If you want to catch up on the problems eating at the core of the US economy, you can read every article written by the NYT financial reporter Gretchen Morgenson or you can listen to Bill Moyers interview with John Bogle, who says that American capitalism is in crisis:
BILL MOYERS: What should be the dominant? What is the job of capitalism?
JOHN BOGLE: Well, ultimately, the job of capitalism is to serve the consumer. Serve the citizenry. You're allowed to make a profit for that. But, you've got to provide good products and services at fair prices. And that's the long term, that's what businesses do in the long term. The businesses that have endured in America have done that and done that successfully.
But, in the short term, there's all these financial machinations in which people can get very rich in a very short period of time by creating highly complex financial instruments, providing services that can be cut back easily as in the hospital article, not measuring up to basically their duty.
We all know that in professions, the idea has been service to the client before service to self. That's what a profession is. That's what medicine was. That's what accountancy was. That's what attorneys used to be. That's what trusteeship used to be inside the mutual fund industry. But, we've moved from that to a big capital accumulation — self interest — creating wealth for the providers of these services when the providers of these services are in fact subtracting value from society. So, it doesn't work.
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JOHN BOGLE: Well, it's gotten misshapen because the financial side of the economy is dominating the productive side of the economy
BILL MOYERS: What do you mean?
JOHN BOGLE: Well, let me say it very simply. The rewards of the growth in our economy comes from corporate, largely - from corporations who are a very important measure, from corporations that are providing goods and services at a fair price innovating and bringing in new technology — providing a higher quality of life for our society and they make money doing it. I mean, and the returns in business in the long run are 100 percent the dividends a corporation pays and the rate at which its earnings grow.
That still exists. But, it's been overwhelmed by a financial economy.
The financial economy, which is the way you package all these ways of
financing corporations, more and more complex, more and more expensive.
The financial sector of our economy is the largest profit-making sector
in America. Our financial services companies make more money than our
energy companies — no mean profitable business in this day and age.
Plus, our healthcare companies. They make almost twice as much as our
technology companies, twice as much as our manufacturing companies.
We've become a financial economy which has overwhelmed the productive
economy to the detriment of investors and the detriment ultimately of
our society.
BILL MOYERS:
By the financial sector, you mean?
JOHN BOGLE:Banks, money managers, insurance companies, certainly
annuity providers. They're all subtracting value from the economy. They
have to subtract. To be clear on this now — I don't want to overstate
it. To be clear on this, they have to subtract some value. But, the
question is--
BILL MOYERS:
What do you mean they subtract some value?
JOHN BOGLE:In other words, — you've go to pay somebody something
to provide a service. It's just gotten totally out of hand. My estimate
is that the financial sector takes $560 billion a year out of society.
Five hundred and sixty billion.
BILL MOYERS:
Where does it go?
JOHN BOGLE:It goes into the pockets of hedge fund managers,
mutual fund managers, bankers, insurance companies. Let me give you
this just one little example. If you didn't make a $129 million last
year — I'm presuming that you didn't. You don't rank among the highest
paid 25 hedge fund managers. A $129 million doesn't get you into the
upper echelon.
BILL MOYERS:
And on the way here this morning, I saw a story that now a $1 billion will not get you in the FORTUNE 400. A $1 billion!
JOHN BOGLE:Well, I spend a lot of time thinking about that. I
mean, you kind of asked the question, which I've asked in some of my
work. What is enough here? And the society is out of control. I mean,
in THE BATTLE FOR THE SOUL OF CAPITALISM, I talk about the frightening
similarities between the American economy in America, our nation, at
the beginning of the 21st century and Rome all those centuries ago
around the 4th century.
BILL MOYERS:
What are the comparisons?
JOHN BOGLE:We have an idea that we are the world's value creator
and leader. And I'm talking not just about economic value, but, we like
to think of America as having the best values of integrity and
citizenship in the world. We're getting a little bit too much self
interested. We have our own bread and circuses. And they're a little
different than the bread and circuses they had in Rome. But, we surely
have our circuses whether it's sports teams or casino gambling or the
lottery in the states. And we see this not just in our economy, in our
financial system. This very short-term focus on everything. You see it,
sadly, in our government.
Everybody knows social security is going to run into crisis. We can't
run these federal deficits forever. But, everybody looks out two years
and says, "Will I be elected two years from now or a year and a half
from now?" And, the short term focus ultimately betrays the very values
that we have come to be used to in this great nation of ours.
BILL MOYERS:
You said the other day to someone that we think we can fight the war in Iraq without paying for it.
JOHN BOGLE:Well, we borrow the money to fight the Iraq War by
some estimates and they're not absurd estimates is running now towards
a $1 trillion. We could be doing what the British empire did. We could
be bankrupting ourselves in the long run. And--
BILL MOYERS:
You see us as an empire?
JOHN BOGLE:Well, of course it's an empire. We reach all over the
world. We thought of ourselves in many, many respects as the policemen
of the world. God knows we know we're the policemen of the Middle East.
And there are those say, even from Alan Greenspan on up or down, that
oil is the root of that. I mean, these are great societal questions.
Protecting oil, which is in turn polluting the atmosphere.
We have problems as a society. And we don't have to surrender to them. But, we have to have a little introspection about where we are in America today. We've go to think through these things. We've got to develop a political system that is not driven by money. I mean, these are societal problems for us that don't have any easy answers.
But you don't have to be an economist to know that a great deal of or a minimum in our economy is coming from borrowed money. People are spending at a higher rate than they're earning, and we're starting to pay a price for that now. Particularly in the mortgage side. But, eventually, that could easily spread and people won't be able to do that anymore. You can't keep spending money you don't have. It gets a lot of it, you know, and it wasn't that many years ago — maybe a couple of generations ago — that if you wanted something, you saved for it. And when you completed saving for it, you bought it. Imagine that. And that wasn't so bad. But, now, we know that we can have the instant gratification and pay for it with interest payments, of course, over time, which is not an unfair way to do it. We're going to pay a big price for the excessive debt we've accumulated in this society both in the public side and the private side.
And it's no secret that this lack of savings in our economy — just about zero — is putting us at the mercy of foreign countries. China owns — I don't know the exact number — but, let me say about 25 percent of our federal debt. China does. What happens when they start to buy our corporations with all those extra dollars they've got there? I mean, I think that's very-- these problems are long term, are very much worrisome and very much intractable.
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