There are thoughts worth highlighting in this interview with one of today’s most notable intellectuals.
On inequality, it was low (by comparative standards) during the period of regulated capitalism — the final era of “great compression” of income as it is sometimes called. Inequality began to increase rapidly with the advent of the neoliberal era, not only in the US, though the US is extreme among developed societies. During the tepid recovery from the Great Recession of 2008, virtually all gains went to the top few percent, mostly 1 percent or a fraction thereof. “For the United States overall, the top 1 percent captured 85.1 percent of total income growth between 2009 and 2013,” an Economic Policy Institute Study revealed. “In 2013 the top 1 percent of families nationally made 25.3 times as much as the bottom 99 percent.” And so, it continues. The latest Federal Reserve studies show that “The share of income received by the top 1 percent of families rose to 23.8 percent in 2016, up from 20.3 percent in 2013. The share of the bottom 90 percent of the distribution fell to 49.7 percent, the lowest on record in the survey’s history.” Other figures are grotesque. Thus, “Average wealth holdings for white families in 2016 were about $933,700, compared with $191,200 for Hispanic families and $138,200 for black families,” a product of deep-rooted racism exacerbating the neoliberal assault.
There are many contributing factors to the sharp break between the two postwar periods — neither [of] which began to approach what is surely possible in the richest society in world history, with incomparable advantages.
One leading factor is the financialization of the economy, creating a huge bloc of largely predatory institutions devoted to financial manipulations rather than to the real economy — a process by which “Wall Street destroyed Main Street,” in the words of Financial Times editor Rana Foroohar. One of her many illustrations is the world’s leading corporation, Apple. It has astronomical wealth, but to become even richer, has been shifting from devising more advanced marketable goods to finance. Its R&D as a percentage of sales has been falling since 2001, tendencies that extend widely among major corporations. In parallel, capital from financial institutions that financed business investments during the postwar growth period now largely “stays inside the financial system,” Foroohar reports, “enriching financiers, corporate titans, and the wealthiest fraction of the population, which hold the vast majority of financial assets.”
During the period of rapid growth of financial institutions since the ’70s, there seem to have been few studies of their impact on the economy. Apparently, it was simply taken for granted that since it (sort of) accords with neoliberal market principles, it must be a Good Thing.
The failure of the profession to study these matters was noted by Nobel laureate in economics Robert Solow after the 2008 crash. His tentative judgment was that the general impact is probably negative: “the successes probably add little or nothing to the efficiency of the real economy, while the disasters transfer wealth from taxpayers to financiers.” By now, there is substantially more evidence. A 2015 paper by two prominent economists found that productivity declines in markets with rapidly expanding financial sectors, impacting mostly the sector most critical for long-term growth and better jobs: advanced manufacturing. One reason, Foroohar observes, is that “finance would rather invest in areas like real estate and construction, which are far less productive but offer quicker, more reliable short-term gains” (hence also bigger bonuses for top management); the Trump-style economy, palatial hotels and golf courses (along with massive debt and repeated bankruptcies).
In part for related reasons, though productivity has doubled since the late ’70s when finance was beginning to take over the economy, wages have stalled — for male workers, declined. In 2007, before the crash, at the height of euphoria about the grand triumphs of neoliberalism, neoclassical economics and “the Great Moderation,” real wages of American workers were lower than they had been in 1979, when the neoliberal experiment was just taking off. Another factor contributing to this outcome was explained to Congress in 1997 by Fed Chair Alan Greenspan, when testifying on the healthy economy he was managing. In his own words, “Atypical restraint on compensation increases has been evident for a few years now and appears to be mainly the consequence of greater worker insecurity.” Insecurity that was, as he noted, markedly increasing even as employment prospects improved. In short, with labor repressed and unions dismantled, workers were too intimidated to seek decent wages and benefits, a sure sign of the health of the economy.
The same happened to the minimum wage, which sets a floor for others; if it had continued to track productivity, it would now be close to $20 an hour.
Despite much lofty rhetoric about “free markets,” like other major industries (energy, agribusiness, etc.), financial institutions benefit enormously from government subsidy and other interventions. An IMF study found that the profits of the major banks derive substantially from the implicit government insurance policy (“too big to fail”), which confers advantages far beyond the periodic bailouts when corrupt practices lead to a crash — something that did not happen during the earlier period, before bipartisan neoliberal doctrine fostered deregulation. Other benefits are real but immeasurable, like the incentive to undertake risky (hence profitable) transactions, with the understanding that if they crash, the hardy taxpayer will step in to repair the damage, probably leaving the institutions richer than before, as after the 2008 crash for which they were largely responsible.
