I hadn’t realized when I was growing up in Gary, Indiana, an industrial town on the southern shore of Lake Michigan plagued by discrimination, poverty and bouts of high unemployment, that I was living in the golden era of capitalism. It was a company town, named after the chairman of the board of U.S. Steel. It had the world’s largest integrated steel mill and a progressive school system designed to turn Gary into a melting pot fed by migrants from all over Europe. But by the time I was born in 1943, cracks in the pot were already appearing. To break strikes—to ensure that workers did not fully share in the productivity gains being driven by modern technology—the big steel companies brought African-American workers up from the South who lived in impoverished, separate neighborhoods.
Smokestacks poured poisons into the air. Periodic layoffs left many families living hand bự mouth. Even as a kid, it seemed clear lớn me that the không lấy phí market as we knew it was hardly a formula for sustaining a prosperous, happy và healthy society .So when I went off mập college Khủng study economics, I was astonished by what I read. The standard economic texts of the phút giây seemed mập be unrelated lớn the reality I had witnessed growing up in Gary. They said that unemployment shouldn’t exist & that the market led Khủng the best of all possible worlds. But if that were the case, I decided, I wanted béo live in a different world. While other economists were obsessed with extolling the virtues of the market economy, I focused a lot of my work on why markets fail, & I devoted much of my Ph. D. thesis at MIT bự understanding the causes of inequality .
Nearly half a century later, the problem of inequality has reached crisis proportions. John F. Kennedy, in the spirit of optimism that prevailed at the thời gian I was a college student, once declared that a rising tide lifts all boats. It turns out today that almost all of us now are in the same boat — the one that holds the bottom 99 percent. It is a far different boat, one marked by more poverty at the bottom & a hollowing out of the middle class, than the one occupied by the top một percent .Most disturbing is the realization that the American dream — the notion that we are living in the land of opportunity — is a myth. The life chances of a young American today are more dependent on the income & education of his parents than in many other advanced countries, including “ old Europe. ”
Now comes Thomas Piketty, who warns us in his justly celebrated new book, Capital in the 21st Century, that matters are only likely to get worse. Above all, he argues that the natural state of capitalism seems to be one of great inequality. When I was a graduate student, we were taught the opposite. The economist Simon Kuznets optimistically wrote that after an initial period of development in which inequality grew, it would begin to decline. Although data at the time were scarce, it might have been true when he wrote it: The inequalities of the 19th and early 20th centuries seemed to be diminishing. This conclusion appeared to be vindicated during the period from World War II to 1980, when the fortunes of the wealthy and the middle class rose together.
But the evidence of the last third of a century suggests this period was an aberration. It was a giây phút of war-induced solidarity when the government kept the playing field cấp độ, & the GI Bill of Rights & subsequent civil rights advances meant that there was something mập the American dream. Today, inequality is growing dramatically again, và the past three decades or so sánh have proved conclusively that one of the major culprits is trickle-down economics — the idea that the government can just step back và if the rich get richer và use their talents và resources phệ create jobs, everyone will benefit. It just doesn’t work ; the historical dữ liệu now prove that .But it has taken us far too long as a country lớn understand this danger. Changes in the distribution of income & wealth occur slowly, which is why it requires a grand historical perspective of the kind that Piketty provides mập get a feel for what is happening .Ironically enough, the final proof debunking this very Republican idea of trickle-down economics has come from a Democratic administration. President Barack Obama’s banks-first approach béo saving the nation from another Great Depression held that by giving money phệ the banks ( rather than lớn homeowners who had been preyed upon by the banks ), the economy would be saved. The administration poured billions into the banks that had brought the country Khủng the brink of ruin, without setting conditions in return. When the International Monetary Fund và the World Bank engage in a rescue, they virtually always impose requirements lớn ensure the money is used in the way intended. But here, the government merely expressed the hope that the banks would keep credit, the lifeblood of the economy, flowing. And so sánh the banks shrank lending, & paid their executives megabonuses, even though they had almost destroyed their businesses. Even then, we knew that much of the banks ’ profits had been earned not by increasing the efficiency of the economy but by exploitation — through predatory lending, abusive credit-card practices & monopolistic pricing. The đầy đủ extent of their misdeeds — for instance, the illegal manipulation of key interest rates và foreign exchange, affecting derivatives & mortgages in the amount of hundreds of trillions of dollars — was only just beginning phệ be fathomed .
