Forward to the past: Next stop, the 19th century

If capitalism is taking us back to feudalism, we’ll have to pass through the 19th century on our way. In terms of wealth inequality, we’re on course to return to the century of robber barons. Back then, the public-relations industry hadn’t developed, so at least they were called by an honest name, instead of “captains of industry” or “entrepreneurs” as they are today. Although “heir” would frequently be far more accurate than “entrepreneur.”

We’re not at the 19th century yet, but we have arrived at the 1920s on our trip to the past. The level of inequality of wealth in the United States today has not been seen since the decade that led to the Great Depression.

The top 0.1 percent — that is, the uppermost tenth of the 1% — have about as much wealth as the bottom 90 percent of United Statesians. To put it another way, approximately 320,000 people possess as much as do more than 280 million. It takes at least $20 million in assets to be among the top 0.1 percent, a total that is steadily rising.

An altered version of a Depression-era image. (Image by Mike Licht, NotionsCapital.com)

An altered version of a Depression-era image. (Image by Mike Licht, NotionsCapital.com)

Emmanuel Saez, an economics professor at the University of California, and Gabriel Zucman, a professor at the London School of Economics, examined income-tax data to reveal these numbers. They write that they combined that data with other sources to reach what they believe is the most accurate accounting of wealth distribution yet, one that shows inequality to be wider than previously imagined. The authors define wealth as “the current market value of all the assets owned by households net of all their debts,” including the values of retirement plans with the exception of unfunded defined-benefit pensions and Social Security. (The reason for that exclusion is that those moneys do not yet exist but are promises to be kept sometime in the future.)

The authors’ paper, “Wealth Equality in the United States since 1913: Evidence from Capitalized Income Data,” reports that, for the bottom 90 percent, there was no change in wealth from 1986 to 2012, while the wealth of the top 0.1 percent increased by more than five percent annually — the latter reaped half of total wealth accumulation.

The 22 percent of total wealth owned by the top 0.1 percent is almost equal to what that cohort owned at the peak of inequality in 1916 and 1929. Afterward, their total fell to as low as seven percent in 1978 but has been rising ever since. At the same time, the combined wealth of the bottom 90 percent rose from about 20 percent in the 1920s to a peak of 35 percent in the mid-1980s, but has been declining ever since. Although pension wealth has increased since then, Professors Saez and Zucman report, the increase in mortgage, consumer-credit and student debt has been greater.

Nonetheless, this might still be an underestimation — the authors write that they “still face limitations when measuring wealth inequality” because of the ability of the wealthy to hide assets off shore or park them in trusts and foundations.

Inequality on the rise

Although rising throughout the developing world, inequality is particularly acute in the United States. Among the nearly three dozen countries that make up the Organisation for Economic Co-operation and Development, only three (Chile, Mexico and Turkey) have worse inequality than does the U.S., measured by the gini coefficient. The standard measure of inequality, the more unequal a country the closer it is to one on the gini scale of zero (everybody has the same) to one (one person has everything).

Of course, were we to measure inequality on a global scale, the results would be more revealing. Even the U.S. gini coefficient of 0.39 in 2012 pales in comparison to the global gini coefficient of 0.52 as calculated by the Conference Board of Canada. To put it another way, global inequality is comparable to the inequality within the world’s most unequal countries, such as South Africa or Uganda.

How to reverse this? Professors Saez and Zucman offer reforms that amount to a return to Keynesianism. They advocate “progressive wealth taxation,” [page 39] such as an estate tax; access to education; and “policies shifting bargaining power away from shareholders and management toward workers.” Such policies would surely be better than the austerity that has been on offer, but the authors’ wish that this can simply be willed into existence is quite divorced from capitalist reality.

Indeed, the authors go on to lament that one factor in stagnant incomes is that “many individuals … do not know how to invest optimally.” It is difficult to believe that these two learned economists are unaware of the relentless chicanery of the financial industry. How does one invest “optimally” in a rigged casino stacked against you?

