New research from inequality experts Thomas Piketty and Emmanuel Saez has revealed that we now have the biggest gap between the rich and rest of America since economists began tracking data a century ago.
This isn’t supposed to happen following an economic crisis. After the Great Depression, Roosevelt’s New Deal programs worked to prevent wealth from piling back up at the top. And over the past two decades, the percentage of income claimed by the wealthy dropped after each recession. But in the aftermath of the Great Recession, the top 1 percent has gobbled up nearly all of the income gains in the first three years of the “recovery” — a stupifying 95 percent. Economic inequality is even worse than it was before the crash. In fact, last year the rich took home the largest share of income since 1917 with the exception of only one year: 1928.
Is This an Accident?
Let’s take a look at the years from 2009 -2012. While working people were sweating it, the richest Americans have enjoyed a fabulous ride. For example, if you were in the top 1 percent in 2012, lucky you — your income soared on average by 20 percent. And if you were in the top 0.01 percent, you probably bought a bigger yacht because your income was up by more than 32 percent on average. As for everybody else? They shared a measly 1 percent rise.
In other words, the rich are getting richer, and the rest of us are frozen in economic purgatory.
For despite all the talk of the Federal Reserve’s “quantitative easing” driving soaring stock markets and a post-crisis economic boom, 99 percenters have seen their real incomes going down and their living standards depressed. Ordinary, hard-working people are not getting a slice of the pie, they’re barely getting a sliver. (Cue Obama’s apparent pick for the next Federal Reserve chair, the crony capitalist, bank-loving Larry Summers.)
The bailouts, which handed boatloads of money to bankers, can’t be blamed entirely on President Obama. But ever since then, the policies of his administration have pretty much fixed things so that those who caused the crisis have benefited, while those who didn’t paid for it. He has surrounded himself with Wall Street apologists as economic advisors, despite the existence of extraordinary economic minds like Nobel laureate Joseph Stiglitz who could offer sound and sensible guidance. Every chance Obama has to correct this mistake, he seems to double down and brings on another 1 percenter.
To be fair, Republicans have been the most ardent promoters of “trickle-down” economics and austerity policies that leave regular people behind. But centrist Democrats have done little to forge a different path. A few courageous progressive voices, like Elizabeth Warren’s, get drowned out by a chorus of “Let’s Make a Deal” politicians eager to screw the bulk of the population and reward the rich while filling their campaign coffers. Policies like cutting our social insurance programs and allowing the rich to evade taxes are hidden behind clever marketing campaigns: For hedge fund billionaire Pete Peterson, for example, who counts deficit committee co-chairs Alan Simpson and Erskine Bowles as his errand boys, the name of the game is “fixing the debt.”
What these plutocrats are really doing is fixing your financial future so that more money can be sucked out of your pockets to line theirs. Obama’s decision to focus on deficit reduction rather than job creation is the sure sign his administration sings the tune of the wealthy. The wealthy wanted deficit reduction, while the rest of us wanted investment in jobs, schools and infrastructure, as Northwestern University’s Benjamin Page and his team of social scientists have shown in their extensive research on public opinon. But we didn’t get it. Instead we got job insecurity and nightmare retirement prospects.
Making the Rich Richer is a Terrible Idea.
Making the rich richer is a terrible idea for several reasons. For one thing, it kills jobs. When regular people have money in their pockets to pay for things like food, clothing, or going to the movies, they are actually creating jobs. The taco stand can hire another cashier when people come in to spend their money on tacos.
But there are only so many tacos you can buy. If you have much more money than you can possibly spend, you’ll likely sock it away or invest in financial assets or start doing risky speculation, which doesn’t create any jobs. With banks deleveraging (cutting back on loans) and many companies fearful of borrowing given anemic rates of economic growth, your savings won’t be recycled. Even if you’re a rich person who builds a company, chances are you’re not creating very good jobs, and you’re also destroying plenty of them. High unemployment makes it easy to hold wages down and squeeze more and more work from desperate workers. Apple executives like to brag about all the American jobs they create, but a great many of them are crappy retail jobs featuring $26,000 salaries and little chance of a long-term career.
An economist might say that the economic return to capitalists has gone up at the expense of economic return to labor.
As Nick Hanauer, founder of Second Avenue Partners, told Bloomberg:
“I can say with confidence that rich people don’t create jobs, nor do businesses, large or small. What does lead to more employment is the feedback loop between customers and businesses. And only consumers can set in motion a virtuous cycle that allows companies to survive and thrive and business owners to hire. An ordinary middle-class consumer is far more of a job creator than I ever have been or ever will be.”
You can see the truth of Hanauer’s statement when you realize that while the concentration of wealth in America has been heating up for the last couple of decades, the job market has been pretty bleak. That’s what happens when Washington policy becomes “Who Wants to Help a Millionaire?”
If making the rich richer is destructive, why do we do it? We’re not supposed to be a country of aristocrats and peasants who labor at the pleasure of the wealthy. We’re supposed to be free and proud citizens whose labor, investment and idea drive the economy.
What’s happened is that the rich have been using the fairy tale of “rugged individualism” and our healthy skepticism of too much government to convince many of us that we shouldn’t have programs designed to promote economic equality and benefit ordinary people rather than the rich. And, of course, they’ve unleashed their bankrolls in Washington, where, since Newt Gingrich came on the scene, Congress has turned into what political economist Thomas Ferguson describes in the Financial Times as a “Best Buy system” where positions of power go to whoever can raise the most cash. “Uniquely among legislatures in the developed world, US congressional parties now post prices for key slots in the lawmaking process,” writes Ferguson. “The practice makes cash flow the basic determinant of the very structure of lawmaking.”
The rich are getting richer in that they control our legal and political systems. They aren’t going to give up this control voluntarily.
If we continue on this path of functional feudalism, we can look to history for hints as to what might happen. In the late 18th century, peasants in France expressed their anger at the brutes who were extracting their wealth by rounding them up in the Place de la Concorde and separating their heads from their bodies. Hopefully we can go a more peaceful route, joining forces in a mass movement that pushes our elected officials to get our economy and society back into balance through fair taxes, a robust social safety net, investment in working people, rules of the road that curb Wall Street’s excesses, and a plan to bring the financial sector back to a manageable size.
The Occupy movement was a hint that this might be possible. It was also a warning that the Powers That Be will do everything they can to shut such a movement down.
But if we maintain the current path, at some point, the 99 percent will be pushed too far.