Has America become irrational? Not since the 1930s have politics been so polarized, from the Tea Party movement on one side of the spectrum to the Occupy Wall Street protesters on the other. Why does the right object so vehemently to government spending? And why does the left attack private capital with parallel passion? The answer lies not in the American psyche, but in the statistics.
America is engaged in class war, but not of the sort one reads about in the mainstream press. The truly indigent - young African-American men, for example, most of whom are now unemployed - have little to do in this war. Large corporations for the most part are bystanders as well; they will make their peace with the victor. This is a war of survival between the productive middle class on
one hand, and the dependents of the state on the other.
The Tea Party's aversion to government spending is as pure an expression of rational self-interest as we have seen in American history. Like any new movement, it attracts more than its fair share of oddballs. The fact that a movement led by amateurs continues to wield so much power proves that it has good reason to be there.
The Tea Party is a middle-class movement, older, better educated and wealthier than average, but it is not a party of the very wealthy, who are conspicuously absent among its activists. They know from personal or family experience that taxation is destroying the American middle class. They are approaching retirement, and most of their wealth is in the family home, as it is for the great majority of Americans:
Exhibit 1: Home equity as a percentage of net worth, by income (2004)
Source: Federal Reserve
The American tax burden has shifted drastically away from the federal government, and on to states and localities. And property taxes are bearing an increasing share of the total burden. That is killing the residential property market.
Federal tax revenues remain about 10% below the pre-crisis peak, but state and local tax collections continue to rise. In part, that is because states and localities cannot run budget deficits, unlike the federal government, and must raise taxes to cover their expenses, even while they cut spending. State and local employment has fallen by more than half a million since August 1998, and the layoffs continue.
But a great deal of state and local spending is tied to federal entitlement programs, especially in health care. States receive block grants from the federal government and, in return, take on responsibility for funding public health care and other programs in return. Unfunded mandates push states further into fiscal trouble.
Exhibit 2: Federal vs local tax collections
With income and sales depressed, state and local governments rely on property tax revenues more than ever.
Exhibit 3: Property taxes as percentage of total state and local revenues
Source: Census, Case-Schiller 20 City Index
Property tax collections have continued to rise, even while home prices have collapsed. Local property assessments lagged behind actual prices during the bubble years, but have not fallen to reflect the 40% decline in home prices.
Exhibit 4: Property tax revenues vs home prices
Source: Census Bureau
Property taxes have risen so far that a prospective homebuyer today will pay as much in real estate taxes as on mortgage interest.
Exhibit 5: Property taxes vs home mortgage interest (mortgage debt outstanding multiplied by current mortgage rate), in $US billions
Source: Census Bureau, Federal Reserve
The average homebuyer today, the chart shows, will pay almost as much in property taxes as in mortgage interest. (Mortgage interest is calculated on the basis of the current mortgage rate, reflecting the costs to prospective homebuyers rather than existing homeowners).
That is an astonishing outcome; in the past, mortgage interest typically was two or three times the property tax bill. Put another way, the combined cost of mortgage interest and property taxes is close to a trillion dollars a year today, about the same as at the peak of the housing bubble. Rising property taxes have just about wiped out the impact of lower interest rates and lower home prices on households. The property tax data include commercial as well as residential taxes, to be sure, but more than two-thirds of total property tax collections are from households.
That explains why the middle class compares its revolt to the American revolutionaries who dumped East India Company tea into Boston Harbor. Their modest wealth embedded in household equity and prospective retirement are at risk. Tea Party activists seem amateurish because they are newcomers to politics. For the most part they are the kind of people who lived their lives quietly before the crisis came to their front door. Many things radicalized this part of the political spectrum, but taxation pushed them out of the front door.
On the other side of the spectrum we have the dependents of the state. Not all of them are poor. As a 2011 Heritage Foundation study  showed, the federal government is paying much higher wages for construction workers on projects funded by the 2009 economic stimulus package than prevail in the marketplace. The Davis-Bacon act sets an arbitrary floor under union wages, and the Obama administration paid between 30% and 60% more than the reported market rate as a favor to its trade-union backers.