The past is not the future

Fond wishes for the return of Keynesianism will not bring those days back. (And, of course, if you weren’t a white male those days weren’t necessarily golden anyway.) The Keynesian consensus of the mid-20th century was a product of a particular set of circumstances that no longer exist. Keynesianism then depended on an industrial base and market expansion. A repeat of history isn’t possible because the industrial base of the advanced capitalist countries has been hollowed out, transferred to low-wage developing countries, and there is almost no place remaining to which to expand. Moreover, capitalists who are saved by Keynesian spending programs amass enough power to later impose their preferred neoliberal policies.

Capitalists tolerated such policies because profits could be maintained through expansion of markets and social peace bought. This equilibrium, however, could only be temporary because the new financial center of capitalism, the U.S., possessed a towering economic dominance following World War II that could not last. When markets can’t be expanded at a rate sufficiently robust to maintain or increase profit margins, capitalists cease tolerating paying increased wages.

And, not least, the massive social movements of the 1930s, when communists, socialists and militant unions scared capitalists into granting concessions and prompted the Roosevelt administration to bring forth the New Deal, were a fresh memory. But the movements then settled for reforms, and once capitalists no longer felt pressure from social movements and their profit rates were increasingly squeezed, the turn to neoliberalism was the response.

Nobody decreed “We shall now have neoliberalism” and nobody can decree “We shall now have Keynesianism.” Capitalist market forces — once again, simply the aggregate interests of the most powerful industrialists and financiers — that are the product of relentless competitive pressures have led the world to its present state and the massive inequality that goes with it.

Even if mass social movements build to a point where they could force the imposition of Keynesian reforms, the reforms would eventually be taken back just as the reforms of the 20th century have been taken back. The massive effort to build and sustain movements capable of pushing back significantly against the tsunami of neoliberal austerity would be better mobilized toward a different economic system, one based on human need rather than private profit.

Reforming what is ultimately unreformable is Sisyphean. Going back to the mid-20th century Keynesian era, even were it possible, would be no more than a detour on the way to the 19th century. Building a better world beats nostalgia.

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21 comments on “Forward to the past: Next stop, the 19th century

  1. Alcuin says:

    We’re in quite a fix and I really don’t see any way out. Unfortunately, I think we’re in for an incoherent and spastic response to the tightening noose over the coming decades. The people who have are going to go into crisis mode to preserve their assets and privileges and those who don’t have will fight amongst themselves for the scraps, not being able to see why they are fighting for scraps. Just the other day, I was talking to a friend about Obamacare and why I oppose it – because we are subsidizing insurance companies instead of having single-payer. That went right over his head and he launched into that tired old diatribe about welfare mothers having more babies so that they can get bigger checks.

    Obama speaks in favor of net neutrality and AT&T’s response is to put their fiber buildout on hold. So predictable. Multiply that by thousands of different businesses and you get anarchy, but not the kind of anarchy that those who have read Kropotkin would recognize. He was a romantic and an idealist, not a realist. With a government bought and paid for by capitalists, anarchy reigns – business does what it wants to and laughs at the fines. I read today that 5 of the biggest banks were fined $3.4 billion for manipulating foreign exchange markets. That’s pocket change for those banks. Meanwhile, everyone else suffers the consequences.

    Capitalism. What a mess.

    • A mess that is destined to get uglier until we stop fighting one another for scraps and instead take back the loaf. Your conversation on the Affordable Care Act is as yet all too typical. Your friend doesn’t appear to have given any thought to as why the insurance companies were in favor of it.

  2. tubularsock says:

    SD, once again an excellent post. Tubularsock finds himself a bit short of the $20 million in assets to be in the 1% but maybe if I work three jobs or better yet, open a bank. The Tubularsock Bank, does have a “ka-ching” to it.

    Alcuin has hit it on the head as well and that entire Obamacare vs single-payer discussion and I still can’t figure out why people can’t see that clearly …… maybe it’s just too simple.

