Survival of the Richest, All Are Equal, Except Those Who Aren't
By Nomi Prins, TomDispatch
26 February 19
Honestly, the inequality gap in America should stagger the imagination or,
on second thought, maybe it shouldn't, not with the first billionaire in the
White House and at least two more threatening to join him in a run for the
presidency in 2020. After all, we now live on the planet of the
billionaires. In January, as the billionaire summit in Davos, Switzerland,
was about to be held, Oxfam summed our world up this way:
"Billionaire fortunes increased by 12% last year -- or $2.5 billion a day --
while the 3.8 billion people who make up the poorest half of humanity saw
their wealth decline by 11%... [T]he number of billionaires has nearly
doubled since the financial crisis, yet wealthy individuals and corporations
are paying lower rates of tax than they have in decades, thanks in part to
the new tax law championed by President Trump."
Yes, a billionaire strolled into the Oval Office in January 2017 and (don't
be shocked!) promptly fused with congressional Republicans not to fund
America's crumbling infrastructure of roads, dams, levies, and the like, or
to offer better medical care, or to rescue the environment, or to face the
climate crisis that threatens the human future, or to do anything that would
help an average American. Instead, they focused on funding the creation of
yet more of the super wealthy with a tax cut sent straight from billionaire
heaven.
With 2020 in mind, President Trump is now warning American voters about the
dangers of "radical left" Democrats, a crew of "socialists" capable of
launching a reign of terror against... hmmm, billionaires. Let me quote the
most dangerous among them. Bernie Sanders: "Instead of an austerity program
for working families and the poor, we need austerity for billionaires and
large multinational corporations." Elizabeth Warren: "I want these
billionaires to stop being freeloaders." So watch out if they take the White
House! And while you're at it, check out what really should be the scandal
of this American century. From the indispensable Nomi Prins, TomDispatch
regular and author, appropriately enough, of Collusion: How Central Bankers
Rigged the World, comes an overview of the economic "great wall" that Donald
Trump and crew are building to keep most Americans out.
-Tom Engelhardt, TomDispatch
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.
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 twenty-first-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 ones). 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% 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% of Americans now take home, on
average, more than 40 times the incomes of the bottom 90%. And if you head
for the top 0.1%, 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%. "Wealth," as Adam Smith
so classically noted almost two-and-a-half-centuries ago in The Wealth of
Nations, "is power," an adage that seldom, sadly, seems outdated.
A Case Study: Wealth, 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%) 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 Senator 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% 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% 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 1% 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 1% is a mountain of debt.
The bottom 90% 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% of their annual earnings and
employers pay the other 6.2% (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% of American workers and their employers paid
the full 12.4% of their annual earnings toward Social Security, while the
other 6% paid an often significantly smaller fraction of their earnings.
According to his own claims about his 2016 income, for instance, President
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.
Inequality: A Dilemma With Global Implications
America is great at minting millionaires. It has the highest concentration
of them, globally speaking, at 41%. (Another 24% of that millionaires' club
can be found in Europe.) And the top 1% of U.S. citizens earn 40 times the
national average and own about 38.6% of the country's total wealth. The
highest figure in any other developed country is "only" 28%.
However, while the U.S. boasts of epic levels of inequality, it's also a
global trend. Consider this: the world's richest 1% own 45% of total wealth
on this planet. In contrast, 64% of the population (with an average of
$10,000 in wealth to their name) holds less than 2%. And to widen the
inequality picture a bit more, the world's richest 10%, those having at
least $100,000 in assets, own 84% 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% 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."
How Does It End?
In sum, 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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