Exhibit 6: Federal government pays 30% to 60% above market for construction work
Source: Heritage Foundation
The swelling of state and local budgets has created a new kind of pseudo-middle class, that is workers who earn more than $100,000 year with a bit of overtime. The generosity of government pensions has become a scandal; the California Foundation for Fiscal Responsibility claims that more than 6,000 retired California government workers receive pensions in excess of $100,000 a year; about half were policemen, firemen, and prison guards. States cannot afford this largesse. The American Enterprise Institute calculated American states' excess pension liabilities amount to $2.8 trillion, given the present return on investments.
Public sector employees unions rode the real estate bubble along with homeowners, and local governments awarded them unsustainable concessions in the form of pay, pensions and health benefits. Their political power waxed with state and local spending power. Today the public sector unions are the backbone of the Democratic Party. They man the phone banks, staff polling stations, and round up voters to the polls.
The prospect of default on state debt has increased borrowing costs for errant states. Europe has Greece, Ireland and Portugal; America has 11 states whose budget deficit exceeds 16% of the total budget.
Exhibit 7: Worst US state budget deficits
Source: Center on Budget and Policy Priorities
Bonds issued by American states and cities bear the widest risk premium on record. Their yield is not taxed by the federal government, so that the tax-adjusted yield is usually reckoned at 28% below that of comparable Treasuries. After tax adjustment, the Bond Buyer Index of 20-year US municipal bonds paid just 35 basis points (0.35%) above the 20-year Treasury bond. Today it pays 230 basis points more.
Exhibit 8: Yield on 20-Year Municipal Bonds vs. 20-year Treasury
Source: Bond Buyer, Federal Reserve
At the peak of the debt crisis in early 2009, the tax-adjusted spread was about 400 basis points, roughly the difference today between German and Italian government debt. American states have to cut their deficits, or the market will refuse to finance them.
State and local governments, though, have exhausted their tax base, and the continuous rise in property taxes through the crash in property prices has kept the real estate market more depressed than economic conditions otherwise might indicate. A further increase in tax rates would yield less revenue. In effect, the government would have to proceed from taxing private capital to expropriating it, de facto or de jure - for example, nationalizing banks and directing them to make loans to politically-favored projects, after the fashion of Latin American banana republics.
The alternative is to renegotiate pension and health benefits already promised to public sector unions.
In either case, households that considered themselves comfortably middle class, and looked forward to a comfortable and secure retirement, find themselves on the edge of calamity. During the bubble years of 1998-2007, when America imported $6 trillion of overseas capital, the ride was easy.
When the whole world brought its savings to the United States, people of mediocre skills and slack work habits could afford big houses, expensive vacations, and (at taxpayer expense) generous pensions. Why Americans expected to live well indefinitely on the largesse of foreign investors is a question for the psychiatrists, not the economists.
The crisis has called into being a political movement of the exasperated middle class, namely the Tea Party. It has erased the image of the government unions as champions of progressive causes, and exposed them as an "aristocracy of labor" (in Marx's phrase) parasitizing the public revenue.
The outcome inherently favors the Republicans. Debt - the catchall name for the crushing tax burden - has become a hot button issue even for many Democrats. But this election will be fought more desperately, and nastily, than any other that comes to mind during the past century. This is an existential struggle, a political war of survival for the American middle class. If the government unions go down in the fight, the Democratic Party of Barack Obama will cease to exist in its present form - and that would be a beneficial outcome for the United States.
1. See here.
the occupiers of Zuccotti Park...
By Tom Engelhardt
Once the Arab Spring broke loose, people began asking me why this country was still so quiet. I would always point out that no one ever expects or predicts such events. Nothing like this, I would say, happens until it happens, and only then do you try to make sense of it retrospectively.
