By Nomi Prins
Like a gilded coating
that makes the dullest things glitter, today’s thin veneer of political
populism covers a grotesque underbelly of growing inequality that’s hiding in
plain sight. And this phenomenon of ever more concentrated wealth and power has
both Newtonian and Darwinian components to it.
In terms of Newton’s first law of motion: those in power will remain in power unless
acted upon by an external force. Those who are wealthy will only gain in wealth
as long as nothing deflects them from their present course. As for Darwin, in
the world of financial evolution, those with wealth or power will do what’s in
their best interest to protect that wealth, even if it’s in no one else’s
interest at all.
In George Orwell’s iconic 1945 novel, “Animal Farm,” the pigs who gain control in a rebellion against a human
farmer eventually impose a dictatorship on the other animals on the basis of a
single commandment: “All animals are equal, but some animals are more equal
than others.” In terms of the American republic, the modern equivalent would
be: “All citizens are equal, but the wealthy are so much more equal than anyone
else (and plan to remain that way).”
Certainly, inequality is the economic great wall between
those with power and those without it.
As the animals of Orwell’s farm grew ever less equal, so in
the present moment in a country that still claims equal opportunity for its
citizens, one in which three Americans now have as much wealth as the bottom half of society
(160 million people), you could certainly say that we live in an increasingly
Orwellian society. Or perhaps an increasingly Twainian one.
After all, Mark Twain and Charles Dudley Warner wrote a
classic 1873 novel that put an unforgettable label on their moment and could do
the same for ours. “The Gilded Age: A
Tale of Today” depicted the
greed and political corruption of post-Civil War America. Its title caught the
spirit of what proved to be a long moment when the uber-rich came to dominate
Washington and the rest of America. It was a period saturated with robber
barons, professional grifters and incomprehensibly wealthy banking magnates.
(Anything sound familiar?) The main difference between that last century’s
gilded moment and this one was that those robber barons built tangible things
like railroads. Today’s equivalent crew of the mega-wealthy build remarkably
intangible things like tech and electronic platforms, while a grifter of a
president opts for the only new infrastructure in sight, a great wall to
nowhere.
Twain’s Gilded Age
In Twain’s epoch, the U.S. was emerging from the Civil War.
Opportunists were rising from the ashes of the nation’s battered soul. Land
speculation, government lobbying, and shady deals soon converged to create an
unequal society of the first order (at least until now). Soon after their novel
came out, a series of recessions ravaged the country, followed by a 1907
financial panic in New York City caused by a speculator-led copper-market scam.
From the late 1890s on, the most powerful banker on the
planet, J.P. Morgan, was called upon multiple times to bail out a country on
the economic edge. In 1907, Treasury Secretary George Cortelyou provided him
with $25 million in bailout money at the request of President Theodore
Roosevelt to stabilize Wall Street and calm frantic citizens trying to withdraw
their deposits from banks around the country. And this Morgan did — by helping
his friends and their companies, while skimming money off the top himself. As
for the most troubled banks holding the savings of ordinary people? Well, they
folded. (Shades of the 2007-2008 meltdown and bailout anyone?)
The leading bankers who had received that bounty from the
government went on to cause the crash of 1929. Not surprisingly, much speculation and fraud preceded it.
In those years, the novelist F. Scott Fitzgerald caught the era’s spirit of grotesque inequality in “The
Great Gatsby” when one of his characters comments: “Let me tell you about
the very rich. They are different from you and me.” The same could certainly be
said of today when it comes to the gaping maw between the have-nots and
have-a-lots.
Income vs. Wealth
To fully grasp the nature of inequality in our 21st-century
gilded age, it’s important to understand the difference between wealth and
income and what kinds of inequality stem from each. Simply put, income is how
much money you make in terms of paid work or any return on investments or
assets (or other things you own that have the potential to change in value).
Wealth is simply the gross accumulation of those very assets and any
return or appreciation on them. The more wealth you have, the easier it is to
have a higher annual income.
Let’s break that down. If you earn $31,000 a year, the median salary for an individual in the
United States today, your income would be that amount minus associated taxes
(including federal, state, Social Security and Medicare). On average, that
means you would be left with about $26,000 before other expenses kicked in.
