It’s official (if you ever doubted it):America is a plutocracy, which means, in Lewis Lapham’s paraphrase of Lincoln, government of the rich, by the rich, and and for the rich. Everything about the country bespeaks the fact: the size of its McMansions and the poverty of its public education; the immunity of banks from the bankruptcies they cause and the millions driven from their homes who pay the price; the tax dollars and service overpayment extorted from the poor and diverted to the rich. One simple statistic, though, sums it all up. Ten percent of the country’s population owns 76 percent of its wealth.That leads 90 percent to divide the remaining 24 percent; and, of those, the bottom half has a negative net worth—it owns, minus its indebtedness, nothing at all.
This isn’t a phenomenon limited to the United States.Worldwide, one percent of the world’s population owns as much as the rest of it combined.Among developed nations, however, the U.S. ranks almost dead last (or, if you prefer, dead first) in income disparity.It’s been getting worse, and at an accelerating rate, for the past forty or more years.That giant sucking sound you hear is the last dollar being sucked out of the American consumer’s wallet.And then what?So what?
Yes, I’m asking the question:why, precisely, should we care?Or, more precisely, who should care?
The answer is, all of us.Including the rich.
All economies, down to the most primitive level, are built on markets. All markets are built on exchange. One-way transactions—in which value is offered but none received in return—are charities. These aren’t markets.In a market, if you don’t have something to give, you simply won’t get. The most basic level of exchange is labor. But labor must be compensated, that is, given the wherewithal for survival, if it is to be sustained.The lower the level of sustenance, the lower the quantity (and quality) of output. American slavery died because it was desperately inefficient compared to free labor markets. Forty percent of the pre-Civil War South’s population was enslaved; this population had no market access whatever. A small planter aristocracy had flourished, to that point, owing to direct labor appropriation, and to the market in slaves themselves.But the reality for most white Southerners without substantial slave labor was poverty, and this legacy that has continued. Our Southern states, with few exceptions, are our poorest.
In the long run, large-scale markets can neither be created nor maintained without widespread distribution of assets among potential buyers.The principal such asset is money. Where more and more of it is concentrated in fewer and fewer hands, markets contract.To some extent they can be propped up by luxury consumption, but, as wealth concentration increases, this market too will reach saturation.There are just so many private planes you can fly.
Capitalism is a creator of markets, but a far more efficient killer of them. To put it another way, it is far better at concentrating than producing wealth.This causes overall wealth to shrink. Progresssive taxation, minimum wage and price supports, and various redistributive schemes are a means to combat the effects of this wealth trap. All of these things require legal scaffolding and governmental administration. Rich people generally oppose them, and where they control governments—which is effectively all the time, except in cases of dire crisis or revolution—they attempt to freeze or reverse them.Their preferred means of oxygenating markets is through consumer credit, which takes profit in the form of interest as well as from expanded sales. Since the deficit in purchasing power makes such financing necessary, it creates the classic boom and bust cycles of capitalism that regularly lead to collapse and depression.Without exception, every economic crisis of the past three hundred years—that is, since the creation of modern banking—has been a credit crisis, whose twin roots have been desperation (the desire to restart failed or stalled markets) and greed (the desire to exploit them as quickly and thoroughly as possible before they collapse again). Governments by and for the rich, meanwhile, have facilitated this process by currency manipulation and the systematic creation of credit bubbles. Much if not most of the popular resentment directed at governments has arisen from the sense that they operate a swindle.This resentment is not misplaced, even as it is diverted against the few programs that limit rather than spread the damage inflicted by wealth concentration.
The political discussion of the past two hundred years has essentially involved the question of whether a regulated capitalism is tolerable, or whether its wholesale replacement is necessary. This is the debate between liberalism and socialism. The failure or ill effects of statocratic markets in the twentieth century (misnomered “socialism”) has not settled this question; democratic market socialism is not an impossible construct. Liberalism, for its part, has fallen flat on its face. Its ‘finest’ achievement, Keynesian economics, has accomplished nothing more than to provide the shovel brigade for capitalist crises, and, in the current one, its principal function has been to facilitate the further growth of structural inequality by bailing out banks and conglomerates.Paul Krugman and Joseph Stieglitz, our Keynesian Nobel laureates, can’t figure this out, but Wall Street has:let central banks print only as much money as the rich require to recoup their most destabilizing losses, and the Devil take the hindmost; namely, the rest of us. Thus it is that Americans continue to be thrown out of their homes and banks reclaim them on the cheap; thus it is that Europe, the bastion of so-called social democracy, totters along in depression after nearly a decade and drives states like Greece into terminal penury.
As politics, this is soak-the-poor tyranny; as economics, it is ultimately unsustainable. It’s not socialists who want to ignore the laws of the market, but capitalists. A world that lives on sham markets, created only to be destroyed, can’t last. It shouldn’t, either, but that’s another matter.And when it crashes for good, there’ll be hell to pay.The Devil has arranged this, too.
Robert Zaller is Professor of History at Drexel University.