Sounds smart enough, but here’s the truth of it: whatever I said, I wasn't expecting you. After this endless grim decade of war and debacle in America, I had no idea you were coming, not even after Madison.
You took me by surprise. For all I know, you took yourself by surprise, the first of you who arrived at Zuccotti Park and, inspired
by a bunch of Egyptian students, didn't go home again. And when the news of you penetrated my world, I didn't pay much attention. So I wasn't among the best and brightest when it came to you. But one thing's for sure: you've had my attention these last weeks. I already feel years younger thanks to you (even if my legs don't).
Decades ago in the Neolithic age we now call "the Sixties," I was, like you: outraged. I was out in the streets (and in the library). I was part of the anti-Vietnam War movement. I turned in my draft card, joined a group called the Resistance, took part in the radical politics of the moment, researched the war, became a draft counselor, helped organize an anti-war Asian scholars group - I was at the time preparing to be a China scholar, before being swept away - began writing about (and against) the war, worked as an "underground" printer (there was nothing underground about us, but it sounded wonderful), and finally became an editor and journalist at an antiwar news service in San Francisco.
In that time of turmoil, I doubt I spent a moment pondering this irony: despite all those years in college and graduate school, the most crucial part of my education - learning about the nature of American power and how it was wielded - was largely self-taught in my off-hours. And I wasn't alone. In those days, most of us found ourselves in a frenzy of teaching (each other), reading, writing - and acting. That was how I first became an editor (without even knowing what an editor was): simply by having friends shove their essays at me and ask for help.
Those were heady years, as heady, I have no doubt, as this moment is for you. But that doesn't mean our moments were the same. Not by a long shot. Here's one major difference: like so many of the young of that distant era, I was surfing the crest of a wave of American wealth and wellbeing. We never thought about, but also never doubted, that if this moment ended, there would be perfectly normal jobs - good ones - awaiting us, should we want them. It never crossed our minds that we couldn't land on our feet in America, if we cared to.
In that sense, while we certainly talked about putting everything on the line, we didn't; in truth, economically speaking, we couldn't. Although you, the occupiers of Zuccotti Park and other encampments around the country, are a heterogeneous crew, many of you, I know, graduated from college in recent years.
Most of you were ushered off those leafy campuses (or their urban equivalents) with due pomp and ceremony, and plenty of what passes for inspiration. I'm ready to bet, though, that in those ceremonies no one bothered to mention that you (and your parents) had essentially been conned, snookered out of tens of thousands of dollars on the implicit promise that such an "education" would usher you into a profession or at least a world of decent jobs.
As you know better than I, you got soaked by the educational equivalent of a subprime mortgage. As a result, many of you were sent out of those gates and directly - as they say of houses that are worth less than what's owed on their mortgages - underwater.
You essentially mortgaged your lives for an education and left college weighed down with so much debt - a veritable trillion-dollar bubble of it - that you may never straighten up, not if the 1% have their way. Worse yet, you were sent into a world just then being stripped of its finery, where decent jobs were going the way of TVs with antennas and rotary telephones.
Lost worlds and Utopia
Here's a weakness of mine: graduation speeches. I like their form, if not their everyday reality, and so from time to time give them unasked at TomDispatch.com, speeches for those of us already out in the world and seldom credited for never stopping learning.
In this case, though, don't think of me as your graduation speaker. Think of this as a self-graduation. And this time, it's positives all the way to the horizon. After all, you haven't incurred a cent of debt, because you and those around you in Zuccotti Park are giving the classes you took. First, you began educating yourself in the realities of post-meltdown America, and then, miraculously enough, you went and educated many of the rest of us as well.
You really did change the conversation in this country in a heartbeat from, as Joshua Holland wrote at Alternet.org, "a relentless focus on the deficit to a discussion of the real issues facing Main Street: the lack of jobs... spiraling inequality, cash-strapped American families' debt-loads, and the pernicious influence of money in politics that led us to this point" - and more amazingly yet, at no charge.