If your wealth is $1,000,000, however, and you put that into
a savings account paying 2.25 percent
interest, you could receive
about $22,500 and, after taxes, be left with about $19,000, for doing nothing
whatsoever.
To put all this in perspective, the top 1 percent of
Americans now take home, on average, more than 40 times the incomes of the bottom
90 percent. And if you head for the top 0.1 percent, those figures only
radically worsen. That tiny crew takes home more than 198 times the income of the bottom 90 percent. They also possess as much wealth as the nation’s bottom 90 percent. “Wealth is power,”
as Adam Smith so classically noted almost two-and-a-half-centuries ago in “The Wealth of
Nations.” Sadly, the adage
seldom seems outdated.
Inequality and the Federal Reserve
Obviously, if you inherit wealth in this country, you’re
instantly ahead of the game. In America, a third to nearly a half of all wealth
is inherited rather than self-made. According to a New York
Times investigation, for instance, President Donald Trump, from birth,
received an estimated $413 million (in today’s dollars, that is) from his dear old dad
and another $140 million (in today’s dollars) in loans. Not a bad way for a
“businessman” to begin building the empire (of bankruptcies) that became the platform for a presidential campaign
that oozed into actually running the country. Trump did it, in
other words, the old-fashioned way — through inheritance.
In his megalomaniacal zeal to declare a national emergency
at the southern border, that gilded
millionaire-turned-billionaire-turned-president provides but one of many
examples of a long record of abusing power. Unfortunately, in this country, few
people consider record inequality (which is still growing) as another kind of
abuse of power, another kind of great wall, in this case keeping not Central
Americans but most U.S. citizens out.
The Federal Reserve, the country’s central bank that
dictates the cost of money and that sustained Wall Street in the wake of the
financial crisis of 2007-2008 (and since), has finally pointed out that such
extreme levels of inequality are bad news for the rest of the country. As Fed
Chairman Jerome Powell said at a town hall in
Washington in early February, “We want prosperity to be widely shared. We need
policies to make that happen.” Sadly, the Fed has largely contributed to increasing the
systemic inequality now engrained in the financial and, by extension, political
system. In a recent research paper, the Fed did, at least, underscore the consequences of
inequality to the economy, showing that “income inequality can generate low
aggregate demand, deflation pressure, excessive credit growth, and financial
instability.”
In the wake of the global economic meltdown, however, the
Fed took it upon itself to reduce the cost of money for big banks by chopping
interest rates to zero (before eventually raising them to 2.5 percent) and
buying $4.5 trillion in Treasury and mortgage bonds to lower it further. All
this so that banks could ostensibly lend money more easily to Main Street and
stimulate the economy. As Sen. Bernie Sanders noted though, “The Federal Reserve provided more than $16
trillion in total financial assistance to some of the largest financial
institutions and corporations in the United States and throughout the world… a
clear case of socialism for the rich and rugged, you’re-on-your-own
individualism for everyone else.”
The economy has been treading water ever since (especially
compared to the stock market). Annual gross domestic product growth has not
surpassed 3 percent in any year since the financial crisis, even as the level
of the stock market tripled, grotesquely increasing the country’s inequality gap. None
of this should have been surprising, since much of the excess money went
straight to big banks, rich investors and speculators. They then used it
to invest in the stock and bond markets, but not in things that would matter to
all the Americans outside that great wall of wealth.
The question is: Why are inequality and a flawed economic
system mutually reinforcing? As a starting point, those able to invest in a
stock market buoyed by the Fed’s policies only increased their wealth
exponentially. In contrast, those relying on the economy to sustain them via
wages and other income got shafted. Most people aren’t, of course, invested in
the stock market, or really in anything. They can’t afford to be. It’s
important to remember that nearly 80 percent of the population lives paycheck to paycheck.
The net result: an acute post-financial-crisis increase in wealth inequality — on top
of the income inequality that was global but especially true in the United
States. The crew in the top 1percent that doesn’t rely on salaries to
increase their wealth prospered fabulously. They, after all, now own more than half of all national wealth invested in stocks and mutual funds,
so a soaring stock market disproportionately helps them. It’s also why the
Federal Reserve subsidy policies to Wall Street banks have only added to the
extreme wealth of those extreme few.
