The Neoliberal Ideals and Why Poverty is Necessary

By Mason Giem

11/2/08

As citizens of the United States we are lead to believe we have a stable economic

system, when in fact it has only become more unstable during the low interest rates and

neo-liberal ideals of the last 20 years. According to the U.S. Census Bureau, in the past

20 years the percentage of people in poverty living in the United States has increased to

12.5% 1. There are several key Neoliberal strategies like the deregulation of the economy,

the liberalization of trade and capital markets (NAFTA), tax cuts (for corporations and

the wealthy), strict control of interest rates and cutting social-service expenditures2. I will

show that poverty in America is not an accident and is intended to keep the richest one

percent of the nation wealthy and the poorest ten percent in poverty.

Section 1: The Deregulation of the Economy

The first attempt at a Neoliberal ideology was at the creation of the Federal

Reserve act, and it was passed on December 23, 1913 by President Woodrow Wilson.

The Act, create the establisment of the Federal Reserve Banks and allowed them to make

an elastic provided for the establishment of Federal Reserve Banks and allowed the banks

to make a flexible currency, to print and mint money not out of gold and to provide a

bank that other banks could rely on.3 The bank was originally founded by donations from
1
http://www.census.gov/hhes/www/poverty/histpov/histpovtb.html
2
America Transformed, Globalization, Inequality, and Power, Gary Hytrek, Christine
Zentgraf, 2008, p.p.9.
3
http://www.federalreserve.gov/pf/pdf/pf_1.pdf

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one of the country’s most wealthy family, the Rothschilds. Because of the dependability

of the bank always loaning the Federal Government money and making interest on that

money, this was a very important first step in power consolidation. The Federal Reserve

System enjoys many undemocratic benefits including the fact that the Chairman of the

Federal Reserve does not need to be approved by the senate.4 Then there is the fact that

they claim to be an independent organization within the government, and should be free

from its influence.5 Most importantly

“The Federal Reserve banks are exempt from all taxation. These people

are very independent, independent of audits, independent of congressional

supervision, and independent of the American voter”.6

Power of the organization has only grown since its inception because of its ability

to have regional branches that help regulate the amount of money in our economy

through a currency system that is not backed by gold but by speculation on the future of

the economy. “ They will provide an elastic currency, issuing notes secured by their

commercial interests”.7 This power has freed our economic system from the pressures of

not having enough money to supply unlimited growth. Unlimited Growth is an ideal that

has been supported through de-regulation of the banking system and low interest rates.

Now it has led to what may be considered the second economic crash Federal Reserve

has created8. The first crash occurring in 1929, and the second in the fall of 2008. The
4
Wayne N. Krautkramer, 2004, The Federal Reserve - Its Origins, History & Current
Strategy, http://news.goldseek.com/GoldSeek/1095269452.php
5
Wayne N. Krautkramer, 2004, The Federal Reserve - Its Origins, History & Current
Strategy, http://news.goldseek.com/GoldSeek/1095269452.php
6
Wayne N. Krautkramer, 2004, The Federal Reserve - Its Origins, History & Current
Strategy, http://news.goldseek.com/GoldSeek/1095269452.php
7
The Federal Reserve Act of 1913, O. M. W. Sprague, The Quarterly Journal of
Economics, Vol. 28, No. 2 (Feb., 1914), pp. 213-254, Published by: The MIT Press
8
The Federal Reserve's Role in the Great Contraction and the Subprime Crisis,

2
subsequent effect of these economic crashes on the communities of the United States has

been devastating.

Section 2: The Liberalization of Trade and Capital Markets

The liberalization of trade and capital markets of the economy has been a major

contributing factor to the increase in capital among the buguasi. The creation of the North

American Free Trade Agreement does just that and states that no government may

directly or indirectly create artificial trade barriers.9 This means that the global economy

of Multi or Transnational corporations can have free trade between the countries signed

into the agreement. The resulting effect of this has been the highest GDP in the world, but

it has come at a high price for the American people, and her future generations. One

result of the free trade agreements on the American people has been a lowering of the real

minimum wage in the United States since 197810 when Neoliberal ideals were really

taking a hold on our way of life.

The influence of mass media is everywhere, we are in an imaginary world where

the media tells us that if we don’t have the latest product or credit card, we are not happy.

I detest the veil of glamour that has caused our society to become the sheeple of the

corporate agenda. If we were truly free and informed citizens we would realize that the

very nature of a country run by Neoliberal ideals is one in which the human rights to life,

liberty and the pursuit of happiness, are a lower priority than making money. Excessive

wealth does nothing but lead to gluttony, war, and lethargy, all of which were very

prevalent in ancient Rome before its fall, and in the developed world are currently the

Timberlake,Richard H., Cato Journal, 2008, 28, 2, 303-312

9
America Transformed, Globalization, Inequality, and Power, Gary Hytrek, Christine
Zentgraf, 2008, p.p. 30.
10
U.S. Bureau of the Census; U.S. Department of Labor, Bureau of Labor Statistics;
Statistical Abstract of the United States; and Survey of Current Business.

