By Edward L. Palmer, Robert N. Rhodes and Alice J. Palmer
â€œThere has been a quiet coup in the US in which a financial oligarchy has gained hegemony over the government structure.â€ That seizure of power has resulted in devastation for Black America, where â€œ48% of the children of middle class Black Americans border on poverty.â€ Among the general public, â€œ70% of last yearâ€™s college graduates in the US did not receive job offers.â€
â€œA financial oligarchy has gained hegemony over the government structure.â€
America is on a path toward a savage capitalism that is already decimating the middle class and working people and swelling the ranks of the poor. Adam Smith never intended this.
The U.S. government has spent more than one trillion dollars of taxpayer money to resuscitate the financial services economy and restore the status quo while unemployment has grown by millions since January 2009, and all without developing the real economy: production, sustainable development, infrastructure, and social networks.
Unlike Germany, for example, where, faced with a similar economic downturn, Chancellor Angela Merkel, a conservative, chose to increase public spending on production, infrastructure and human capital. Or, as in Sweden, which took measures to reverse unemployment and the contracting gross domestic product by isolating bad debts, stabilizing their currency, and allowing some banks to fail.
Or, for that matter, the win-win strategy the Chinese favor, which pursues their national economic interests without seeming to threaten the national interests of other countries.
Americans should ask themselves the fundamental questions that Bob Herbert is asking over and over in his New York Times columns: How do you put together a consumer economy that works when the consumers are out of work, and when poverty, particularly among Black Americans, is alarmingly high.
â€œAt least 30% of Americaâ€™s children are poor; tent cities are now housing displaced and desperate families.â€
The statistics about Main Street are distressing. At least 30% of Americaâ€™s children are poor; tent cities are now housing displaced and desperate families. According to a recent Harperâ€™s magazine monthly index, 70% of last yearâ€™s college graduates in the US did not receive job offers. Some 16% of the daughters and sons of White Americans are not as financially stable as their parents. Most disturbing is that 48% of the children of middle class Black Americans border on poverty as they earn little more than $23,000 a year. Their parents, whose incomes average $55,000, came of age in the 1960â€™s.
For decades, from the late 1940â€™s through the end of the 1980â€™s, Black men expected to find work in the plants that dominated industrial centers such as Detroit, Chicago, and Pittsburgh. Steady work, no matter how initially back-breaking and low-level, afforded Black families adequate incomes to purchase homes and send their children to college from which a solid, often politically active, Black middle class emerged.
There is a â€œsilent Black depressionâ€ in the United States, according to a 2008 report issued by the Institute of Policy Studies, in which 29.4% of Black households have zero or negative net worth as of 2004 compared with 15% of Whites; and Black males aged 16-19 have a 32.8% unemployment rate. People of color, in general, are more likely to be poor in the United States; yet, poverty is rarely discussed as an element of the countryâ€™s economic crisis.
â€œ29.4% of Black households have zero or negative net worth.â€
To gauge the consequences to Americaâ€™s eroding consumer and family income economies we must look beyond spurious US unemployment and employment figures that do not adequately tell us how many new jobs are part time and how many workers are discouraged or under-utilized. Most European countries count the number of adults who are employed, which is a more realistic measure of consumer and family-economic well-being.
What does happen to a dream deferred? Job loss can also mean pension loss â€“ a loss of family sustainability – which could cause a social crisis for decades to come, warns the Organization for Economic Co-operation and Development in its yearly report. During the vaunted 1990â€™s, employers, looking for savings to their companies, encouraged working Americans to choose market-driven defined contribution pension packages that hinted at easy-living wealth at retirement instead of the traditional defined benefit pensions that assured steady retirement incomes. In 2008, private pension funds lost more than 25% in returns; so thousands of retirees cannot make ends meet, and thousands of younger workers must start anew to build their nest eggs.
Yet corporate chief executives and their circle earn an almost unbelievable 400 times what the average employee earns; and, as we have seen recently, garner enormous bonuses in spite of failing companies.
If we say in this country that we believe in family values, then we should value the family with adequate and equitable work, education, pensions and health care policies that matter to their well-being.
The US is not just experiencing an economic crisis, this is a crisis of our social being; and there are no quick fixes. Simon Johnson, a former Chief Economist for the International Monetary Fund, pointed out that there has been a quiet coup in the US in which a financial oligarchy has gained hegemony over the government structure.
â€œIn 2008, private pension funds lost more than 25% in returns.â€
During the 19th century through c1929, it was common to experience economic panics roughly every 20 years, e.g., in 1819, 1837, and 1873. Since World War II, we have not had feast or famine years. Why? Perhaps because Keynesian principles were in practice that fostered the judicious use of government interventions to fine tune the economy to avoid crises that imperiled people and businesses alike.
At the start of the 1980â€™s, the size of the financial service sector, i.e., traditional banks, was 4% of gross domestic product; and the number of financial corporations on the stock exchange was 0%. It was against the law for the financial service sector to be listed on the stock exchange. The Glass-Steagall Banking Act of 1933, passed after the Great Depression, which prevented banks from underwriting stocks and bonds for companies, was annulled in practice during the 1980â€™s, and the practice became law in 1999. The financial sector, especially banks, became one-stop centers for selling insurance, questionable mortgages and other risky undertakings to an uninformed public.
What is the significance of this change? A recent Bank of International Settlement report from Switzerland shows that world GDP (the real economy of the worldâ€™s people) is about a tenth the size of the financial services sector alone, and the gap continues to widen.
Many respected economists are alarmed by such economic indicators, the direction the US is taking, and the toll on peopleâ€™s standard of living. Joseph Stieglitz calls the present-day economy ersatz capitalism; Paul Krugman calls it crony capitalism. John Monks, Secretary General of the European Confederation of Trade Unions, calls the economy casino capitalism. By any name, ponzi schemes are proliferating.
â€œWorld GDP (the real economy of the worldâ€™s people) is about a tenth the size of the financial services sector alone.â€
Of course Americaâ€™s financial sector should be kept viable; but in the long run, its salvation depends upon the ability of Americans to participate in and benefit from the economy. Real capital uses money to buy raw materials and machinery, hire workers, and produce products that can be sold for more than the cost of their production. Moreover, investment in research and development should be ongoing as new technologies and new ideas lead to innovations and new productivity. Real capital does not hollow out the lives of the average American.
It is in the interest of the United States, its people, and its place in the world to promote a sustainable development model, which is comprised of a labor policy, deliverable industrial and infrastructural advancement strategies, and social policies that ensure human well-being in health, education, and the post-work and sunset years. Since these policies and practices are not self-generating, it is necessary for common-sense minded people to undertake decisive, principled, actions to forge the path to our well-being.
Edward L. Palmer is Senior Research Associate, retired, Institute of Government and Public Affairs, University of Illinois, email@example.com; Robert N. Rhodes is Political Science Professor, retired, University of Ohio; Alice J. Palmer, PhD, is a former Illinois State Senator and current Associate Research Professor, University of Illinois firstname.lastname@example.org.