It helps to think of the economy as a bunch of kids playing with a balloon. As long as one kid manages to tap the balloon, the game goes on, but when the balloon hits the ground, everything stops. Real economists don’t talk about balloons, they talk about bubbles, and bubbles burst, but the idea is pretty much the same. The housing bubble probably started around 2000, or maybe 2003, peaked around 2004-6, and burst around 2008. By itself it would have been bad enough, but once the banks got into the game it turned into a disaster that will probably match the Great Depression for severity. Probably the economy could have dealt with a few million people losing their homes, but because the banks had been selling the mortgages as safe investments, the loss went beyond the mortgages themselves and entered the bond market. People who had invested in only the safest securities, as rated by Moody’s and Fitch, lost their life savings.
The reaction was obvious – people who had lost their money stopped spending, and when that happened, other people lost their jobs, so they had to stop spending too. In December 2008, the Department of Labor reported 524,000 jobs lost, and 1.9 million jobs lost in the final four months of the year. Of course this should have been the cue for government to step in and stimulate the economy – which it did. There was some debate about economic theory – with Republicans doing all they could to block economic stimulus ostensibly because they believed austerity would be more effective (as in the solution to high unemployment is to put more people out of work), but a stimulus bill was passed, which is why, as bad as things have been, the United States has survived the downturn in better shape than Europe has.
What’s missing from this narrative? There’s no mention of the job creators. In 1929, Andrew Mellon, Hoover’s secretary of the Treasury, decided that the government should do nothing to rescue the economy, that the market would work itself out – but J.P. Morgan tried to stabilize the economy by buying stock and depositing cash in failing banks. A similar effort on his part during the banking panic of 1907 had kept the downturn from turning into a depression, but in 1929 things were worse, and the Depression couldn’t be averted. Whatever his flaws, Morgan was willing to take major loses in order to stabilize the markets and prevent a depression.
In 2008 what did the super-rich do? They pushed for tax cuts for themselves. In 2009 and 2010, the proper response to the economic collapse would have been to increase government spending, to keep people working so they would have money to spend so that other people would have jobs and income. Those who could afford to, should have paid more in taxes to help moderate the deficit. Instead, they financed politicians who called for more tax cuts for those who didn’t need help. Joseph Stiglitz, Professor of Economics at Columbia and Nobel Prize winner in economics has written that the key to the failure of the economy is inequality. “While the top 1% of income earners took home 93% of the growth in incomes in 2010, the households in the middle — who are most likely to spend their incomes rather than save them and who are, in a sense, the true job creators — have lower household incomes, adjusted for inflation, than they did in 1996.“ The uber rich have the money, but unless they spend it, it can’t trickle down.
Two caveats there. The top 1% includes a few who are merely comfortable – it’s the top 0.1% who have the most disproportionate share of the wealth. Secondly, Paul Krugman, the other Ivy League, bearded Nobel laureate in economics, has shown that it’s possible to have “full employment based on purchases of yachts, luxury cars, and the services of personal trainers and celebrity chefs? Well, yes. You don’t have to like it, but economics is not a morality play, and I’ve yet to see a macroeconomic argument about why it isn’t possible.” Of course Prof Krugman is right, (what part of infallible don’t you understand?) but because the super duper rich may have multiple residence on multiple continents, their spending behaviors, even if they were to spend all their income, may be diluted to the point where they have minimal impact on any single city, state or nation. This can be seen in New York City, specifically Manhattan, where the super rich have been buying high end apartments as an investment, or a place to take a shower when they’re in town, and the merely very well off have been dispersed to the far corners of the earth, or Brooklyn, whichever has more all-organic restaurants.
The point is the rich, or a lot of them, and the Republicans, all of them, have rationalized tax benefits for the wealthy as a sort of latter day trickle down economics, and a quick look at the unemployment rate shows that this simply hasn’t worked. The rich haven’t invested in economic expansion and haven’t consumed enough goods and services to keep other people employed. They’ve failed abjectly to buy enough yachts, private jets or truffles to keep the economy going, while the 99% has not only been weakened, but now is faced with the latest challenge – student loans. Education is the key to the future, and when education becomes unaffordable, the future is lost. Given this, it seems obvious that this extreme inequality has weakened the country and redistribution has become a matter of national security. And yes, it will be called Class Warfare, but the war has been in progress for decades now, and so far, the United States is losing.
Sam Uretsky is a writer and pharmacist living on Long Island, N.Y. Email firstname.lastname@example.org.
From The Progressive Populist, June 15, 2013
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