3
highest in America.

There are many members of the Buguasie, that have influenced the Neoliberal

type of development but there is one person that I feel has been a cheerleader for these

short-term economic growth packages, Alan Greenspan. Alan Greenspan, former Federal

Reserve Chairman, and large supporter for de-regulation of the banking industry, claimed

on October 23, 2008, that perhaps there was a flaw in his free market ideology11

“He noted that the immense and largely unregulated business of spreading

financial risk widely, through the use of exotic financial instruments called

derivatives, had gotten out of control and had added to the havoc of today’s crisis.

As far back as 1994, Mr. Greenspan staunchly and successfully opposed tougher

regulation on derivatives”12

The Chairman, appointed by the president, casts his large shadow of influence on the

entire nation by raising or lowering interest rates or speculating what the Neoliberal

buguasie wants the economy to do. The rational-legal authority presented by Weber ,

1968, illustrates that the power the Federal Reserve chairman holds is given to him by

law and is legal.13 I however, advocate that the position of Federal Reserve Chairman is

so important that we should be electing and holding the chairman responsible to the

American public. In order to understand how an unelected individual has so much power

in a democratic society, we must look at the Neoliberal economic philosophy of the

11
Greenspan Concedes Error in Regulation, Andrews, New York Times, 2008,
http://www.nytimes.com/2008/10/24/business/economy/24panel.html).
12
Greenspan Concedes Error in Regulation, Andrews, New York Times, 2008,
http://www.nytimes.com/2008/10/24/business/economy/24panel.html).
13
The Types of Legitimate Domination, Max Weber, 1968, p.p. 215-245.

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organization for which he works.

The power of the banking industry on government policy has allowed for a

worldwide distribution of debt known as derivatives.

“Derivatives are a financial instrument whose characteristics and value

depend upon the characteristics and value of an underlier, typically a commodity,

bond, equity or currency”.14

With the widespread use and subsequent abuse of derivatives assuming their

value on an inflated home value bubble, the American investment banks were able to

spread the loans all over the planet.15 The spread of these loans was supposed to stabilize

the market and allow for more Americans to become the mass consumers that drove our

GDP to the highest in the world. Molotch, 1976, would say that this is a perfect example

of how politics revolve around the conditions for creating growth and distributing the

resources obtained from growth.16 With the national government as an example, I claim

the American people have been convinced that it is OK to get rich quick, even if it means

people in your own city starve.

Section 3: Strict Control of Interest Rates

In our society we are often forced to borrow money to make money. Thus, we

have lost much of our freedom and have become the equivalent of modern day serfs to

the feudal rulers of the national banking system, and all those who profit from our

economic dependence. The lowering of interest rates, and deregulation of sub-prime

mortgage lending during the rise of the Neoliberal ideals fueled the rise of individual
14
http://www.investorwords.com/1421/derivative.html).
15
The Federal Reserve's Role in the Great Contraction and the Subprime Crisis,
Timberlake,Richard H., Cato Journal, 2008, 28, 2, 303-312
16
The City as a Growth Machine," by Harvey Molotch, in The American Journal of
Sociology, © 1976 by The University of Chicago.

5
debt. This point is illustrated by examining the enticing element of getting a dream house

for 0 down at a %5 interest rate. During the current Bush administration, Americans’

savings rate actually went to an all time low, while household debt as a percentage of

GDP soared above 130%, a doubling in 25 years17. The resulting effect on communities

has been a nation with a savings rate of less than one percent18, which expects to keep

growing forever. A country with such low savings rates and high amounts of debt

decreases the value of its currency, and thus a spiral into recession is the only logical

conclusion. This is shown by the decreasing value of the United States currency

compared to that of Canada or the European Union and our current recession. Where will

this trend lead? As Harvey Molotch ,1976, would point out, the battle for the nicest car,

house, kid, is exactly the kind of power game the political economy wants us to play19.

The question we need to ask ourselves is why do we put so much trust in an ideology that

puts making money above the well-being of American lives all over the country?

Section 3: Cutting Social Expenditures

One of the most obvious ways that poverty is maintained is by the cutting of

social service expenditures. This includes the high cost of higher education, and the high

cost of healthcare, and the creation and implimentation of the antiwelfare program called

the Personal Responsibility Act. The cost of higher education in the United States is

another great example of the rich trying to keep the poor, poor.

