Wealth inequality in the US: Source: Edward N. Wolff, “Recent Trends in Household Wealth in the United States: Rising Debt and the Middle-Class Squeeze—an Update to 2007,” Levy Economics Institute of Bard College Working Paper No. 589, March 2010, Tables 10 and 11
From Paul Street
What’s ‘not normal’ about inequality of wealth and income under the amoral system of capitalism?
I recently read a call for increased economic equality from an interesting source. The author of the appeal was Bill Gross, Chief Investment Officer and co-founder of the Pacific Investment Management Company (PIMCO), a $14 billion global capital investment firm headquartered in California. Forbes lists Gross as the world’s 778th richest billionaire. His net worth is $2.4 billion and he “earns” $200 million a year. “You could hire 2,000 schoolteachers for that money,” says William Popejoy, a former financial executive who has been a Pacific Investment Management Co. trustee for more than two decades.
In a July 15, 2014 USA TODAY Op Ed titled “Invest in Normalcy for All,” Bill Gross claimed to be bothered by the fact the United States is currently as unequal as it has been any time since the 1920s. He noted with disappointment that the Organization for Economic Cooperation and Development (OECD) ranks the US 31st among 34 nations examined for income equality. The US is “surpassed only by the likes of Chile and Turkey,” Gross complained. Gross is disturbed (or claims to be) that US corporations are enjoying record after-tax profits equaling 10% of US gross domestic product (GDP) – “exceeding the levels of the Roaring 20s” – while US wages have fallen from 57% of GDP in 1970 to 43% of GDP today.
This inequality, Gross writes, is “not normal.” It is also, he argues, bad for business since it stifles mass consumption and innovation. The US, Gross maintains, needs to become “more normal” by reversing “the enduring loss of purchasing power by workers relative to inflation and corporate profits.” It can and must do this, he argues, by raising the minimum wage, increasing the collection of taxes from corporations, eliminating the “carried interest” tax reduction scheme for wealthy individuals, and “promoting worker education to assist in learning the skills required by a 21st century economy.”
Gross supports these things in the name of capitalism. In a section of his commentary titled “CAPITALISM IN DANGER,” he writes the following in support of what he calls “the Henry Ford solution”: “Minimum-wage law increases, while seemingly anti-capitalistic and undemocratic, might be necessary for the common good – workers and corporations alike.”
Some Things Left Out
One could say quite a lot more than Gross does when it comes to understanding and reducing economic inequality in the US. What about wealth inequality, which is even more extreme than – and just as significant as (if not more important than) – than disparity today? (The richest 1% of the US has more much shared net worth than the bottom 90% of the US.) The re-legalization of serious union organizing in the US (organized labor has long been the nation’s most effective anti-poverty program)? Giant public works programs to employ millions of structurally unemployed “surplus Americans” in socially useful and ecologically necessary work? Restrictions on capital flight and mobility? Renegotiation of neoliberal “free trade” (investor rights) agreements to include critical labor and other social protections for working people? The break-up and tightened regulation or even the nationalization of the United States’ arch-parasitic “too-big-to-fail” financial institutions (who repeatedly crash the economy at vast public expense)? Substantive democratizing political and electoral reform (like the full public financing of public elections, proportional representation in legislative races, the elimination of legal barriers to third and fourth parties) to roll back the current abject US plutocracy? Serious (single-payer) health insurance reform (Improved Medicare for All) to make high-quality health care a socially affordable right for all? Lifting the regressive cap up on the Social Security payroll tax and taxing capital gains to fund Social Security and health care? The slashing of rampant, ransom-like corporate welfare and the re-direction of the money saved to social expenditures? A restoration and expansion of the shredded social wage and safety net? Work-sharing to dry up the reserve army of unemployed to enhance workers’ bargaining power, spread wages and benefits, and roll back the scourge of overwork? An end to the privilege-preserving funding of public schools on the basis of local property wealth? Free K-college public education? Slashing the giant Pentagon budget (itself a giant subsidy to high-tech corporations) and the re-direction of resources from military Empire to social needs? Dramatically increased worker voice and participation in the direction of enterprises?
All of this and more would be eagerly embraced by a significant majority of US citizens.
