The Dark Side Updated
The Original Dark Side
In the original Dark Side paper, finished in the winter of 2013, I speculated that the US Founding Fathers had set up a system that not only tolerated corruption, but encouraged it. They realized that the struggle to repress factions, later known as parties, was hopeless. Men would always strive to band together and conspire to increase the power they had over their fellow citizens. Past attempts to appeal to morality had proven to be largely useless, and the use of brute strength always resulted in tyranny. Too often in the past the attempt of one party to overcome another had resulted in assassination, military coups, or civil war.
To prevent this, corruption was institutionalized and legitimized, but only within the legislative sector of government, by calling it campaign contributions, speaker’s fees, lucrative positions after leaving government, etc. Thus the law making sector of government was beholden to which ever business concern could pay the highest bribes. This arrangement put the US on the road to becoming the most successful and powerful nation on earth.
This system received its first challenge in the US Civil War. The South’s tobacco and cotton interests had been the government’s main source of tax revenue since the beginning of our nation. Both were hard on the soil, and in the days before artificial fertilizer this forced their expansion further and further west. Both also depended on slavery, and the north realized that their power would be increasingly diminished as the new territories became slave states. A new faction was formed, the Republican Party, representing those morally repulsed by slavery, those unable to compete economically with slave labor, and paid for by the taxes of the emerging industrial revolution.
At this time I had been living in Guatemala for some seven years, and had been studying Guatemalan history, aspects of which I was able to incorporate into my story. Guatemala’s original cash crop was cochineal, an insect based dye. Newcomers were not permitted entrance into this field, and were forced into the new coffee industry. Both required seasonal, unskilled, cheap, labor. The market for natural dyes collapsed with the German invention of synthetic dyes in the 1870s, and the coffee industry soon forced the cochineal faction out of power.
The coffee industry entrenched itself, and soon expanded into cotton, bananas, and cattle. The US had been investing in Guatemala since the late 1800s, and was increasingly interested in modernizing its economy, as the traditional sectors faced increased competition from the world at large, and were becoming less profitable. The traditional sectors were not interested in modernization, as it would challenge their dominance. They were largely content to maintain their standard of living and their grip on the state.
The middle class elected Juan Jose Arevalo as President, a demagogue trained by Argentina’s populist Juan Peron, who moved the country to the left. He was followed by the socialist Jacob Arbenz, who the US overthrew after he nationalized a large part of the United Fruit Company. This was in 1954, and introduced some 40 years of military rule and internal armed conflict in Guatemala.
The US had been training the Guatemalan army for some time, and after the Castro brothers took over Cuba, with a scant 300 men, the US, through its Special Forces branch, began training Guatemala in counter insurgency warfare. Note well, because this is central to my argument, that when you train soldiers in counter insurgency, you are also training them in insurgency. Sure enough, some of the officers trained by the US Special Forces were soon involved in a coup gone wrong, and fled the country. They later infiltrated back into the mountains of Guatemala to begin an insurrection.
My position is that the US trained those officers knowing that some of them, fired by the Castro’s example, would try to replicate their exploit, and that this was the only way to pry the Guatemalan economy out of the grip of the oligarchy and permit it to modernize, as indeed happened.
The indigenous population of Guatemala, 60% of the total, are almost all Mayans, who are docile and hard working, making them ideal for the cochineal and coffee industries. The seasonal and unskilled labor necessary for these led to an uneducated and unhealthy workforce, and so a stagnant economy. The modern economy envisioned for Guatemala included assembly of auto parts, textile production, non-traditional agriculture, and mining, all for export to the US, and tourism. The docile and hard working population was ideal for these, but they needed to be at least minimally educated, healthier, accustomed to full time work, and concentrated in the cities where the factories were. The internal conflict accomplished all these things.
Guerilla war nearly always results in a scorched earth response, driving the Mayans away from their homes near the coffee fincas and into the cities, and the peace accords provided for increased attention to Mayan education and health. Large tracts of sparsely inhabited land, with known mineral reserves, were turned over to Generals for development. Government programs assisted in the development of air freighting cut flowers and fresh vegetables to the US. Tourism has exploded since the end of the conflict. In other words, the modernizing project of the US was largely accomplished.
In the Dark Side 1 (www.fritzthecat.net) I hypothesized a system in which the U.S. economy was kept dynamic, and the peaceful transfer of economic and political power was ensured, by having one Party champion the interest of one segment of the economy, and the other Party champion another. The most productive segment, measured in tax dollars, campaign contributions, jobs for politicians after they left government, etc., got to oversee the writing of tax laws. I called this the "old economy" "new economy" paradigm. When the dominant segment of the economy becomes long in the tooth, it is replaced by a new, more dynamic sector. I hypothesized that manufacturing was the dominant segment of the economy, and was championed by the Democrats, roughly from the advent of mass production in the late 30s until it was replaced by Big Petroleum in the 70s, which was championed by the Republicans. This forced the Democrats to look for a new segment of the economy to champion. They arrived at a consortium led by Wall Street, and backed up by Information Technology, the New York/Hollywood information/entertainment complex, high tech manufacturing, and all things green thrown in to serve as foot soldiers. Their efforts to take control of the tax writing apparatus was stymied by the collapse of the housing market (promoted by the Democratic party since Carter in an effort to enrich the banks and so generate tax dollars), and more especially by the fracking revolution. The '08 collapse of the financial system forced the Democrats to reshuffle their consortium, and gave the Republicans the opportunity to decrease Wall Street's profitability, and thus power, through legislation such as Dodd-Frank, and, incredibly, the Federal Reserve System's low interest rates, a stake in the heart of big banking. Is high-tech manufacturing to become the new standard bearer for the Democrats to champion? If so, they must use their legislative power to increase that segment's profitability as much as possible. One way to do that is to guarantee robotics a market, and it looks like fast food may fill that role, and at the same time introduce a whole new generation, and a whole new social strata, to the welfare system by making them comfortably numb on the taxpayers dime. Even if $15 an hour never becomes law, the mere threat is focusing the minds of the fast food hierarchy on how to cut jobs .