17
(Meet the Shallowest Generation, November 1st, 2008,
http://www.speroforum.com/site/article.asp?
idCategory=34&idsub=158&id=16602&t=Meet+the+Shallowest+Generation
18
The Return of Saving, Feldstein,Martin, Foreign Affairs, 2006, 85, 3, 87-93, Foreign
Affairs
19
The City as a Growth Machine," by Harvey Molotch, in The American Journal of
Sociology, © 1976 by The University of Chicago.

6
 The high cost of education has succeeded in discouraging students from

completing their college degree. As evidence by the graduation rate that has remained

steady over the past four years and has dropped only slightly over the past 10 years down

from 54 percent in 1992.21

“Over the past 10 years, tuition fees at four-year public colleges have

grown at a rate of about 4.2 percent a year after inflation, according to the College

Board. Tuition has grown at an annual average of 2.4 percent at private four-year

schools, and at a rate of 1.4 percent a year at public two-year schools”.22

20
U.S. Bureau of the Census; U.S. Department of Labor, Bureau of Labor Statistics;
Statistical Abstract of the United States; and Survey of Current Business
21
http://www.act.org/news/releases/2002/11-15-02.html#1).
22
Saturday, November 1, 2008, College costs going up, The Business Review (Albany),
http://www.bizjournals.com/albany/stories/2008/10/27/daily41.html

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 The cost of healthcare in the United States has also risen as corporations receive

more power in our society. I can speak from personal experience knowing that my

grandmother was being assigned multiple medications that were unnecessary and in some

cases off setting the effects of other medications.

“From 1987 through 1994, of the 11.9 percent average annual rate of

spending growth, about half reflected the direct effects of increased prices, while

the remaining half is attributed to utilization growth. In contrast, from 1994

through 1999 the growth rate remained in double digits, but only about one-fifth

was directly attributable to price changes; nearly 80 percent of increased drug

spending was related to growth in utilization”.24

This goes to show that there are many influences that have worked together to reduce the

amount of economic freedom we have as individuals of the lower working class.

23
http://www.act.org/news/releases/2002/11-15-02.html#1).
24
http://content.healthaffairs.org/cgi/content/full/20/2/100).

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 25

The Personal Responsibilities Act is another major contribution to the effects that

keep people in poverty. This act according to Sharon Hays in Flat Broke with Children,

claims that the personal responsibility act does not give individuals enough of the

assistance they need to be able to stay out of poverty26 Some of the assistance that they do

need are programs that give them enough marketable job skills to raise themselves out of

poverty and to stay out of poverty. There are other aspects of the Personal Responsibility

Act that have been denounced by Mark Rank, he claims that

“ …to focus more on the lack of marketable skills, training, education, as

well as other characteristics such as being a single parent or having large numbers

of children, hinders the ability of particular Americans to compete in the economy

and thereby raises their risk of poverty”. 27

25
http://content.healthaffairs.org/cgi/content/full/20/2/100).
26
Flat Broke with Children, Sharon Hays, 2003, p.p. 8.
27
One Nation, Underprivileged, Mark Rank, 2005, p.p. 172.

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 In conclusion, America has been known as the best place in the world to invest

because of our free market ideology. Our current belief in Neoliberalism is an idea that

the market will take care of itself and regulating it will only subtract from its potential to

create a better way of life for its people. This theory is presented by Harvey Molotch, and

motivated by the centralization of monetary power in the hands of rich, which control the

flow of goods and recourses within our country. These rich do not want to lose their

power, and have thus have done everything within their power to reduce the chances of

individuals from lower classes moving up into the upper classes. This principle

motivation to look out for oneself even if it is to the detriment of the community is a

dangerous lifestyle when sustainability is considered. It seems to me that the people of

power in our society understand and implement the political economy approach to

understanding society. I would like to challenge every one to think about what constitutes

a better life? Is it a nicer car or bigger house? What is happiness? Happiness levels in the

United States from the 1970s until the present have not changed much, even though it has

been a period of unprecedented economic growth. To the extent happiness levels have

changed, they have dropped downward a small amount (the explanation usually given for

that drop is the unevenly shared nature of the economic gains).28 This is why we need to

take back the future of our country from the deadly grasp of corporate agenda, if we are

to enjoy the freedoms of life, liberty and the pursuit of happiness, as granted to us by the

U.S. Constitution.

28
Gross National Happiness and the Economy Happiness, Global Economics, U.S.
Economy, Financial Markets, Carol Graham, Senior Fellow, Foreign Policy, Global
Economy and Development, Soumya Chattopadhyay, Senior Research Analyst, Foreign
Policy, Global Economy and Development TheGlobalist,
http://www.brookings.edu/opinions/2008/1024_happiness_graham.aspx

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