I have a very good friend, a guy I’ve known since Junior High School, which -- these days – means that we’ve been buddies much longer than half our lives. (In fact – I just took the time to calculate this -- in only three years we’ll have been best friends for 2/3rds of our lives). He is by far my oldest friend and most of our really funny, really weird stories involve things that happened when we were hanging out together and were both much younger and much, much stupider. My buddy and I talk and debate politics and the economy often, and we agree about most things. We are as close as brothers.
But we generally part ways when it comes to the perfidiousness of the 1%. My buddy is convinced that the huge funneling of our nation’s massive resources to a smaller and smaller number of people over the past 30 years has been an intentional, meticulously planned scheme from the beginning:
“I’m telling you,” he recently told me, “when they look into this shit 100 years from now they’ll figure out this was planned from the start. Cut taxes on the rich, cut government spending for the rest of us, and convince us it was for our own good while they whistle all the way to the bank. There’s no way the last 30 years happened by accident.”
Me? I have a higher disregard for people. I distrust conspiracies and complicated plans. I thrill to a good heist movie, same as anyone else, but I also know that any plan that involves more than 3 people and requires split-second choreography (“Adjust your watches on my mark . . . 3, 2, 1, Mark!”) never ever really works out in Real Life.
People just aren’t that smart and – even if they were – they’re never that competent. Generally speaking, Big Evil doesn’t result from well thought-out, complicated, secret conspiracies involving large numbers of people. Big Evil more often results because a large number of small, greedy, grasping jackasses – working entirely autonomously – suddenly find a loophole to exploit, and subsequently use the leverage their initial exploitation gives them to twist and exploit the system even further until eventually they control that system completely.
But – sometimes – I get hit with something that makes me wonder if my buddy might not be right after all. Maybe the past 30 years haven’t just been a confluence of events, driven at every step by nothing more than the blind grasping of the already overly privileged. Certainly it isn’t too unreasonable to think that the public relations campaign they’ve launched over the past decade or so wasn’t just coincidence.
If that were the case then half the nation and all of our TeeVee pundits wouldn’t keep reflexively repeating that the 1% are the “producers,” the “achievers,” or the “job creators.”
Instead, it’d still be the other way ‘round.
Writing in Orion Magazine, Christopher Ketcham has an article titled “The Reign of the One Percenters” that he evidently started working up last August when his daughter traveled from France to visit him. In it he discusses the incredible amount of wealth and income disparity that exists in New York City today and what that inequality bodes for NYC’s future.
Ketcham also takes some time to run through a brief history of New York City’s involvement with wealth disparity, and pays particular attention to the labor actions that took place in the 1880s:
[A]cross New York City throughout the 1880s there were strikes, marches, boycotts, gigantic torch-lit demonstrations. New York’s Central Labor Union (CLU), a branch of the Knights of Labor, whose national membership approached 700,000, welcomed all the “producing classes,” skilled and unskilled: the bricklayers, the jewelers, the printers, the industrialized brewers and machinists, the salesclerks, bakers, cloak makers, cigar makers, piano makers, musicians, tailors, waiters, Morse operators, Protestants, Catholics, Jews, whites and blacks, men and women. The only people they refused to welcome into their ranks, wrote historians Edwin G. Burrows and Mike Wallace, were “bankers, brokers, speculators, gamblers and liquor dealers” – what the Knights and other radicals of the time called the “fleecing classes,” the “parasites,” the “leeches.” (emphasis added)
You see, just a little more than a century ago it was the working class that was thought of as “the producers” and it was the financiers and rentiers who were recognized as “the parasites.” And how not? At the time even President Grover Cleveland, remarking on the “wealth and luxury of our cities,” recognized that this wealth and luxury was “largely built upon undue extractions from the masses of our people.”
In the late 19th century, you see, it was considered only common sense to believe that true wealth was created by the people who actually, y’know, worked for a living. Believing the insane notion that money was something for which the working class (there really was no middle-class back then, it would take us almost another century of labor strikes and New Deal policies to create that) should be grateful when it trickled down to them from the “producers” at the top of the economic ladder would have marked you as mad back when we were still building this country.