In other words, I'm not here, like the typical graduation speaker, to inspire you. I'm here to tell you how you've inspired me. In the four decades between the moment when I imagined I put everything on the line and the moment when you actually did, wealth and income inequalities exploded in ways unimaginable in the 1960s. For ordinary Americans, the numbers that translated into daily troubles began heading downhill in the 1990s, the Clinton years, and only a fraudulent bubble in home values kept the good times rolling until 2008.
Then, of course, it burst big time. But you know all this. Who knows better than you the story of the financial and political flim-flam artists who brought this country to its knees, made out like bandits, and left the 99% in the dust? Three years of stunned silence followed, as if Americans simply couldn't believe it, couldn't take it in - if, that is, you leave aside the Tea Party movement.
But give those aging, angry whites credit. They were the first to cry out for a lost world (while denouncing some of the same bank bailouts and financial shenanigans you have). That was before, in a political nano-second, the phrase "Tea Party" was essentially trademarked, occupied, and made the property of long-time Republican operatives, corporate cronies, and various billionaires.
That won't happen to you. Among your many strengths, the lack of a list of demands that so many of your elders have complained about, your inclusiveness, and your utopian streak - the urge to create a tiny, thoroughly democratic new society near the beating financial heart of the old one - will make you far harder to co-opt. Add in the fact that, while any movement taking on inequity and unfairness is political, you are also, in the usual sense of the term, a strikingly apolitical movement. Again, this is, to my mind, part of your strength. It ensures that neither the Democratic Party nor left sects will find it easy to get a toehold in your environs. Yes, in the long run, if you last and grow (as I suspect you will), a more traditional kind of politics may form around you, but it's unlikely to abscond with you as those Republican operatives did with the Tea Party.
Actuarially, the Tea Party is a movement of the past in mourning for a lost world and the good life that went with it. All you have to do is look at the sudden, post-2008 burst of poverty in the suburbs, that golden beacon of the post-World War II American dream, to know that something unprecedented is underway.
Once upon a time, no one imagined that an American world of home ownership and good jobs, of cheap gas and cheaper steaks, would ever end. Nonetheless, it was kneecapped over the last few decades and it's not coming back. Not for you or your children, no matter what happens economically.
So don't kid yourself: whether you know it or not, young as you are, you're in mourning, too, or Occupy Wall Street wouldn't exist. Unlike the Tea Party, however, you are young, which means that you're also a movement of the unknown future, which is your strength.
Let me fess up here to my fondness for libraries (even though I find their silence unnerving). As a child, I lived in the golden age of your lost world, but as something of an outsider. The 1950s weren't a golden age for my family, and they weren't particularly happy years for me. I was an only child, and my escape was into books. Less than a block from where I lived was a local branch of the New York City public library and, in those days before adult problems had morphed into TV fare, I repaired there, like Harriet the Spy, to get the scoop on the mysterious world of grown-ups. (The only question then was whether the librarian would let you out of the children's section; mine did.)
I remembering hauling home piles of books, including John Toland's But Not in Shame, Isaac Asimov's space operas, and Desiree (a racy pop novel about a woman Napoleon loved), often with little idea what they were and no one to guide me. On the shelves in my small room were yet more books, including most of the Harvard Five Foot Shelf, a collection of 51 classic volumes. My set had been rescued from somebody's flooded basement, their spines slightly warped and signs of mildew on some of them. But I can still remember taking them off my shelf with a certain wonder: Dana's Two Years Before the Mast (thrilling!), Darwin's The Origins of the Species (impenetrable), Homer's The Odyssey (Cyclops!), and so on.
Books - Johannes Gutenberg's more than 500-year-old "technology" - were my companions, my siblings, and also my building blocks. To while away the hours, I would pile them up to create the landscape - valleys and mountains - within which my toy soldiers fought their battles. So libraries and self-education, that's a program in my comfort zone.