And where are all those skilled US jobs for which US workers supposedly lack the training, anyway? (See Paul Street, “Seven Things,” ZNet-Telesur, July 10, 2014, http://zcomm.org/znetarticle/seven-things/)
I could go on. But the main problem with billionaire Gross’s commentary isn’t about policy. It’s about history. It’s also about the nature of capitalism, the socioeconomic regime that Gross mistakenly conflates with democracy and “the common good.” It is Gross’s assumption that gross inequality is “not normal” (a) under capitalism and (b) in US history.
You don’t have to be a Marxist or other kind of anti-capitalist to understand that capitalism is all about socioeconomic disparity. As the liberal economist Lester Thurow noted 18 years ago:
“Democracy and capitalism have very different beliefs about the proper distribution of power. One believes in a completely equal distribution of political power, ‘one man [sic] one vote,’ while the other believes that it is the duty of the economically fit to drive the unfit out of business and into extinction. ‘Survival of the fittest’ and inequalities in purchasing power are what capitalist efficiency is all about. Individual profit comes first and firms become efficient to be rich. To put it in its starkest form, capitalism is perfectly compatible with slavery. Democracy is not.” (The Future of Capitalism [NY, 1996], 242, emphasis added).
My dusty old copy of Webster’s New Twentieth Century Dictionary defines capitalism as “the economic system in which all or most of the means of production and distribution…are privately owned and operated for profit, originally under fully competitive conditions: it has been generally characterized by a tendency toward concentration of wealth and, its latter phase, by the growth of great corporations, increased government controls, etc.”
The “Golden Age” was the Real Anomaly
What’s “not normal” about inequality of wealth and income under this amoral system of class rule? If there’s one immutable fact to take away from the liberal French economist Thomas Piketty’s instantly celebrated volume Capital in the 21st Century (2014) it is that wealth, left to its own devices, inexorably concentrates in capitalist economies. Proving this thesis with more than two centuries of data, Piketty shows that there is nothing inherent in the workings of “free market” capitalism to block, much less roll back that tendency. The only things that have reduced inequality under the bourgeois system have been (a) extraordinary crises like the Great Depression and the last century’s two world wars and (b) political/policy interventions on behalf of downward redistribution.
With inequality in the rich nations currently approaching “levels equal to those observed in the eighteenth and nineteenth centuries,” Piketty observes that “wealth [capital] is once again flourishing. Broadly speaking,” he demonstrates, “it was the wars of the twentieth century that wiped away the past to create the illusion that capitalism had been structurally transformed” (Capital in the 21stCentury, p. 118). “Modern economic growth and the diffusion of knowledge,” Piketty shows, “have not modified the deep structures of capital and inequality – or in any case not as much as one might have imagined in the optimistic decades following World War II” (p.1, emphasis added).
It was the so-called Golden Age of western capitalism (1945-1970) following the Great Depression and the two cataclysmic world wars – a period of significant downward wealth and income distribution in the core (rich) nations of the world capitalist system – that marked the real anomaly in the history of capitalism. The sweeping re-concentration of wealth and income over the last four decades of hyper-capitalist “neoliberalism” have been a return to the systemic norm.
The Shadows of Dewey and Marx
This is no less true in the United States than in any other rich nation. Three years into the Great Depression, itself fueled by the shocking levels of US inequality during the 1920s, the great American philosopher John Dewey observed that U.S. politics were little more than “the shadow cast on society by big business.” He predicted that things would stay that way as long as “business for private profit” controlled the nation’s means of finance, production, and communication.
It might seem that Dewey spoke too soon. Between the 1930s and the 1970s, a significant reduction in overall economic inequality (though not of racial inequality) and an increase in the standard of living of millions of working class Americans occurred in the United States. This “Great Compression” occurred thanks to the emergence and expansion of the industrial workers’ movement (sparked to no small extent by Communists and other left militants), the spread of collective bargaining, the rise of a relatively pro-union New Deal welfare state and the democratic domestic pressures and progressive taxation required by the epic global struggle with German and Japanese fascism (WWII). As the liberal US economist Paul Krugman has noted:
“America in the 1950s was a middle-class society, to a far greater extent than it had been in the 1920s—or than it is today. . . . Ordinary workers and their families had good reason to feel that they were sharing in the nation’s prosperity as never before. And, on the other side, the rich were a lot less rich than they had been a generation earlier. . . . Somehow, Franklin Roosevelt and Harry Truman managed to preside over a dramatic downward redistribution of income and wealth that made America far more equal than ever before. . . .The postwar generation was a time when almost everyone in America felt that living standards were rising rapidly, a time in which ordinary Americans felt that they were achieving a level of prosperity beyond their parents’ wildest dreams.”