Obama promised to stop these abuses, but so far only a single senior banker has gone to jail (along with a very few mid- and low-level employees). The president’s former Treasury secretary, Timothy Geithner, in his recent book, Stress Test, made a valiant but unsuccessful attempt to defend the administration’s actions, suggesting that there were no alternatives. But Geithner clearly worried excessively about the “moral hazard” of helping underwater homeowners—in other words, encouraging lax borrowing habits—while seeming to care far less about the moral hazard of helping banks, or the culpability of the banks in encouraging excessive indebtedness and in marketing mortgages that put unbearable risks on the poor and middle classes.
In fact, Geithner’s attempts Khủng justify what the administration did only reinforce my belief that the system is rigged. If those who are in charge of making the critical decisions are so sánh “ cognitively captured ” by the một percent, by the bankers, that they see that the only alternative is lớn give those who caused the crisis hundreds of billions of dollars while leaving workers & homeowners in the lurch, the system is unfair .This approach also exacerbated one of the country’s most pressing problems : its growing inequality. Only with a vibrant middle class can the economy fully recover và grow faster. The more inequality, the slower the growth — a conclusion now endorsed even by the IMF. Because the less wealthy consume a greater chia sẻ of their income than bởi vì the rich, they expand demand when they have more income. When demand is expanded, jobs are created : In this sense, it is ordinary Americans who are the real job creators. So inequality commands a high price : a weaker economy, marked by lower growth và more instability. It is not very complicated .None of this is the outcome of inexorable economic forces, either ; it’s the result of policies & politics — what we did & didn’t vì. If our politics leads lớn preferential taxation of those who earn income from capital ; bự an education system in which the children of the rich have access béo the best schools, but the children of the poor go bự mediocre ones ; bự exclusive access by the wealthy mập talented tax lawyers và offshore banking centers béo avoid paying a fair chia sẻ of taxes — then it is not surprising that there will be a high màn chơi of inequality và a low màn chơi of opportunity. And that these conditions will grow even worse .
And now it’s also clear that the high level of economic inequality has translated into gross new forms of political inequality—to the point where we can more aptly be described as having a political system with “one dollar, one vote” than “one person, one vote.” The Supreme Court’s Citizens United decision in January 2010 gave corporations more rights to influence politics than ordinary individuals—without making them, or their officers, really accountable. This year’s follow-on McCutcheon decision eliminated aggregate limits on individual contributions to national candidates and parties. So today, the richer you are, the more you are able to influence the political process and the economic decisions that stem from it, and to rig it all in favor of the 1 percent. Is it any wonder the rich keep getting richer?
* * *
Cautiously and belatedly, some six years after the fact, the Obama administration has now begun to revise its views about the Great Recession. Even Geithner, in his book, agrees that more should have been done. But hey, resources were scarce, and one had to make bets where they would be most effective. That’s the point: Listening to the bankers, it’s not a surprise that he placed his money on the bankers. Even before Obama took office, I urged a greater emphasis on homeowners: that we should combine at least a little trickle-up economics with trickle-down economics. But those of my persuasion were given short shrift, as the administration sought counsel from the vested interests in the financial sector.