Though my route seemed happenstantial at the time, it's probably no accident that, 35 years ago, I ended up as a book editor on the periphery of mainstream publishing and stayed there. After all, it was a paid excuse to retreat to my room with books (to-be) and, if not turn them into mountains and valleys, then at least transform them into a kind of eternal play and self-education.
All of which is why, on arriving for the first time at your encampment in Zuccotti Park and taking that tiny set of steps down from Broadway, I was moved to find myself in, of all things, an informal open-air library. The People's Library no less, even if books sorted by category in plastic bins on tables isn't exactly the way I once imagined The Library.
Like the best of library systems, it's a Self-Education U, or perhaps a modern version of the Chautauqua adult education movement. Your goal, it seems, is to educate yourselves and then the rest of us in the realities and inequities of 21st-century American life.
Still, for the advanced guard of your electronic generation to
commit itself so publicly to actual books, ones you can pick up, leaf through, hand to someone else - that took me by surprise. Those books, all donations, are flowing in from publishers (including Metropolitan Books, where I work, and Haymarket Books, which publishes me), private bookstores, authors, and well, just about anyone. As I stood talking with some of you, the librarians of Zuccotti Park, I watched people arriving, unzipping backpacks, and handing over books.
Of the thousands of volumes you now have, some, as in any library, are indeed taken out and returned, but some not. As Bill Scott, a librarian sitting in front of a makeshift "reference table" in muffler and jacket told me, "The books are donated to us and we donate them to others."
A youthful-looking 42, Scott, an associate professor of English at the University of Pittsburgh, is spending his sabbatical semester camped out in the park. His book, Troublemakers, is just about to be published and he's bubbling with enthusiasm. He's ordered a couple of copies to donate himself. "It's my first book ever. I've never even held it in my hands. To shelve the first copy in the People's Library, it's like all the strands of my life coming together!"
Think of it: Yes, your peers in the park were texting and tweeting and streaming up a video storm. They were social networking circles around the 1%, the mayor, the police, and whoever else got in their way. Still, there you all were pushing a technology already relegated by many to the trash bin of cultural history. You were betting your bottom dollar on the value to your movement of real books, the very things that kept me alive as a kid, that I've been editing, publishing, and even writing for more than three decades.
'I wanted something productive to do'
That library - in fact, those libraries at Occupy Boston, Occupy Washington, Occupy San Francisco, and other encampments - may be the least commented upon part of your movement. And yet, you set your library up not as an afterthought or a sideline, but almost as soon as you began imagining a society worth living in, a little world of your own. You didn't forget the books, which means you didn't forget about education. I mean, a real education.
This was both generous of you and, quite simply, inspiring. Who would have expected that the old-fashioned, retro book would be at the heart of this country's great protest movement of a tarnished new century?
When asked how the library began, librarian "Scales" (aka Sam Smith), an unemployed, 20-year-old blond dancer still in shorts on a chilly fall day, responded, "Nobody knows exactly who started it. It was like an immaculate conception. It was just here." If the movement itself were a book, that might stand as its epigraph. Even if Occupy Wall Street indeed did start somewhere (as did its library), the way it has exploded globally in a historical nanosecond, does give it exactly the feeling Scales described.
When asked why he himself was here, he simply said, "I wanted something productive to do."
In an economy where "production" is gone with the wind, that makes the deepest sense to me. Who doesn't want to be productive in life? Why should a generation that Wall Street and Washington seem perfectly happy to sideline not want to produce something of their own, as they now have?
I was no less touched, while listening in on a long meeting of the Library Working Group one Saturday afternoon amid the chaos of Zuccotti Park - crowd noise all around us, a band playing nearby - when the woman standing next to me interrupted your meeting. She identified herself as an elected legislator from an upstate New York county who had driven down to see Occupy Wall Street for herself. She just wanted you, the librarians, to know that she supported what you were doing and that, while her county was still funding its libraries, it was getting ever harder to do so, given strapped state and local budgets.
