The Great Crash tore away the curtains and brought into plain view the results of this policy. The rich have the power to control the government for their personal benefit, preserving their wealth and power while insisting that the working people pay every last cent of their debt. They have arranged the system so that they not only hang on to their wealth, but increase it dramatically, just as one would expect in an oligarchy. As absurd as it sounds, they have persuaded people that it would be a bad idea to raise their taxes, and a better idea to cut food stamps, unemployment insurance, Social Security, Medicaid and Medicare. We all have to share in the sacrifice, as our President puts it, without bothering to explain why I should sacrifice for the benefit of the filthy rich.
The only solution from liberal economists like Paul Krugman and Jared Bernstein is to increase inflation. Here’s Krugman:
Interest, classically (and I do mean classically, as in Mr. Keynes …), is the reward for waiting: there’s supposedly a social function to interest because it rewards people for saving rather than spending. But right now we’re awash in excess savings with nowhere to go, and the marginal social value of a dollar of savings is negative. So real interest rates should be negative too, if they’re supposed to reflect social payoffs.
On net, faster inflation would help shake the macro-economy out of its slog so I’m for it. But it’s not costless. It hurts those on fixed incomes, hurts creditors (the flipside of helping debtors), and risks unmooring well-anchored inflationary expectations (though these days most of us are more worried about deflation than spiraling inflation).
And, all else equal, it would also reduce real wages. Most recently, the hourly pay of mid-wage workers has been growing at around 2% per year with inflation running at about 1.5%, so slight real wage gains. Take inflation up a point and unless nominal wages accelerate as well, we’re now talking about real wage losses.
Under the policy of Bernstein and Krugman, wages will drop, so business will make more money to make up for inflation. Those who are already rich will not be affected, but there is more misery for retirees, small savers, and workers, who have already been victimized by the demands of the rich. Bernstein and Krugman join the Obama Administration in their willingness to foam the runway with the lives of the poor so that capital can be protected. Their hope is that someday things will change. Why this won’t be a permanent change for the worse is not clear to me.
The first step towards dealing with this problem is to ask just how much capital there is. Here are a couple of numbers. First, from Forbes,
The 400 wealthiest Americans are worth just over $2 trillion, roughly equivalent to the GDP of Russia. That is a gain of $300 billion from a year ago, and more than double a decade ago.
There are another 61 billionaires who didn’t make the Forbes list. Their net worth is between $1-1.3 billion, so we could estimate that the top 500 richest Americans have a net worth of well over $2.1 trillion. That doesn’t include any outright criminals, who also have huge wealth, given that the drug business runs somewhere around $400 billion annually, and cheats on Wall Street and other financial cheats hide money all over the known world.
Here’s a second figure, from the Financial Accounts of the United States, which is the new name for the Fed Flow of Funds Report. The total of financial assets in this country is $61.9 trillion. See p. 112, line 9. This sector includes domestic hedge funds, private equity funds, and personal trusts. The table on page 119 gives a breakout of major categories of financial assets.
So here’s my question: isn’t that enough? How much more capital do we need when the amount we have is so great that small savers and retirees are sacrificial lambs for the preservation of the assets of the Forbes 461 and a few thousands of centi-millionaires, drug barons and financial cheats?
Why do we think we have to coddle capital, at the expense of our own lives? When did we turn into a nation of masochists? It’s high time we stopped this stupid policy and aimed at taking care of ourselves.
*We follow the same policy internationally. See The Making of Global Capitalism.