The Obamians seem bewildered that the country is not more thankful phệ its government for having prevented another Great Depression. They saved the banks, & in doing so sánh, they saved the economy from a once-in-a-hundred-year storm. And they proudly point out that all the money given bự the financial sector has been more than repaid. But in making such claims, they ignore some critical realities : It was not something that just happened. It was the result of reckless behavior, the predictable và predicted consequences of deregulation & the inadequate enforcement of the regulations that remained, of buying into the mind-set of the một percent và the bankers — for which Geithner và his mentor, former White House nhà trắng economic adviser Larry Summers, had more than a little culpability. It was as if, after an accident caused by drunk driving, in which the last drink was served by the police officer on duty, the drunk driver was put back into the driver’s seat, his oto rushed phệ the repair shop, while the victim was left mập languish at the scene of the crime .The repayment itself is, at least in part, the result of a game that would bởi any bé man proud. The government, under the auspices of the Federal Reserve, lends money bự the ngân hàng at a near-zero interest rate. The ngân hàng then lends it back béo the government at 2 or ba percent, & the “ profit ” is paid back béo the government in repayment of the “ investment ” the government made. Bank officials, meanwhile, get a bonus for the hefty returns they have “ earned ” for the ngân hàng — something a 12 – year-old could have done. This is capitalism ? In a true rule-of-law world, a drunk driver would have béo pay for not only his own repair costs but also the damage he has inflicted — in this case, the cumulative loss of GDP, which now amounts bự more than USD tám trillion, và which is mounting at the rate of USD 2 trillion a year. The banks recover, while the typical American’s income plummets béo levels not seen in two decades. It is understandable why there might be some anger in the body toàn thân politic .What we have here is not, as administration officials would have it, a failure lớn communicate. The problem was that Americans saw what they were doing. There was a healthy debate in the country about alternative courses of action — before, during và after the bailouts. The reason critics lượt thích Sheila Bair, Elizabeth Warren, Neil Barofsky, Simon Johnson, Paul Krugman and others ( left, right & center ) won the day — at least the intellectual debate và the war kết thúc public perceptions — was not that they were better communicators. It was that they had a more convincing message : There were alternative ways of rescuing the economy that were fairer và that would have resulted in a stronger economy. Instead, our politics và economics are now locked into a vicious circle : Economic inequality leads béo political inequality, & this political inequality then leads mập rewriting the rules Khủng increase the cấp độ of economic inequality even further, và so sánh on. The result ? Ever greater disillusionment with our democracy .Matters may well get worse. Recent research has uncovered a variety of other vicious cycles. Poverty traps mean those in the bottom remain there. The fortunes of a child of poor parents who does well in school are far bleaker than those of a child of rich parents who does much more poorly in school. About a quarter of U.S. college freshmen from the bottom income half finish college by age 24, compared with 90 percent of the upper quartile. And with wages of those who have only a high school diploma at 62 percent of the typical college grad’s earnings — compared with 81 percent in 1965 — the prospects are they will be poorer than their parents .Meanwhile, lower taxes on capital & lower inheritance taxes are allowing the accumulation of inherited wealth — in effect, the creation of a mới nhất American plutocracy. It is even possible, as I pointed out long ago in my Ph. D. thesis và as Piketty has emphasized, that wealth will be increasingly concentrated among a select few. The shared prosperity that marked the country in that date calculator age
age of my youth — in which every nhóm saw its income growing but those at the bottom saw it rise the fastest — is long gone .
Yet I am, perhaps, naive enough to believe it is not capitalism alone that is at fault: It is, even more, the paralysis of our politics and the banishing of any progressive thought from a debate that still pretends the No. 1 problem is government. I have spent my career as an economist second-guessing markets, demonstrating their imperfections, and yet markets can be a powerful force for increasing standards of living for all. But we need a balance of the kind we achieved in the middle of the 20th century, when government was afforded a progressive role. Otherwise, I fear, we will permanently scar ourselves with the rigged economic and political system that already has done so much to create today’s inequality.
When I was growing up in Gary during its own smog-choked “golden age,” it was impossible to see where the city was going. We didn’t know, or talk, about the deindustrialization of America, which was about to occur. I didn’t realize, in other words, that the rather grim reality I was leaving behind was actually as good as Gary was ever going to get.
I fear America could be at the same place today .