The Dark Side Two
America’s Secret Weapon: Consumer Power
After finishing the original Dark Side I began reading about the housing crisis that had initiated the ’08 financial crisis, and I began to get an idea that there was a Dark Side to it as well. Let me summarize the hypothesis that I arrived at. The main objective of WW 2 had been to not only protect the “Free World” from Nazi Germany, but to also, and especially, get Germany and Russia to fight each other, which was achieved, and is the subject of the Dark Side 3, a review and commentary on the William Shrier book “The Collapse of the Third Republic”. Germany had been defeated and brought into the Western fold, but Communist Russia was still intact, if suffering, and eventually, especially after Russia developed the A-Bomb, serious attention was given to how to rid the world of the “attractive nuisance” that communism had become. Although I only realized it later, the US was using the same strategy it used back in the 20s and 30s to prepare for war with Russia.
During WW 2 the US had bombed all its economic competitors to smithereens, leaving us with the only intact industrial system in the world. If anyone in the world wanted manufactured goods, and most did, they had to buy it from us and pay our price. This allowed manufacturers to pay 70-80% tax rates and still make a decent profit, and this allowed the middle class to pay low rates, around 20%, leaving them enough disposable income to fuel the start-up of the consumer society.
The traditional middle-class was made up of professionals and higher government officials, whose consumption patterns included fine homes, musical instruments, rare books, European vacations, etc. However, in order to make the consumer society blossom, it had to be based on mass produced items, building on Henry Ford’s insight of paying his workers enough to buy the cars they made. Thus the workers who mass produced one item, say refrigerators, should be able to afford to buy another mass produced item, say cars. It was a positive feedback loop with profits for the company, good wages for the workers, and taxes from both for the government.
In the early 50s New York businessman by the name of Levitt conceived of the idea of essentially mass producing houses. He bought a large tract of land, laid out streets, sewer systems, power lines, etc., and began building homes, each with minor details to differentiate it from its neighbors, but with basic similarities to enable workers to essentially, after building a few homes, to build one of several different patterns almost from memory. The division of labor was applied to home building, and houses went up in three months instead of three years.
The government, long aware that a capitalist society needed a large block of citizens who actually owned capital (houses), began to strengthen (or perhaps weaken) the avenues to home ownership. The Veterans Administration had programs making it easier for veterans to own homes, and poor people were included in it. Along with this, “red lining”, a banking practice where disadvantaged areas of a city, usually black, were perceived, usually from experience, as less likely to repay loans, and a red line was drawn around the area, making loans unavailable or more expensive. Federal law now outlawed this practice.
The US government had subsidized house ownership going back into the late 20s. After WW 2 the government subsidies increased, and the requirements to buying a house decreased. Near the end of the bubble it was cheaper to buy a house than to rent one. This attracted a lot of people who were just one missed paycheck away from defaulting on a home loan. This system worked well as long as interest payments stayed low, houses kept appreciating in value, and people kept their jobs.
When people started losing their jobs, and defaulting on their home loans, the systemic weakness in the plan became evident. Some Wall Street banks were heavily invested in home loans through the government supported Fannie May and Freddy Mac. One, Lehman Brothers, was forced to take a government bailout, and the floodgates were opened. The stock market crashed, and over a weekend the Troubled Asset Relief Program (TARP) was set in place, in which the government would invest $60 billion per month in buying up non-performing loans, bankrupt companies, etc. TARP was followed by Quantitive Easing(QE), that was eventually boosted up to $80 billion a month.
The Dark Side 2 takes the position that this boom bust cycle was engineered in Washington to throw the US, the locomotive of the world economy, into a recession that, sooner rather than later, would knock the bottom out of the price of oil (life blood of industrial society), and slowly start to strangle the economies of the illiberal (oil exporting) democracies that had been putting sticks in Uncle Sam’s spokes, Russia, Iran, and Venezuela. China is not an oil exporter, but is heavily dependent on the US as a market for its products, and is suffering with the oil exporters as the US market dried up.
Political science shows that revolutions don’t occur when a government has its people beaten down into a daily struggle for existence, but rather when things have been getting better, then start getting worse. Globalization, and the high price of oil, had spread the money around a bit more evenly in the world, enticing some countries to spend more than they should, especially if they knew that oil would go from $140 a barrel down to $40 a barrel. The social programs Putin bought his popularity with were now sucking up hard currency reserves. Foreign adventures are always a good way to distract attention from a declining standard of living, and Crimea and Syria resulted.