    And oh yes, Kropotkin as romantic …………… nice!

    • Let’s see: Pay less, like in every other country, in a system designed to deliver health care or, in the U.S., pay more in a system designed to deliver pharmaceutical and insurance profits. Maybe it is too simple …

  3. If it weren’t for Keynesianism and the financialization of the US economy, capitalism would have collapsed in the 1930s. Back then, a lot of leftists predicted it was on the verge of collapse.

    • Alcuin says:

      And Leftists are still predicting that capitalism is on the verge of collapse. Meanwhile, it just keeps chugging on laying waste to everything in its path.

    • Capitalism could have collapsed in the 1930s if the movements of those days had been willing to push it off a cliff. But it did have much life left in it, for the same reasons that Keynesianism was tolerated — there were plenty of places in which the system could expand. Now I believe we are reaching the beginning of the end, although without a push it might linger for decades yet and degenerate into something worse.

      At the 2013 Left Forum in New York, Immanuel Wallerstein flatly stated that we will be living under a different system in 2050. If so, there is no guarantee that it will be better without a global movement to shape it.

  4. Kathleen McCormick says:

    Unfortunately, a new system would require cooperation and forethought which are in short supply. As you noted, business will do what they will when they will without regard. I am one of the “little people” who has no trust in the financial system as it stands. I find the current status quo frightening; I felt better when I bought in and was blind to things. Oh well… Great post.

    • A new system would require cooperation and forethought, as you said. I do think those characteristics, and others we would need to draw upon to make a cooperative economy based on human need work, are in full supply. But we live in a system in which greed, competitiveness and various destructive components of the human personality are rewarded.

      A different world would reward different characteristics. But getting there from here is a long road that we’ve barely begun to walk, and few are yet aware that such a road exists.

  5. Alcuin says:

    I think a post about Marx, alienation, use-value vs. exchange-value and how capitalism destroys social bonds in a thousand different ways is in order. Marx said that capitalism is anarchic and he was so very right.

    Every cooperative effort for the last 500 years has collapsed in the face of the relentless assault of capitalism. Somehow, the global movement you frequently write about has to come up with some way to balance the competitive and cooperative aspects of human behavior. Capitalism, as you rightly note, rewards competitiveness and punishes cooperation. The only way out of our predicament is to find a balance between the two – the pointer is off the scale on the competitive side now.

    Capitalism destroyed intricate social networks that took hundreds, if not thousands of years to fine-tune. Those networks balanced the aggressive and the cooperative aspects of human nature. Without those cultures to keep us within bounds, we despoil the environment in a gluttonous display of selfishness.

    • I did discuss exchange value vs. use value in an early post, “Where does profit come from?” But it would be interesting to prepare an article folding in larger issues as you suggest. The best education I ever received was the five years I spent writing my book; in fact, the post on profit is based on an extract from it.

      Understanding history is essential; without it we can’t understand the present nor find a way to a better future.

  6. Richard William Posner says:

    It seems likely that the Anthropocene Epoch will not be discussed in any future history books or scientific journals for the simple reason that there will be no such books or journals nor historians or scientists to fill them.

    But for now, every day there are thousands of “articles” to be read online regarding the multitude of catastrophic issues facing the human species.

    A mob of “pundits”, who make a lot of effort to sound like they know what they’re talking about, write lengthy and often mind-numbing disquisitions about a plethora of these “issues” :
    •the economy
    •unemployment
    •food stamps
    •social security
    •medicare
    •education
    •the financial industry (now there’s an oxymoron if I’ve ever heard one)
    •police brutality
    •gun laws
    •politics
    •global warming
    •climate change
    •nuclear power
    •war
    •poverty
    •same sex marriage
    •peak oil
    •renewable energy
    •hydraulic fracturing (fracking)
    •the ostensible war on terror
    •health insurance
    •unions
    •mountain top removal
    •strip mining
    •deforestation
    •etc, etc, etc, ad nauseum

    The list could go on for pages and that’s a major problem, because all these individual issues we face today add up to one very big problem: global ecocide. This can end only one way: near term extinction of humans and possibly all Life on Earth.

