All Are Equal, Except Those Who Aren’t
Like
a gilded coating that makes the dullest things glitter, today’s thin veneer of
political populism covers a grotesque underbelly of growing inequality that’s
hiding in plain sight. And this phenomenon of ever more concentrated wealth and
power has both Newtonian and Darwinian components to it.
In
terms of Newton’s first law of motion: those in power
will remain in power unless acted upon by an external force. Those who are
wealthy will only gain in wealth as long as nothing deflects them from their
present course. As for Darwin, in the world of financial evolution, those with
wealth or power will do what’s in their best interest to protect that wealth,
even if it’s in no one else’s interest at all.
In
George Orwell’s iconic 1945 novel, Animal Farm, the pigs who gain control
in a rebellion against a human farmer eventually impose a dictatorship on the
other animals on the basis of a single commandment: “All animals are equal, but
some animals are more equal than others.” In terms of the American republic,
the modern equivalent would be: “All citizens are equal, but the wealthy are so
much more equal than anyone else (and plan to remain that way).”
Certainly,
inequality is the economic great wall between those with power and those
without it.
As
the animals of Orwell’s farm grew ever less equal, so in the present moment in
a country that still claims equal opportunity for its citizens, one in
which three Americans now have as much
wealth as the bottom half of society (160 million people), you could certainly
say that we live in an increasingly Orwellian society. Or perhaps an
increasingly Twainian one.
After
all, Mark Twain and Charles Dudley Warner wrote a classic 1873 novel that put
an unforgettable label on their moment and could do the same for ours. The Gilded Age: A Tale of Today depicted
the greed and political corruption of post-Civil War America. Its title caught
the spirit of what proved to be a long moment when the uber-rich came to
dominate Washington and the rest of America. It was a period saturated with
robber barons, professional grifters, and incomprehensibly wealthy banking
magnates. (Anything sound familiar?) The main difference between that last
century’s gilded moment and this one was that those robber barons built
tangible things like railroads. Today’s equivalent crew of the mega-wealthy
build remarkably intangible things like tech and electronic platforms, while a
grifter of a president opts for the only new infrastructure in sight, a great
wall to nowhere.
In
Twain’s epoch, the U.S. was emerging from the Civil War. Opportunists were
rising from the ashes of the nation’s battered soul. Land speculation,
government lobbying, and shady deals soon converged to create an unequal
society of the first order (at least until now). Soon after their novel came
out, a series of recessions ravaged the country, followed by a 1907 financial
panic in New York City caused by a
speculator-led copper-market scam.
From
the late 1890s on, the most powerful banker on the planet, J.P. Morgan, was
called upon multiple times to bail out a country on the economic edge. In 1907,
Treasury Secretary George Cortelyou provided him with $25 million in bailout money at the
request of President Theodore Roosevelt to stabilize Wall Street and calm
frantic citizens trying to withdraw their deposits from banks around the
country. And this Morgan did — by helping his friends and their companies,
while skimming money off the top himself. As for the most troubled banks
holding the savings of ordinary people? Well, they folded. (Shades of the
2007-2008 meltdown and bailout anyone?)
The
leading bankers who had received that bounty from the government went on to
cause the Crash of 1929. Not surprisingly, much
speculation and fraud preceded it. In those years, the novelist F. Scott
Fitzgerald caught the era’s spirit of grotesque
inequality in The Great Gatsby when one of his
characters comments: “Let me tell you about the very rich. They are different
from you and me.” The same could certainly be said of today when it comes to
the gaping maw between the have-nots and have-a-lots.
Income vs. Wealth
To
fully grasp the nature of inequality in our twenty-first-century gilded age,
it’s important to understand the difference between wealth and income and what
kinds of inequality stem from each. Simply put, income is how much money you
make in terms of paid work or any return on investments or assets (or other
things you own that have the potential to change in value). Wealth is simply
the gross accumulation of those very assets and any
return or appreciation on them. The more wealth you have, the easier it is to
have a higher annual income.
Let’s
break that down. If you earn $31,000 a year, the median salary for
an individual in the United States today, your income would be that amount
minus associated taxes (including federal, state, social security, and Medicare
ones). On average, that means you would be left with about $26,000 before other expenses kicked
in.
If
your wealth is $1,000,000, however, and you put that into a savings account
paying 2.25% interest, you could receive about
$22,500 and, after taxes, be left with about $19,000, for doing nothing
whatsoever.
To
put all this in perspective, the top 1% of Americans now take home, on average,
more than 40 times the incomes of the bottom 90%. And if you head for the top
0.1%, those figures only radically worsen. That tiny crew takes home more than 198 timesthe income of the bottom
90% percent. They also possess as much wealth as the nation’s bottom
90%. “Wealth,” as Adam Smith so classically noted almost
two-and-a-half-centuries ago in The Wealth of Nations, “is power,” an
adage that seldom, sadly, seems outdated.
A Case Study: Wealth,
Inequality, and the Federal Reserve
Obviously,
if you inherit wealth in this country, you’re instantly ahead of the game. In
America, a third to nearly a half of all wealth is inherited rather than self-made.
According to a New York Times investigation, for
instance, President Donald Trump, from birth, received an estimated $413 million (in today’s dollars, that
is) from his dear old dad and another $140 million (in today’s dollars) in
loans. Not a bad way for a “businessman” to begin building the empire (of bankruptcies) that became the platform for
a presidential campaign that oozed into actually running the
country. Trump did it, in other words, the old-fashioned way — through
inheritance.
In his megalomaniacal zeal to
declare a national emergency at the southern border, that gilded
millionaire-turned-billionaire-turned-president provides but one of many
examples of a long record of abusing power. Unfortunately, in this country, few
people consider record inequality (which is still growing) as another kind of
abuse of power, another kind of great wall, in this case keeping not Central
Americans but most U.S. citizens out.
The
Federal Reserve, the country’s central bank that dictates the cost of money and
that sustained Wall Street in the wake of the financial crisis of 2007-2008
(and since), has finally pointed out that such extreme levels of inequality are
bad news for the rest of the country. As Fed Chairman Jerome Powell said at
a town hall in Washington in early
February, “We want prosperity to be widely shared. We need policies to make
that happen.” Sadly, the Fed has largely contributed to increasing the systemic inequality now
engrained in the financial and, by extension, political system. In a
recent research paper, the Fed did, at least,
underscore the consequences of inequality to the economy, showing that “income
inequality can generate low aggregate demand, deflation pressure, excessive
credit growth, and financial instability.”
In
the wake of the global economic meltdown, however, the Fed took it upon itself
to reduce the cost of money for big banks by chopping interest rates to zero
(before eventually raising them to 2.5%) and buying $4.5 trillion in Treasury
and mortgage bonds to lower it further. All this so that banks could ostensibly
lend money more easily to Main Street and stimulate the economy. As Senator
Bernie Sanders notedthough, “The Federal Reserve provided
more than $16 trillion in total financial assistance to some of the largest
financial institutions and corporations in the United States and throughout the
world… a clear case of socialism for the rich and rugged, you’re-on-your-own
individualism for everyone else.”
The
economy has been treading water ever since (especially compared to the stock
market). Annual gross domestic product growth has not surpassed 3% in any year since the financial
crisis, even as the level of the stock market tripled, grotesquely increasing the
country’s inequality gap. None of this should have been surprising, since much
of the excess money went straight to big banks, rich investors, and
speculators. They then used it to invest in the stock and bond markets, but not
in things that would matter to all the Americans outside that great wall of
wealth.
The
question is: Why are inequality and a flawed economic system mutually
reinforcing? As a starting point, those able to invest in a stock market buoyed
by the Fed’s policies only increased their wealth exponentially. In contrast,
those relying on the economy to sustain them via wages and other income got
shafted. Most people aren’t, of course, invested in the stock market, or really
in anything. They can’t afford to be. It’s important to remember that
nearly 80% of the population lives paycheck
to paycheck.
The
net result: an acute post-financial-crisis increase
in wealth inequality — on top of the income inequality that was global but
especially true in the United States. The crew in the top 1% that doesn’t rely
on salaries to increase their wealth prospered fabulously. They, after all, now
own more than half of all national wealth
invested in stocks and mutual funds, so a soaring stock market
disproportionately helps them. It’s also why the Federal Reserve subsidy policies to Wall Street banks
have only added to the extreme wealth of those extreme few.
The Ramifications of Inequality
The
list of negatives resulting from such inequality is long indeed. As a start,
the only thing the majority of Americans possess a greater proportion of than
that top 1% is a mountain of debt.
The
bottom 90% are the lucky owners of about three-quarters of the country’s
household debt. Mortgages, auto loans, student loans, and credit-card debt are
cumulatively at a record-high $13.5 trillion.
And
that’s just to start down a slippery slope. As Inequality.org reports, wealth and
income inequality impact “everything from life expectancy to infant mortality
and obesity.” High economic inequality and poor health, for instance, go hand
and hand, or put another way, inequality compromises the overall health of the
country. According to academic findings, income inequality is, in the most
literal sense, making Americans sick. As one study put it, “Diseased and impoverished economic
infrastructures [help] lead to diseased or impoverished or unbalanced bodies or
minds.”
Then
there’s Social Security, established
in 1935 as a federal supplement for those in need who have
also paid into the system through a tax on their wages. Today, all workers
contribute 6.2% of their annual earnings and employers pay the other 6.2% (up
to a cap of $132,900) into the Social Security system.
Those making far more than that, specifically millionaires and billionaires,
don’t have to pay a dime more on a proportional basis. In practice, that means
about 94% of American workers and their
employers paid the full 12.4% of their annual earnings toward Social Security,
while the other 6% paid an often significantly smaller fraction of their
earnings.
According
to his own claims about his 2016 income, for
instance, President Trump “contributed a mere 0.002 percent of his income to
Social Security in 2016.” That means it would take nearly 22,000 additional workers earning the
median U.S. salary to make up for what he doesn’t have to pay. And the greater
the income inequality in this country, the more money those who make less have
to put into the Social Security system on a proportional basis. In recent
years, a staggering $1.4 trillion could have gone into
that system, if there were no arbitrary payroll cap favoring the wealthy.
Inequality: A Dilemma With
Global Implications
America
is great at minting millionaires. It has the highest concentration of them,
globally speaking, at 41%. (Another 24% of that millionaires’ club can be found
in Europe.) And the top 1% of U.S. citizens earn 40 times the national average
and own about 38.6% of the country’s total
wealth. The highest figure in any other developed country is “only” 28%.
However,
while the U.S. boasts of epic levels of inequality, it’s also a global trend.
Consider this: the world’s richest 1% own 45% of total wealth on
this planet. In contrast, 64% of the population (with an average
of $10,000 in wealth to their name) holds less than 2%. And to widen the
inequality picture a bit more, the world’s richest 10%, those having at least
$100,000 in assets, own 84% of total global wealth.
The
billionaires’ club is where it’s really at, though. According to Oxfam, the
richest 42 billionaires have a combined wealth
equal to that of the poorest 50% of humanity. Rest assured, however, that in
this gilded century there’s inequality even among billionaires. After all, the
10 richest among them possess $745 billion in total global wealth.
The next 10 down the list possess a mere $451.5 billion, and why even bother
tallying the next 10 when you get the picture?
Oxfam
also recently reported that “the number of
billionaires has almost doubled, with a new billionaire created every two days
between 2017 and 2018. They have now more wealth than ever before while almost
half of humanity have barely escaped extreme poverty, living on less than $5.50
a day.”
How Does It End?
In
sum, the rich are only getting richer and it’s happening at a historic rate.
Worse yet, over the past decade, there was an extra perk for the truly wealthy.
They could bulk up on assets that had been devalued due to the financial
crisis, while so many of their peers on the other side of that great wall of
wealth were economically decimated by the 2007-2008 meltdown and have yet
to fully recover.
What
we’ve seen ever since is how money just keeps flowing upward through banks and
massive speculation, while the economic lives of those not at the top of the
financial food chain have largely remained stagnant or worse. The result is, of
course, sweeping inequality of a kind that, in much of the last century, might
have seemed inconceivable.
Eventually,
we will all have to face the black cloud this throws over the entire economy.
Real people in the real world, those not at the top, have experienced a decade
of ever greater instability, while the inequality gap of this beyond-gilded age
is sure to shape a truly messy world ahead. In other words, this can’t end
well.
Nomi Prins, a former Wall Street
executive, is a TomDispatch regular. Her latest book is Collusion: How Central Bankers Rigged the World (Nation Books). She
is also the author of All the Presidents’ Bankers: The Hidden Alliances That
Drive American Power and five other books. Special thanks go
to researcher Craig Wilson for his superb work on this piece.