In other words, as education is priced out of the reach of so many Americans and in many communities library hours are cut back or local libraries shut down, you've opened for business.
Here are just a few things that you, the librarians of Zuccotti Park, said to me:
Bill Scott: "Part of the reason we're down here is because we live in a society which promotes the idea that education should be bought and sold on the open market. We want to establish it as a human right. What the People's Library proves is that books belong to the people, as does education. People with student-loan debt find their freedom and options limited. It severely limited my options. I'm still crawling out from under a ton of debt."
Zachary Loeb, who in what passes for real life is an actual librarian: "I'm working part time, so I wake up every morning and spend two hours sending out resumes, but the work isn't out there. My training's in archiving, but nobody's hiring. I got a degree in library science, not philosophy, which I wanted to go into, to be on a job track. Obviously, I'm not. Lots of people are here because the work situation is abysmal.
"I've been an activist for a long time. I read [the magazine] Adbusters and saw the call to occupy Wall Street. I was down here on the first day. I think we've changed the conversation in this country. We've given people permission to stand up, to talk to each other, test their ideas out against each other, and consider decisions that shouldn't simply be made by the powerful in Washington."
Frances Mercanti-Anthony, out-of-work actress ("my last play closed in August") and comic writer: "Knowledge is the greatest weapon we have. What we're doing is offering knowledge to people who have been disenfranchised. Our online database of books [in the People's Library] stands as a great symbol of the movement, of democracy, of knowledge, and sharing."
Lighting up the landscape
Here's what you've done: your anger and your thoughtfulness - what you don't know and don't mind not knowing, as well as what you do know - has lit up a previously dismal landscape. And every move made by those who want to get rid of you has only spurred your growth.
I'm a pretty levelheaded guy, but call me a little starry-eyed right now and I don't mind at all. It's something to feel this way for the first time in I don't know how long, and whatever happens from now on, I can thank you for that - and for the sudden sense of possibility that goes with it.
Only six weeks into your movement, with so little known about where you're going or what will happen, it's undoubtedly early for graduation ceremonies. Still, let's face it, you've been growing up fast and, for all we know, these could have been the six weeks that changed the world. Anyway, there's no limit out here, where you can make your own traditions, on how often you can graduate yourself.
So I say, go for it. Mark your progress thus far. Self-graduate. You don't need me. I'll stay here and borrow a book from your library - and later, when I'm done, just as you suggest, I'll donate it to someone else.
Shoulder your handmade signs. Lift them high. Chant your chants. Let the drummers play as you march. Head out toward Wall Street, toward the future, looking back over your shoulder, remembering exactly what your elders squandered, the world they left you, the debts they piled on you. And the next time they start telling you what you should do with your movement, take it with a grain of salt. The future, after all, is yours, not theirs. It may be the only thing you have, exactly because it's so beautifully unknown, so deeply unpredictable. It's your advantage over them because it's one thing that Washington and Wall Street have no more way of controlling than you do.
In a world of increasing misery, you carry not just your debts, but ours too. It's a burden no one should shoulder, especially with winter bearing down, and that 1% of adults waiting for the cold to make tempers short, hoping you'll begin to fall out, grow discouraged, and find life too miserable to bear, hoping that a New York winter will freeze you out of your own movement.
I take heart that last weekend, on a beautiful fall day, you, the librarians, were already discussing the need to buy "Alaska-style" sleeping bags and a generator which would give you heat; that you, like the mayor, are looking ahead and planning for winter. This, after all, could be your Valley Forge. As actress-librarian Mercanti-Anthony told me: "We have the whole world behind us at this point. We want to stand our ground for the long haul. If we can make it through the winter, this occupation is here to stay."
And she just might be right. So head out now, and whatever you do, don't go home. It's underwater anyway, and we need you. We really do. The world's in a hell of a mess, but what a time for you to take it in your own hands and do your damnedest....