Other factors include the accelerated attack on unions and the radical reduction in taxes for the wealthy, both natural concomitants of neoliberal ideology. Another is the particular form of neoliberal globalization, particularly since the ’90s, designed in ways that offer very high protection and other advantages to corporations, investors and privileged professionals, while setting working people in competition with one another worldwide, with obvious consequences.
Such measures have a mutually reinforcing effect. As wealth becomes more concentrated, so, automatically, does political power, which leads to government policies that carry the cycle forward.
One might almost define “neoliberalism” — a bit cruelly, but not entirely unfairly — as an ideology devoted to establishing more firmly a society based on the principle of “private affluence, public squalor” — John Kenneth Galbraith’s condemnation of what he observed in 1958. Much worse was to come with the unleashing of natural tendencies of capitalism in the neoliberal years, now enhanced as its more [brutal] variants are given virtually free rein under Trump-Ryan-McConnell Republicanism.
All of this is under human control, and can be reversed. There are many realistic options, even without looking beyond short-term feasibility. A small financial transaction tax would sharply reduce the rapid trading that is a net loss to the society while benefiting a privileged few, and would also provide a progressive government with revenue for constructive purposes. It’s common knowledge that the deterioration of infrastructure has reached grotesque proportions. Government programs can begin to address these serious problems. They can also be devoted to improving rather than undermining the deteriorating public education system. Living wage and green economy programs of the kind that Bob Pollin has developed could go a long way toward reducing inequality, and beyond that, creating a much more decent society. Another major contribution would be [an equitable] health care system. In fact, just eliminating the exorbitant patent protections that are a core part of the neoliberal “free trade agreements” would be a huge boon to the general economy — and the arguments for these highly protectionist measures are very weak, as economist Dean Baker has shown convincingly. Legislation to put an end to the “right to scrounge laws” (in Orwellian terminology, “right to work laws”) that are designed to destroy unions could help revive the labor movement, by now with different constituencies, including service and part-time workers. That could reverse the growth of the new “precariat,” another matter of fundamental importance. And it could restore the labor movement to its historic role as the leading force in the struggle for basic human rights.
There are other paths toward reviving a vital and progressive labor movement. The expansion of worker-owned and managed enterprises, now underway in many places, is a promising development, and need not be limited to a small scale. A few years ago, after the crash, Obama virtually nationalized a large part of the auto industry, then returning it to private ownership. Another possibility would have been to turn the industry over to the workforce, or to stakeholders more broadly (workers and community), who might, furthermore, have chosen to redirect its production to what the country sorely needs: efficient public transportation. That could have happened had there been mass popular support and a receptive government. Recent work by Gar Alperovitz and David Ellerman approaches these matters in highly informative ways.
An immediate objective of moderately progressive policy should be to sharply cut the huge military budget, well over half of discretionary spending and now expanding under the Republican project of dismantling government, apart from service to their wealthy/corporate constituency. One of many good reasons to trim the military budget is that it is extremely dangerous to our own security. A striking illustration is the Obama-Trump nuclear weapons modernization program, which has sharply increased “killing power,” a very important study in the Bulletin of Atomic Scientists reported last March. Thereby, the program “creates exactly what one would expect to see, if a nuclear-armed state were planning to have the capacity to fight and win a nuclear war by disarming enemies with a surprise first strike.” These developments, surely known to Russian planners, significantly increase the likelihood that they might resort to a preemptive strike — which means the end — in case of false alarms or very tense moments, of which there are all too many. And here, too, the funds released could be devoted to badly needed objectives, like quickly weaning ourselves from the curse of fossil fuels.
This is a bare sample. There’s a long list.
A recent study by the US-based Commonwealth Fund, a nonpartisan health policy research group, found that once again, as repeatedly in the past, the US health care system is the most expensive in the world, far higher than comparable countries, and that it ranks last in performance among these countries. To have combined these two results is a real triumph of the market. The roots of the achievement are not obscure. The US is alone in relying on largely unregulated private insurance companies. Their commitment is to profit, not health, and they produce huge waste in administrative costs, advertising, profit and executive compensation. The government-run component of the health system (Medicare) is far more efficient, but suffers from the need to work through the private institutions. The US is also alone in legislation barring the government from negotiating drug prices, which, not surprisingly, are far above comparable countries.
Nevertheless, there are new openings for some degree of [reason], which could greatly enhance people’s welfare, as well as improving the general economy.
To be sure, there will be massive opposition from private power, which has extraordinary influence in our limited class-based democracy. But it can be overcome. The historical record shows that economic-political elites respond to militant popular action — and the threat of more — by endorsing ameliorative measures that leave their basic dominance of the society in place. New Deal measures of social reform are one of many illustrations.