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And it seems that should still be the case. In his article, Ketcham cites John Cassidy’s piece last year in the The New Yorker, “What Good is Wall Street?” (I’m not sure what the blogging convention is on this one. I’ll give Ketcham the h/t for reminding me of this article, but not for the article itself since I read it last year when it came out. And I’ll be referencing the article itself – and not Ketcham’s recitation of Cassidy’s statements – because my Real Life training compels me to cite original sources whenever possible. Still . . . h/t Ketcham).
One of the central characters in Cassidy’s examination of the financialization of the global economy is a man named Paul Woolley. With a PhD in economics and a long history as an extremely successful London financier, Woolley can claim some expertise in the matter. But despite Woolley’s success in the financial field “a basic economic question niggled at him: Was the financial industry doing what it was supposed to be doing? Was it allocating capital to its most productive uses?”
Woolley concluded that the financial industry was not, and at 71 he set up an institute at the London School of Economics called the Woolley Centre for the Study of Capital Market Dysfunctionality. This followed from what Cassidy describes as an
epiphany: financial institutions that react to market incentives in a competitive setting often end up making a mess of things. “I realized that we were acting rationally and optimally,” [Woolley] said. “The clients were acting rationally and optimally. And the outcome was a complete [balls-up.]” Financial markets, far from being efficient, as most economists and policymakers at the time believed, were grossly inefficient. “And once you recognize that markets are inefficient a lot of things change.”
. . . . Privy to superior information, banks can charge hefty fees and drive up their own profits at the expense of clients who are induced to take on risks they don’t fully understand – a form of rent-seeking. “Mispricing gives incorrect signals for resource allocation, and, at worst, causes stock market booms and busts,” Woolley wrote in a recent paper. “Rent capture causes the misallocation of labor and capital, transfers substantial wealth to bankers and financiers, and, at worst, induces systemic failure. Both impose social costs on their own, but in combination they create a perfect storm of wealth destruction.” (emphasis added)
In other words, the concentration of more and more money into the financial sector – as opposed to the real economy – often leads to the destruction of real economic wealth. Indeed, according to Ketcham,“[a] study from the New Economics Foundation in England found that for every pound made in financial services in the city of London, roughly seven pounds of social wealth is lost – meaning the wealth of those in society who do productive work.”
And then, of course, we have this – one of Kevin Drum’s “favorite tables”:
As Drum explains, the American economy has grown at just about the same rate from 1979 until the present as it did from WWII until 1979 – only the distribution of our economy’s riches has changed. “For all practical purposes, every year about $700 billion in income is being sucked directly out of the hands of the poor and the middle class and shoveled into the hands of the rich.” (emphasis added)
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The causality of this is, of course, the subject of some debate. I thought Matthew Yglesias made an interesting observation yesterday when he pointed out that -- as wealth becomes more concentrated -- the wealthy (who don’t tend to buy 200 iPads if they only need 1) tend to start hunting around for “financial services” to purchase; if the demand for complicated, opaque financial products goes up then so does the number of people willing to sell such products and so does the amount they can charge for such dubious goods.
But what I am interested in is the marketing of the financialization of our economy. It used to be common sense that we understood that the people who made their money by owning things – be it land (18th Century), the means of production (19th Century), or the vast majority of available capital (20th and 21st Centuries) – exploited that ownership to extract more value than they themselves contributed. (By the way . . . see here for a quick, easy-to-understand explanation as to why that extracted value does not equate to earned value.)
And even today we have facts, statistics, figures showing the same thing: the rentiers, the people I refer to as “the Creditor Class,” the 1%, the banksters . . . they are extracting excess wealth at the expense of those of us who actually produce such wealth.
And yet, today . . . they are called “job creators,” they are called “producers,” they are called “wealth creators” – and the rest of us are the “moochers,” “parasites,” “looters,” and “losers.” Worse . . . some of us actually believe that.
How did this happen, if it wasn’t planned? How did this happen, if it wasn’t a scheme? How did we completely invert something that should be common sense – Hell! that until a few decades ago was common sense – unless there was a concerted effort to make it so?
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These are the things that keep me up at night, worried that I may have seriously underestimated the nature of the enemy.