts that contradict one’s ‘personal conviction.’ even if that conviction is actually inherited wholesale and largely unquestioned from someone else. Consider the notion of “Biblical literacy”: Aside from containing countless phrases that can’t possibly have a literal meaning, the original Hebrew has no vowel marks. Like a Rorschach blot, the letter clusters in the Hebrew Bible only make sense if we assume vowels for each of the words. (Indeed, traditional Kabbalists maintain that there’s an alternative set of vowels that, after insertion, yield esoteric meanings.) It’s as if someone wrote the Bible precisely to prevent a legalistic and ‘strictly literal’ interpretation. In a sense, therefore, those organizations looking to ‘reform’ public education by having curricula around the country reflect a ‘literal’ interpretation of the Bible are in reality attempting to impose the will (and interpretation) of a small group onto the rest of the American public. Their claim, “this isn’t about us, it’s about God’s will and the Bible” is a lie, but none of its adherents are aware that it’s a lie, and any attempt to prove they’re wrong using so-called “science” and “facts” is viewed as an anti-religion attack from the godless left. Thus, the religious right have become self-protecting vectors of a certain set of viral memes injected by a small secret cabal and coated with the appearance of objective truth.

Now that the vectors are ready, what will the payload be, and who controls it? You don’t have to think too long to take a good guess: It’s about money, and about retaining the power of certain aging industries. In The New Yorker’s recent expose of the billionaire Koch Brothers (See “Covert Operations” by Jane Mayer), the money trails are traced to the various Koch-created PACs, think tanks and even specific branches of the Tea party. As the Kochs control oil refineries, paper products (such as Dixie cups) and various chemical product companies, seems pretty clear that any Koch-supported groups will certainly not be for protecting the environment, and any talk of global warming will hit the protective ideological coating and bounce off like the hard casing around the HIV virus. As the Tea party and like-minded viruses propagate, they insert their anti-environment DNA and get the new hosts to replicate themselves, working perfectly to push away new legislation from impeding the money-flows into those industries that most impact the environment. Is this a mere coincidence? Perhaps.

One thing I’ve found particularly baffling is the vehemence with which the Tea party seems to fight universal health care. As a banker, I would have thought that widely available health care would tilt the economy ever so slightly in favor of small-to-medium-sized business. Currently, there are plenty of employees of large companies that would have loved to work in a small company, or try their hand at creating a new business, but the need to provide health care for their families was a limiting factor. In other words, universal health care would help small businesses (as it does in the rest of the developed world), not hinder them. But the agenda of the Tea party becomes much clearer when viewed as a mere vector of special interests, particularly those tied to specific sectors of big business.

At this point it’s almost superfluous to point out that the Tea party isn’t about freedom or the Constitution or individual rights. The tactical suspension of habeas corpus (for instance) or the assassination (without any due process) of alleged terrorists overseas who are US citizens doesn’t seem to get any recognition at all by the vast majority of the Tea party. Indeed, those may end up becoming useful levers should Tea partiers successfully insert their payload into the halls of Power and the Whitehouse.

As for balancing the budget, the recent Tea party outcry over the Banking Sector bailout is somewhat harder to understand. Of course, we don’t hear the Tea party discussing the elephant in the room: The vast amounts of money that go each year to funding our military, despite the non-existence of wars on US soil over the last century or so. Neither this nor the two perpetu-wars (each now twice as long as WWII) are ever mentioned in any meaningful way, yet they are obviously enormous and ongoing expenses.  Another little noticed fact is that, in the 2008 election (and in the previous two elections prior to that), ALL of the Red states (with the exception of Texas) were net receivers of Federal tax money, often via military bases or national laboratories (which are very military in their bent). So perhaps that’s the key: Banking bailouts (combined with universal health care) represent a potential movement of tax money away from states and industries that are defense and oil-focused.

At this point I’d step out of a conspiracy-like narrative and ask just how feasible it is that the Tea party movement is a synthetic movement, created entirely by some hidden cabal of (most likely) rich, white men. Part of the answer, I think, is that there are some truly significant social issues that have given rise to the Tea party: Not only unemployment, but the wholesale sellout and movement overseas of industries that once employed large numbers of Americans with solid, middle-class wages. This movement represents a deeper demographic shift that has called into question the very future of many sectors of the American middle class. It only makes sense, then, that a “back to basics” movement arise that seeks to reset the clock to a time when it was far easier for the now-Tea partiers to live what used to be the middle-class lifestyle. Hence, the phrase: “take back America”.

On the other hand, perhaps this mass of soon-to-be lumpen proletariat looked like the perfect clay from which to sculpt a veritable army of ‘true believers.’ ready to fight for the cause of big corporate profits. Indeed, to quote The New Yorker article:

Bruce Bartlett, a conservative economist and a historian, who once worked at the National Center for Policy Analysis, a Dallas-based think tank that the Kochs fund, said, “The problem with the whole libertarian movement is that it’s been all chiefs and no Indians. There haven’t been any actual people, like voters, who give a crap about it. So the problem for the Kochs has been trying to create a movement.” With the emergence of the Tea Party, he said, “everyone suddenly sees that for the first time there are Indians out there—people who can provide real ideological power.” The Kochs, he said, are “trying to shape and control and channel the populist uprising into their own policies.”

This is for me where the rubber meets the road, where the alleged conspiracy theory becomes real: Take an unorganized and frightened populace, send into their midst well-funded ideological leaders who speak their language, and then load up this golem with instructions to do its’ masters’ bidding. Drag-drop the doublethink of regarding contravening facts as attacks on purity, and there you go: The Tea party is basically just a co-opted gang of stooges, not essentially different from Basij militia in Iran or the Red Guard during the Cultural Revolution in communist China. Indeed, even the willingness to use violence in order to terrorize the majority into some kind of perceived purity of thought seems to be gaining ground (which is of course just another way to spread a viral meme).

Whether this is an actual conspiracy or not, it’s pretty clear that something like this is happening with the Tea party. And is that a surprise? Any gang-of-goons pretending to purity is in reality just a way that interests-behind-the-scenes leverage their influence to hold on to their power and privilege, just like the Gang of Four launched and directed the Red Guard movement, and just the way the Iranian hardliners control the Basij.

In that sense, then, the Tea party already is the sleeper cell of corporate interests. They are particularly dangerous because they truly believe that their
 ideas stem from some type of deep conviction, rather than having been 
slopped out to them from various right-wing-controlled media outlets. They believe they are acting independently and of their own free will rather than enacting the agenda of hidden privileged forces.

 They’re dupes. They’re stooges. They’re drones.

The hilarious and sad
 thing is that, like any gang of goons, they are regarded as disposable by those whom they unwittingly serve. If they get what they want, they’ll rapidly be so marginalized that they (or their offspring) will end up fighting over jobs at Walmart, with no prospects and no health care. This will be the inevitable and logical conclusion to the economies of scale enjoyed by large corporations that, like a lens, focus the benefit back to a small number of upper-level managers in “Headquarters.”

Years from now, those lucky Tea partiers who manage to survive by working two or three jobs will shake their heads as they push a broom or work the register, and wonder what went wrong.

About the author: Em was a founding member (with John Cale and others) of the New York punk band Doppler Effect in the early 1980s. After living in China in the late 80s, Em worked in the physics and electrical engineering space until 2002, at which time he moved into the financial world. In July, Em returned to the US after having lived in London since 2006 and is a member of the UMOUR art/event collective. He blogs at The Magic Lantern, his"litterbox of the soul.”