How Wall Street’s plutocrats consumed American industry and its blue-collar heart

Steve Fraser discusses the “archaeology of decline,” or “another Great Migration — instead of people, though, trillions of dollars were being sucked out of industrial America and turned into “financial instruments” and new, exotic forms of wealth.  If blue-collar Americans were the particular victims here, then high finance is what consumed them.  Now, it promises to consume the rest of us.”

Camden, New Jersey, for example, had long been a robust, diversified small industrial city.  By the early 1970s, however, its reform mayor Angelo Errichetti was describing it this way: “It looked like the Vietcong had bombed us to get even.  The pride of Camden… was now a rat-infested skeleton of yesterday, a visible obscenity of urban decay.  The years of neglect, slumlord exploitation, tenant abuse, government bungling, indecisive and short-sighted policy had transformed the city’s housing, business, and industrial stock into a ravaged, rat-infested cancer on a sick, old industrial city.”

That was 40 years ago and yet, today, news stories are still being written about Camden’s never-ending decline into some bottomless abyss.  Consider that a measure of how long it takes to shut down a way of life.

Once upon a time, Youngstown, Ohio, was a typical smokestack city, part of the steel belt running through Pennsylvania and Ohio.  As with Camden, things there started turning south in the 1970s.  From 1977 to 1987, the city lost 50,000 jobs in steel and related industries.  By the late 1980s, the years of Ronald Reagan’s presidency when it was “morning again in America,” it was midnight in Youngstown: foreclosures, an epidemic of business bankruptcies, and everywhere collapsing community institutions including churches, unions, families, and the municipal government itself.

Burglaries, robberies, and assaults doubled after the steel plants closed.  In two years, child abuse rose by 21%, suicides by 70%. One-eighth of Mahoning County went on welfare.  Streets were filled with dead storefronts and the detritus of abandoned homes: scrap metal and wood shingles, shattered glass, stripped-away home siding, canning jars, and rusted swing sets.  Each week, 1,500 people visited the Salvation Army’s soup line.

The Wall Street Journal called Youngstown “a necropolis,” noting miles of “silent, empty steel mills” and a pervasive sense of fear and loss.  Bruce Springsteen would soon memorialize that loss in “The Ghost of Tom Joad.”

And no one can forget Detroit. Once, it had been a world-class city, the country’s fourth largest, full of architectural gems.  In the 1950s, Detroit had a population with the highest median income and highest rate of home ownership in urban America.  Now, the “motor city” haunts the national imagination as a ghost town. Home to two million a quarter-century ago, its decrepit hulk is now “home” to 900,000.  Between 2000 and 2010 alone, the population hemorrhaged by 25%, nearly a quarter of a million people, almost as many as live in post-Katrina New Orleans.  There and in other core industrial centers like Baltimore, “death zones” have emerged where whole neighborhoods verge on medical collapse.

One-third of Detroit, an area the size of San Francisco, is now little more than empty houses, empty factories, and fields gone feral.  A whole industry of demolition, waste-disposal, and scrap-metal companies arose to tear down what once had been. With a jobless rate of 29%, some of its citizens are so poor they can’t pay for funerals, so bodies pile up at mortuaries.  Plans are even afoot to let the grasslands and forests take over, or to give the city to private enterprise.

Unprecedented for the United States, these numbers come close to the catastrophic decline Russian men experienced in the desperate years following the collapse of the Soviet Union.  Similarly, between 1985 and 2010, American women fell from 14th to 41st place in the United Nation’s ranking of international life expectancy. (Among developed countries, American women now rank last.)  Whatever combination of factors produced this social statistic, it may be the rawest measure of a society in the throes of economic anorexia.

One other marker of this eerie story of a developed nation undergoing underdevelopment and a striking reproach to a cherished national faith: for the first time since the Great Depression, the social mobility of Americans is moving in reverse.  In every decade from the 1970s on, fewer people have been able to move up the income ladder than in the previous 10 years.  Now Americans in their thirties earn 12% less on average than their parents’ generation at the same age.  Danes, Norwegians, Finns, Canadians, Swedes, Germans, and the French now all enjoy higher rates of upward mobility than Americans.  Remarkably, 42% of American men raised in the bottom one-fifth income cohort remain there for life, as compared to 25% in Denmark and 30% in notoriously class-stratified Great Britain.

Meanwhile, for more than a quarter of a century the fastest growing part of the economy has been the finance, insurance, and real estate (FIRE) sector.  Between 1980 and 2005, profits in the financial sector increased by 800%, more than three times the growth in non-financial sectors.  …In the early 1990s, for example, there were a couple of hundred hedge funds; by 2007, 10,000 of them.  A whole new species of mortgage broker roamed the land, supplanting old-style savings and loan or regional banks.  Fifty thousand mortgage brokerages employed 400,000 brokers, more than the whole U.S. textile industry.  A hedge fund manager put it bluntly, “The money that’s made from manufacturing stuff is a pittance in comparison to the amount of money made from shuffling money around.”

For too long, these two phenomena — the eviscerating of industry and the supersizing of high finance — have been treated as if they had nothing much to do with each other, but were simply occurring coincidentally.

Here, instead, is the fable we’ve been offered: Sad as it might be for some workers, towns, cities, and regions, the end of industry is the unfortunate, yet necessary, prelude to a happier future pioneered by “financial engineers.” Equipped with the mathematical and technological know-how that can turn money into more money (while bypassing the messiness of producing anything), they are our new wizards of prosperity!

Unfortunately, this uplifting tale rests on a categorical misapprehension.  The ascendancy of high finance didn’t just replace an industrial heartland in the process of being gutted; it initiated that gutting and then lived off it, particularly during its formative decades.  The FIRE sector, that is, not only supplanted industry, but grew at its expense — and at the expense of the high wages it used to pay and the capital that used to flow into it.

Think back to the days of junk bonds, leveraged buy-outs, megamergers and acquisitions, and asset stripping in the 1980s and 1990s.  (Think, in fact, of Bain Capital.)  What was getting bought and stripped and closed up supported windfall profits in high-interest-paying junk bonds.  The stupendous fees and commissions that went to those “engineering” such transactions were being picked from the carcass of a century and a half of American productive capacity. The hollowing out of the United States was well under way long before anyone dreamed up the “fiscal cliff.”

Continue reading: Steve Fraser, The National Museum of Industrial Homicide | TomDispatch

And the GOP is calling for MORE austerity cuts for the rest of us while supporting an extension of Bush’s tax cuts for the wealthy. How on earth do middle / working class Republican base voters justify this in their minds?

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