You know, a few years back when everything was great, it seemed like barely anyone talked about capitalism. At least in the circles in which I moved. Now, capitalism is the new house prices.
David Quinn has a poor piece this First Friday on how the cause of the current crisis ‘isn’t capitalism as such, but crony capitalism — that is, capitalism in an unholy alliance of mutual convenience with government‘, as though ‘capitalism’ and ‘government’ were two distinct entities, like, you know, ‘paedophile priests’ and ‘The Catholic Church’.
For the vast majority of you, whom I expect will be going to some form of dinner party this weekend, these paragraphs from Robert Reich are as good a primer as any for holding forth on the main topic of conversation.
The problem lies deeper. Most Americans can no longer maintain their standard of living. Remember, Wall Street’s near-meltdown originated with the bursting of the great housing bubble. That bubble had allowed millions of Americans to take money out of their homes by using their rising home values as collateral for loans. But now the bubble has burst, those homes can no longer be used as piggy banks. As a result, America’s huge middle class no longer has the money it needs to buy the goods and services that it produces.
The bubble masked this basic reality: for most Americans, earnings have not kept up with the cost of living. The earnings of non-government workers who are paid by the hour – and who comprise 80 per cent of the American workforce – are lower today than they were in 2000, adjusted for inflation. They are barely higher than they were in the mid-1970s. Indeed, the income of a man in his thirties is now 12 per cent below that of a man his age three decades ago. Productivity per person has grown considerably over the past three decades, and has continued to rise even in the lacklustre recovery of this decade. However, most Americans have not reaped the benefits of those productivity gains. The benefits have gone largely to the wealthy few.
The top 1 per cent of American earners now take home about 20 per cent of total national income. In 1980, the top 1 per cent took home just 8 per cent. Inequality on this scale is bad for many reasons, but it is particularly bad for the economy. The wealthy devote a smaller percentage of their earnings to buying things than the rest of us, because, after all, they’re rich. They already have most of what they want. Instead of buying, the very wealthy are more likely to invest their earnings wherever around the world they can get the highest return.
Happy souviaki-slurping, or whatever it is you chattering classes get up to.