Sign up FAST! Login

The Myth of America’s Golden Age


Stashed in: Wealth!, Winner take all., Awesome, inequality, America!, JFK, America, Economics, Rich people get richer.

To save this post, select a stash from drop-down menu or type in a new one:

Nobel prize winning economist Joseph Stiglitz is ready to definitively state that the golden age of America was an anomalous historical interregnum in its continuing march to inequality.

The good old days weren't good:

So when I went off to college to study economics, I was astonished by what I read. The standard economic texts of the time seemed to be unrelated to the reality I had witnessed growing up in Gary. They said that unemployment shouldn’t exist and that the market led to the best of all possible worlds. But if that were the case, I decided, I wanted to live in a different world. While other economists were obsessed with extolling the virtues of the market economy, I focused a lot of my work on why markets fail, and I devoted much of my Ph.D. thesis at MIT to understanding the causes of inequality.

Nearly half a century later, the problem of inequality has reached crisis proportions. John F. Kennedy, in the spirit of optimism that prevailed at the time I was a college student, once declared that a rising tide lifts all boats. It turns out today that almost all of us now are in the same boat—the one that holds the bottom 99 percent. It is a far different boat, one marked by more poverty at the bottom and a hollowing out of the middle class, than the one occupied by the top 1 percent.

The system is rigged:

Ironically enough, the final proof debunking this very Republican idea of trickle-down economics has come from a Democratic administration. President Barack Obama’s banks-first approach to saving the nation from another Great Depression held that by giving money to the banks (rather than to homeowners who had been preyed upon by the banks), the economy would be saved. The administration poured billions into the banks that had brought the country to the brink of ruin, without setting conditions in return. When the International Monetary Fund and the World Bank engage in a rescue, they virtually always impose requirements to ensure the money is used in the way intended. But here, the government merely expressed the hope that the banks would keep credit, the lifeblood of the economy, flowing. And so the banks shrank lending, and paid their executives megabonuses, even though they had almost destroyed their businesses. Even then, we knew that much of the banks’ profits had been earned not by increasing the efficiency of the economy but by exploitation—through predatory lending, abusive credit-card practices and monopolistic pricing. The full extent of their misdeeds—for instance, the illegal manipulation of key interest rates and foreign exchange, affecting derivatives and mortgages in the amount of hundreds of trillions of dollars—was only just beginning to be fathomed.

Obama promised to stop these abuses, but so far only a single senior banker has gone to jail (along with a very few mid- and low-level employees). The president’s former Treasury secretary, Timothy Geithner, in his recent book, Stress Test, made a valiant but unsuccessful attempt to defend the administration’s actions, suggesting that there were no alternatives. But Geithner clearly worried excessively about the “moral hazard” of helping underwater homeowners—in other words, encouraging lax borrowing habits—while seeming to care far less about the moral hazard of helping banks, or the culpability of the banks in encouraging excessive indebtedness and in marketing mortgages that put unbearable risks on the poor and middle classes.

stiglitzfact1.png

In fact, Geithner’s attempts to justify what the administration did only reinforce my belief that the system is rigged. If those who are in charge of making the critical decisions are so “cognitively captured” by the 1 percent, by the bankers, that they see that the only alternative is to give those who caused the crisis hundreds of billions of dollars while leaving workers and homeowners in the lurch, the system is unfair.

Rich people get richer:

And now it’s also clear that the high level of economic inequality has translated into gross new forms of political inequality—to the point where we can more aptly be described as having a political system with “one dollar, one vote” than “one person, one vote.” The Supreme Court’s Citizens United decision in January 2010 gave corporations more rights to influence politics than ordinary individuals—without making them, or their officers, really accountable. This year’s follow-on McCutcheon decision eliminated aggregate limits on individual contributions to national candidates and parties. So today, the richer you are, the more you are able to influence the political process and the economic decisions that stem from it, and to rig it all in favor of the 1 percent. Is it any wonder the rich keep getting richer?

You May Also Like: