The American Bad Dream – (5) The Concentration of Wealth

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The corporate plan has worked well so far.  As well-documented elsewhere, and to be discussed in more detail on this site, today the wealthiest 1% of Americans now possesses nearly 40% of all wealth, and most of the investment securities.  The rest of the top twenty percent, which contains what is left of the middle class, has less, and its wealth is diminishing.  The next 40% have very little, and the poorest 40% have virtually no wealth at all.

The implications of this growing concentration of wealth at the top are profound.  As the rich get richer, hardship for the bottom 99% of Americans continues to rise.  The middle class steadily loses ground and poverty increases.   By gathering up as much wealth as possible for themselves, the wealthy elite are necessarily impoverishing the rest of America.  Today America is in a recession, and the wrong policies in Washington could lower economic activity even more, risking collapse into a full depression.

Throughout my adult life, I have instinctively believed that an economic collapse would not only condemn many millions of people to poverty, but it would be bad for business too, as it was during the Great Depression.  As candidate Barack Obama put it in his March 27, 2008 speech at Cooper Union, “Renewing the American Economy”:

           “[T]he core of our economic success is the fundamental truth that each American does better when all Americans do better; that the well-being of American business . . . , its capital markets and its American people are aligned.”

One would think that capitalists whose success depends in large measure on marketing goods and services to Americans (such as the Waltons or Bill Gates) would be inclined to agree with Obama on that.  Nonetheless, the policies of the capitalist elite, pressed by Republicans in government, display no alignment of their interests and those of the rest of the American people.   Congressional Republicans have shown no detectable interest in economic recovery or the economic well-being of the bottom 99%. [1]  There seems to be no concern that the empires of the wealthy might ultimately collapse along with the collapse of the American economy.

One possible explanation for this curious enigma is that very wealthy Americans no longer view themselves, in today’s global economy, as stewards of the American economy.  They may no longer see the need for preserving much more than a depressed economic shell in the United States.  Indeed, American jobs by the millions have already been transferred overseas to take advantage of cheaper labor, and in the process American unionism has declined, to the economic and political advantage of corporations.

Americans now face an unexpected, frightening possibility: that money, profit and power are all that concern the capitalist elite, and that they simply don’t care about America’s economy, its people, or its future.  Or perhaps some of them have another agenda, born of their vast wealth, involving the destruction of American democracy and freedom.  In either case, the “American Dream” has indeed become an “American Nightmare.”

One thing is clear: If their plundering agenda has a self-imposed limit, that point has not yet been reached, and is not in sight.  It is tempting to hope that the wealthy might be content with an American economy on life support, but the agenda in 2011 is being pressed without restraint.  In light of the Republican budget cuts proposed in Congress today (2/11), it appears that realization of their entire wish list would result almost immediately in an even more depressed economy with higher unemployment, and a government existing solely for to serve the purposes of the corporate elite.

Recalling the alien emotions stirred in me by George Orwell’s “1984″ and “Animal Farm,” it is hard to believe I am making these observations.  Yet even superficial consideration of recent events leads to such conclusions.

We are compelled to ask: Why haven’t the ultra rich and the Republicans that represent them in government cared about the $12.1 trillion of federal debt they created?  Why have they incurred these huge debts, and why aren’t they concerned about the need to repay them someday?

That they do not care is clear, for they reduced their taxes at the beginning of the GW Bush years, increasing their wealth by over $500 billion in the following years, while running huge federal deficits and driving the economy into recession.  And they insisted on keeping their tax reduction in December 2010 (at a projected cost of $800 billion over ten years) even as they were gearing up to express alarm at the budget deficit and propose, effectively, to offset their tax reduction (and more) by slashing federal programs for the middle class and the entire bottom 99% to the bone.

The reason the ultra rich and the Republicans that represent them are unconcerned about high levels of federal debt is straightforward, if somewhat obscure: Government debt serves as a relentless engine for increasing the wealth of investors (the rich) at the expense of a higher tax burden for non-investors (other folks).  It accomplishes this in two ways:

First, the proceeds of the loans are spent on government contracts with rich people and their corporations, so the wealthy gain wealth from the additional corporate profits (often enormous and excessive, because profit levels are not controlled by a free marketplace) that are paid for by all taxpayers.

Second, the rich gain additional wealth through the interest they collect on government debt. When I was studying economics in the early 1960s the theory was circulating that we (all Americans) don’t have to worry about the federal debt, because it’s “money we owe ourselves.”  I always found that idea perplexing, because the people who invest in government bonds and the taxpayers who must pay the interest and eventually repay the debt are not exactly the same people.

Today, about half the debt if “intragovernmental transfers” and debt held by the Treasury, which is money we owe ourselves.  About 1/4 is held by foreign interests and 1/4 (about $3.5 trillion today) is privately held in America.  Most of the domestically held debt is held by mutual funds or other investment accounts.  The wealthiest investors who own most of such investment wealth today (the top 1% reportedly holds more than half of all financial wealth) control a somewhat smaller portion of taxable earnings.  People in the middle class and below that have income help to cover debt interest in the taxes they pay, thereby contributing to the growing wealth of the very rich.  With domestically held debt at around $3.5 trillion, this may amount to a shifting of wealth in the tens of billions each year.

It’s no surprise, then, that when the rich have been in power they have run up the national debt. They have profited so greatly from doing so, in fact, that they have even borrowed substantially from other countries like China, reputedly an ideological adversary and global economic competitor.

You may say: “But all taxpayers benefit as well, because the government borrows on their behalf in pursuit of the public interest.”  Well, that’s the issue: Because the debt was run up mostly for military spending, cost overruns aside, all Americans benefit only to the extent that things like a war in Iraq or stealth bombers benefit everyone.  I think a good case can now be made, after more than 30 years of what has been effectively a “war economy,” that the declining middle class and the poor in America have paid a very heavy price for the “national security” they enjoy.

JMH – 2/21/11


[1]  Indeed, having regained control of Congress in the 2010 mid-term elections, they have insisted on preserving the Bush-era tax cuts for the wealthy, and set out to pay for them with massive cuts in federal programs that benefit everyone else.  Such an approach can only further depress the economy and lower the purchasing power of the American people.  Needless to say, it will not reduce the level of national debt.

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