By the early 1950s, the claim was even seriously advanced in Readers’ Digest that post-WWII America had replaced capitalism and its old class distinctions with “mutualism,” “industrial democracy,” “distributism,” “productivism,” and/or “economic democracy.”  This was quite naïve. Core capitalist prerogatives and assets – Dewey’s “private control” and “business for profit” – were never dislodged, consistent with New Deal champion Franklin Roosevelt’s boast that he had “saved the profits system” from radical change.
The gains enjoyed by ordinary working US-Americans were made possible to no small extent by the uniquely favored and powerful position of the US economy and the remarkable profit rates enjoyed by US corporations in the post-WWII world. When that position and those profits was significantly challenged by resurgent Western European and Japanese economic competition in the 1970s and 1980s, the comparatively egalitarian trends of postwar America were reversed by capitalist elites who had never lost their critical command of the nation’s core economic and political institutions.
Working class Americans have paid the price ever since. For the last four decades, wealth and income have been sharply concentrated upward, returning to pre-Great Depression levels, marking a New or Second Gilded Age that is traceable to a number of regressive and plutocratic policies that have nothing to do with any shift right in the populace and in fact run contrary to technically irrelevant US public opinion. (The top 1% owns 40% of the nation’s wealth and a probably larger share of its “democratically elected” officials.)
Along the way, US capitalists/corporations have globalized their production and sales operations like never before. US workers’ purchasing power is far less critical to US capital’s calculation today than it was during Henry Ford’s time or in the “golden age.” At the same time, mass US consumption today fuels employment prospects for workers in other countries (China especially). With numerous leading “American” companies drawn to the “emerging middle-class markets” and low-cost workforces in South and East Asia (among other sales and investment locations), there is now and has for decades been a big difference between what is good for “American” companies (capital) and what is good for US workers and the US economy. This harsh reality questions the relevance of “the Henry Ford solution” (see note 1).
In the US as in other nations, gross inequality is a core and all-too “normal” component of capitalism understood over the longue durée. As the new academic rockstar Thomas Piketty (who makes a big point of not being a Marxist), admits, Karl Marx got it right: inequality is deeply rooted in the institutional sinews of capitalism. So, many on the eco-socialist left (this writer included) argue, is environmental catastrophe – the ruination of livable ecology that is ever more undeniably evident today. This problem of capital-o-genic eco-cide (no small matter) does not enter into Bill Gross’s sense of what’s wrong (“not normal”) with contemporary US capitalism. Sadly, it does not figure much either in Piketty’s reflections on capital in the 21st century – a problem to which I will return in a subsequent commentary.
I do not pretend to know exactly why the super-wealthy hyper-capitalist Bill Gross took to the pages of USA TODAY to call for more “normal” equality under US capitalism. Maybe he really believes that his bourgeois system of socioeconomic management is endangered by current shocking levels of US disparity. Maybe he’s also or just trying to sound egalitarian to counter those who criticize his ostentations salary and opulence. Whatever, I can assure him that nothing remotely close to economic equality (of either outcome or “opportunity”) or for that matter democracy will ever be achieved in the “shadow cast on society” by reigning private capital – a shadow that in the current “neoliberal” era has turned into “a dark cloud enveloping society and the political system. Corporate power, now largely financial capital,” Noam Chomsky reminded us three years ago, “has reached the point that both political organizations, which now barely resemble traditional parties, are far to the right of the populace on the major issues under debate.”
Also beyond the reach of a society haunted by Dewey’s shadow and Chomsky’s dark cloud is the salvation of livable ecology – a topic to which I shall turn in a future Telesur commentary.
1. This refers to US automaker Henry Ford’s determination that US workers needed to be paid enough money to buy back the products they made (the “five dollar day” by Ford’s calculation in the early 20th century) so to avoid the problem of over-production/under-consumption.
2. See Frederick Lewis Allen, The Big Change: America Transforms Itself, 1900-1950 (NY: Harper, 1952), 249