By Ed Wallace
2006: A political economy,
in which economic growth is powered and consumed mostly by a wealthy minority; as such, the economic growth of that society becomes dependent on the fortunes of that same wealthy minority.
“The latest survey of Consumer Finances … released by the Federal Reserve shows that the rich continue to account for a disproportionately large share of income and wealth in the U.S. Economy. The rich are in great shape financially. …We like companies that sell or service the rich. Asset booms, a rising profit share and favorable treatment by market-friendly governments have allowed the rich to prosper and become a greater share of the economy in the plutonomy countries.”
From Equity Strategy, Citigroup, March 2006
That America is a meritocracy was the big lie our parents told us: “Accomplishments count. Do well in school, work hard and show initiative, and you’ll get ahead in life.” They left out the part about knowing office politics; for many who weren’t as clever as you, or who didn’t work as hard, politics often gave them the advantage at promotion time. Still, if you followed your parents’ advice you probably did end up with something to show for your life’s efforts. You made a living, maybe even moved into the upper middle class.
But to be counted in America’s plutonomy, according to Citigroup, you have to pass the $300,000 annual income barrier. And 90 percent of working Americans haven’t made that grade, nor are they ever likely to.
The purpose of that 2006 Citigroup investor’s paper was to happily explain why, although consumer confidence was low and oil prices high (then only $60 a barrel), a weak American dollar wasn’t slowing our imports and leaving us with serious trade deficits — in other words, why there was nothing to worry about. Their conclusion was that, since the rich had gotten substantially richer in the previous 26 years — 10 percent of the population controlled 43 percent of all income — the problems facing the average American family didn’t touch them.
Actually, while real wages for 90 percent of the public fell as the costs of gasoline, food and energy soared, those families began to hurt — but the super wealthy were on the receiving end of the higher profits on those vital consumer goods. So what if gasoline went to $4 a gallon (and today is 82 cents a gallon higher than at this time last year)? The rich could easily afford that; the super rich might even have had a hand in those oil contracts. Likewise, if other commodity prices rise substantially, that’s just a minor inconvenience to them.
Yes, Citigroup made a strong point of naming the real losers in this new American economy : “We have lumped the bottom 40 percent into one to emphasize how relatively small their income and wealth shares are.”
The “bottom 40 percent”? So much for the American Dream. Meritocracy out, new caste system in.
Giving Away GDP with Jobs
Recently one bipartisan think tank suggested that the unemployment rate for workers in the upper class is only around 3 percent, while the lowest earnings group suffers from an unemployment rate higher than 20 percent. That figure seems to be validated by the April 2 report from the Bureau of Labor Statistics: “The civilian labor force participation rate (64.9 percent) and the employment population ratio (58.6 percent) continued to edge up in March.”
Evidently, Citi’s 2006 finding that “market-friendly governments have allowed the rich to prosper and become a greater share of the economy in the plutonomy countries” still holds true. This helps explain why there is such a disparity in the recent sales of many new car dealerships across the country: The ones located in upper-middle-class or upper-class neighborhoods have shown a remarkable improvement in their retail sales. But what used to be “mega-stores,” primarily located in solidly blue-collar, middle-class neighborhoods, are often a shadow of their former success.
Staying with the auto industry as an example of how this works, we have gone from 1.527 million American autoworkers in 1980 to fewer than 470,000 today. That’s over 1 million jobs lost in one generation; in decades gone by the workers who held them could buy homes, even new cars on a regular basis. Now many of those jobs have been exported either to Mexico or Asia — which is nothing less than giving away America’s GDP.
The GDP we had left was inflated with paper profits, either from falsely boosted home prices or the larger incomes made by Wall Street firms.
To be fair, Wall Street is key to American corporations’ financing. But to understand how the Street has distorted our real economy, look at 1973 – 1985: Total Wall Street profits formed only 16 percent of all corporate earnings in America. In the past decade, Wall Street’s profits have swelled to 41 percent of all U.S. corporate earnings.
In order for Wall Street to siphon off that much in additional earnings, those monies had to come from other places. Namely, higher prices for everyday goods and commodities for industry.
Theft by Sleight of Hand
How did that happen? Simple, really. Who do you think drove corporations to outsource American jobs so that their massively better profits would increase their stocks’ share prices?
Who do you think is borrowing money from the Fed and FDIC for virtually no interest, yet has raised your credit card interest to over 20 percent?
Who do you think provided so much easy money for mortgages that they alone created the foolish and unsustainable housing bubble that collapsed? Then, realizing that the house of cards they’d built was going to implode, they turned around and bought layers of derivatives — insurance to cover their losses –a combination that blew up the world’s financial system?
And then, as their share of all earnings went from 16 percent to 41 percent, who do you think went to Washington to get multiple income tax cuts for themselves, selling it as a tax cut for the American people?
And finally, when these “anti-socialist” firms, who demanded complete and total deregulation of their companies for more profits, realized they had destroyed everything, who do you think ran first to Washington for the biggest socialist bailout in American history?