    The expert commentators, more often than not, treat these incidental problems as if they were of the utmost importance and their resolution vital to the general welfare of humanity.
    In fact, nearly all these “issues” are nothing but distractions and many are kept in the public focus for that very reason.

    These issues are merely branches of a poisonous tree. Everyone is hacking at the branches but ignoring the root. Even if you cut down the tree and grind away the stump, any root allowed to remain below the surface will continue to send up new shoots. You cannot kill the tree by hacking at the branches; you must destroy the root. The root of this tree is industrial civilisation.

    This is not to say that the human race must be destroyed. But, after many years in denial, during which time I clung desperately to a utopian illusion of a sustainable, enlightened, techno-industrial society, I have finally reached the conclusion that industrial civilisation must be brought to an end or the human race will effectively destroy itself and quite possibly all Life on Earth.

    The single “issue” that must be resolved above all others is the destruction of the ecosystem, the murder of the planet. The only resolution is the end of civilisation as we know it. All the other issues “symptoms” of civilisation. Putting an end to civilisation will, in due course, automatically and naturally “cure” them all.

    It won’t be pretty or pleasant, easy or even bearable, but nothing less will suffice.

    Just my opinion

    • You surely have gotten to the roots. And, indeed, solving problems requires getting to the root — from which the word “radical” comes from. I dislike when writers conflate “radical” with “extremist.” “Radical” should be reserved for those who would rather concentrate on root causes rather than symptoms, or treat problems in isolation. The world needs many more radicals nowadays.

      My own take is that we must end the current form of civilization as opposed to civilization itself. I would define that as an end to capitalism and the substitution of an economy geared for human need rather than private profit, and the use of far less resources while living in harmony with the natural environment. But this day – if it comes — is well into the future as yet, and we have no choice but to tackle the issues in your list today or our descendants’ ability to create a sustainable world might well by impossible.

      • Richard William Posner says:

        It would seem that you might perhaps consider me worthy of being designated a “radical. If that’s so, then thank you. I’d consider that an honourable appellation.

        You note:

        My own take is that we must end the current form of civilization as opposed to civilization itself.

        I agree completely and apologise for not making myself clearer. The sentence below appeared in my comment but I forgot to add the emphasis as is my usual practice. It should have appeared something like this:

        The root of this tree is industrial civilisation.

        As far as I’m concerned the human species has yet to achieve a genuine civilisation . It’s my conclusion that, if we are ever to do so, we will first need to revisit our past and allow ourselves to resume the natural process of evolution, which, in my opinion, we literally abandoned at least 10,000 years ago.

        As to “fixing” things by trying a different “economy” or working on any of the manifold “issues” before us, I say again, these issues are merely branches of a poisonous tree. Everyone is hacking at the branches but ignoring the root. Even if you cut down the tree and grind away the stump, any root allowed to remain below the surface will continue to send up new shoots. You cannot kill the tree by hacking at the branches; you must destroy the root. The root of this tree is industrial civilisation.
        On this point it may be necessary for us to agree to disagree.

        Human beings will be happier – not when they cure cancer or get to Mars or eliminate racial prejudice or flush Lake Erie but when they find ways to inhabit primitive communities again. That’s my utopia.
        Kurt Vonnegut

    • Alcuin says:

      Well, I think the “expert” commentators are guilty of the same error that 99% of people are, an error that SD is trying very hard to rectify: not understanding what capitalism is and how it changed everything when it was invented in the 14th century in England.

      “There are a thousand hacking at the branches of evil to one who is striking at the root.” – Henry David Thoreau.

      And there are plenty of people who are striking at the wrong root, too. It isn’t industrial civilization that is the problem (it could only be created by a capitalist economic system); it is capitalism itself. Capitalism is the root that has to be yanked out.

      I’m not optimistic about that happening, though.