The Ramifications of Inequality
The list of negatives resulting from such inequality is long
indeed. As a start, the only thing the majority of Americans possess a greater
proportion of than that top 1percent is a mountain of debt.
The bottom 90 percent are the lucky owners of about
three-quarters of the country’s household debt. Mortgages, auto loans, student
loans, and credit-card debt are cumulatively at a record-high $13.5
trillion.
And that’s just to start down a slippery slope. As Inequality.org reports, wealth and income inequality impact
“everything from life expectancy to infant mortality and obesity.” High
economic inequality and poor health, for instance, go hand and hand, or put
another way, inequality compromises the overall health of the country.
According to academic findings, income inequality is, in the most literal
sense, making Americans sick. As one study put it, “Diseased and impoverished economic infrastructures [help]
lead to diseased or impoverished or unbalanced bodies or minds.”
Then there’s Social Security, established in 1935 as a federal supplement for those in need who have
also paid into the system through a tax on their wages. Today, all workers
contribute 6.2 percent of their annual earnings and employers pay the other 6.2
percent (up to a cap of $132,900)
into the Social Security system. Those making far more than that, specifically
millionaires and billionaires, don’t have to pay a dime more on a proportional
basis. In practice, that means about 94 percent of American workers and their employers paid the full
12.4 percent of their annual earnings toward Social Security, while the other 6
percent paid an often significantly smaller fraction of their earnings.
According to his own claims about his 2016 income, for instance, Trump
“contributed a mere 0.002 percent of his income to Social Security in 2016.”
That means it would take nearly 22,000 additional
workers earning the median U.S. salary to make up for what he doesn’t have to
pay. And the greater the income inequality in this country, the more money
those who make less have to put into the Social Security system on a
proportional basis. In recent years, a staggering $1.4 trillion could have gone into that system, if there were no
arbitrary payroll cap favoring the wealthy.
Global Implications
America is great at minting millionaires. It has the highest
concentration of them, globally speaking, at 41 percent. (Another 24 percent of
that millionaires’ club can be found in Europe.) And the top 1 percent of U.S.
citizens earn 40 times the national average and own about 38.6
percent of the country’s total wealth. The highest figure in any other
developed country is “only” 28 percent.
However, while the U.S. boasts of epic levels of inequality,
it’s also a global trend. Consider this: the world’s richest 1 percent own 45 percent of total wealth on this planet. In
contrast, 64 percent of
the population (with an average of $10,000 in wealth to their name) holds less
than 2 percent. And to widen the inequality picture a bit more, the world’s
richest 10 percent, those having at least $100,000 in assets, own 84 percent of
total global wealth.
The billionaires’ club is where it’s really at, though.
According to Oxfam, the richest 42 billionaires have
a combined wealth equal to that of the poorest 50 percent of humanity. Rest
assured, however, that in this gilded century there’s inequality even among
billionaires. After all, the 10 richest among them possess $745 billion in total global wealth. The next 10 down the list
possess a mere $451.5 billion, and why even bother tallying the next 10 when you get the
picture?
Oxfam also recently reported that “the number of billionaires has almost doubled,
with a new billionaire created every two days between 2017 and 2018. They have
now more wealth than ever before while almost half of humanity have barely
escaped extreme poverty, living on less than $5.50 a day.”
The rich are only getting richer and it’s happening at a
historic rate. Worse yet, over the past decade, there was an extra perk for the
truly wealthy. They could bulk up on assets that had been devalued due to the
financial crisis, while so many of their peers on the other side of that great
wall of wealth were economically decimated by the 2007-2008 meltdown and have
yet to fully recover.
What we’ve seen ever since is how money just keeps flowing
upward through banks and massive speculation, while the economic lives of those
not at the top of the financial food chain have largely remained stagnant or
worse. The result is, of course, sweeping inequality of a kind that, in much of
the last century, might have seemed inconceivable.
Eventually, we will all have to face the black cloud this
throws over the entire economy. Real people in the real world, those not at the
top, have experienced a decade of ever greater instability, while the
inequality gap of this beyond-gilded age is sure to shape a truly messy world
ahead. In other words, this can’t end well.
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