      If you want to learn what capitalism is all about, start reading this blog from the beginning. SD has provided an excellent series of posts that will guide you to a radical position unlike the one you currently have. I dare say that position will be even more radical than the one you now have, that of the problem being industrial civilization.

      Eldridge Cleaver famously said, “if you’re not part of the solution, you’re part of the problem.” He was a wise man who unfortunately became part of the problem later in life.

      Capitalism has to go. That’s the solution. Climb aboard the train.

      • Richard William Posner says:

        This is a case of the “chicken or the egg? question.

        Industry began well over 10,000 years ago, long before capitalism was born. Capitalism, horrendous though it may be, is only a symptom, not the disease.

        If you want to learn what capitalism is all about…

        I’ve spent a lot of time over the last fifty years studying “economics“, “money” and “monetary systems“. Economics = Hocus Pocus / Voodoo / Religion

        Industrialised civilisations are inherently expansionistic, like cancer. They will always grow beyond the carrying capacity of their landbase. They are unsustainable in a closed system such as a planetary ecosphere.

        And, ultimately, the disease that’s killing us is actually a disease: PSYCHOPATHY.

        Just my opinion and we can always agree to disagree. It is incumbent upon neither of us to “convert” the other.

        • An interesting debate. I agree that “Industrialised civilisations are inherently expansionistic [and] will always grow beyond the carrying capacity of their landbase.” We have plenty of examples from ancient history.

          But before the Industrial Revolution, humanity did not have the capacity to inflict much damage on the Earth. Even capitalism didn’t in its early stages, confined as it was to northwestern Europe. But capitalism today is a world system and the catastrophic destruction that this world system can, and is, inflicting is possible because of the Industrial Revolution, which in turn is a pure product of capitalism and capitalism’s relentless drive to expand.

          This is, as each of us have written, unsustainable on a finite planet. That is the bottom line no matter what differences in analysis we may have.

          • Richard W. Posner says:

            This is, as each of us have written, unsustainable on a finite planet. That is the bottom line no matter what differences in analysis we may have.

            Yes. As I’ve said, it’s not incumbent upon any of us to convert the others. Since the end result – collapse – is the same, whichever came first – industry or capitalism – why would we waste our time quibbling over a single detail that nobody can hope to verify with certainty anyway?

            Frankly it’s my opinion that the “industrial revolution” began, at the latest, the moment the first monolithic structure was created for the purpose “ceremonial” gatherings. I don’t think that simple tool making by individuals really qualifies. Or even hunting in small, cooperative groups. But organising labour to build large structures for use by groups of people, for whatever purpose, requires industry. As does clearing land for the purpose of planting crops – agriculture.

            Exactly where, how, why and when such events transpired will never be known. There were no scribes to record them for posterity. However, archaeological evidence from locations such as Gobekli Tepe , in southeastern Turkey, indicates that, at least eleven thousand years ago, Neolithic humans started building large structures, temples, places for ritualistic gatherings. At the same time, most significantly and most damning, we began to think of ourselves as separate from and superior to all other Life on Earth.

            It’s my conclusion, which is another way of saying “opinion“, that the transition from the Paleolithic to the Neolithic marked a horrible evolutionary blunder, which took us completely out of the “evolution” game, enabled the initialization of ponerogenesis, allowed pathocracy to gain a foothold and brought us, ultimately, to this moment in time where we’re looking like a good candidate for near term extinction. This is what brought about by the “progress” leading to technologies that enabled capitalism and industry as we now know it, global, mass exploitation of resources and the rampant destruction of our Life-support system for profit.

            That said, I can’t convince myself that any change in the “economic” system would do anything to prevent the imminent collapse of our industrialised, technological culture. You can fund it any way you like. It will still render the planet totally hostile to human habitation.

            Once again, just my opinion

  7. […] that is all about context.  During basically Ariel Pink’s entire lifetime, there has been a retrenchment of power in the hands of the already rich and powerful.  This came at the expense of the middle […]

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