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A RISING TIDE DOES NOT LIFT ALL BOATS (PART II)

March 11, 2015

A RISING TIDE DOES NOT LIFT ALL BOATS (PART II)

Thomas  Piketty, the brilliant French economist, does not believe that economic  growth alone will deflect popular anger over unequal distribution of income and wealth. He is right. The  failure of the corporate and investment class since the 1970s to share the marginal productivity of its workers with its workers is responsible for the economic malaise of today and for the stagnant wages of some 35 years or more preceding today, so that indeed the issue of a fair sharing of our economy’s fruits is rightly at fever pitch these days. As designers and operators of our economy, such a class has obviously decided to feed the greed of the few over the needs of the many and that is one of the areas desperately in need of our reforming attention. The ultimate question from the point of view of the pure economic pragmatist, however, becomes not whether such a design is right or wrong but whether it will work over time.

It won’t. As expressed in economic terms and over time (given three centuries of research proof undergirding his r > g formulaic conclusion), Piketty has proven that such an economic design will not work and is headed for the dustbin of history unless, as he puts it, “It is attended to.” The issue then becomes “attending to“ the problems identified as the flies in our economy’s ointment. Just what is it we are doing or not doing that can be changed or modified so that we can save our economy and fairly distribute its fruits to all of its actors rather than a mere few?

We can forget Marxism as an alternative. Marx thought that increasingly severe depressions and capitalists’ drives to lower labor’s share of the income in advanced industrial societies would necessarily bring about revolution. It didn’t happen that way. Twentieth-century capitalism proved more resilient than Marx could have guessed. Faux notes that during this period new technologies continued to generate more profits and jobs. Keynesian fiscal and monetary policies (from the New Deal into the 1970s) prevented cyclical business downturns from triggering depressions. Marx may have dealt us all an unintended favor, however, in that the corporate and investment class out of fear of communism (grudgingly) agreed during such period to FDR’s New Deal model of strong unions, social insurance and other Keynesian policies that forced them to share the profits from rising productivity with their workers. Apparently such fears, if any, evaporated circa 1974 as such class began to hog virtually all of our economy’s profits and, unsurprisingly, ordinary American have suffered economic malaise ever since. The relative success of McCarthyism in the trashing of communism as a system may have helped end such fears and fed the greedy resolve of this class to return to Gilded Age practices.

We all know by now that the corporate and investment class routinely hogs 95 percent of the marginal productivity of its workers, is using its political muscle to reduce social safety nets and in general is beating up on the poor and unemployed while it is outsourcing, buying politicians, cheating on its taxes etc. So how does such a picture differ from that during the heyday of the New Deal into the 1970s?

Here’s how: It was the New Deal that waylaid any latent political interest in communism in this country, and for good reason. Among other good reasons, capitalism as practiced from the New Deal into the 1970s provided our “proletariat” with a house, a car and other totems of middle class life. Communism’s model could not compete, and it has since collapsed as a result. It had little to do with “Red Hysteria” as a pragmatic matter; communism was simply an inferior model upon which to base an economy that did not (contrary to claims of its commissars) fairly distribute its fruits. Unfortunately, our corporate and investment class, emboldened by the fall of communism and otherwise politically encouraged in its greedy pursuits, has fallen back into its pre-New Deal machinations where a tiny few have the rest of us by the economic throat.

During this earlier period of enlightened capitalistic experience from the New Deal till the 1970s, the portion of income from our economy going to the richest dropped from over 45 percent in the 1920s to under 35 percent in the 1970s. Between 1959 and 1973 the percentage of Americans living in poverty was cut in half. (Compare this with a one third increase in poverty since the end of Bush’s Great Recession.) The richest corralled 95 percent of the profits generated by our economy just last year. Piketty describes the future of such a skewed arrangement as one which would resemble Jane Austen’s world in which a tiny group of the wealthy employed vast armies of poorly paid servants and further described the future results of such maldistribution as “terrifying.” The only word I can think of to describe this huge shift cannot be found in economic jargon; the word is obscene.

In Part III I will touch on aggregate demand, the meaningless Dow, more Piketty advice, our sixth year of recession and perhaps fortieth year of stagnated real median family wages for ordinary Americans, the lack of a self-correcting mechanism to halt the worsening maldistribution of both wealth and income and how Keynesianism if adopted as policy in lieu of current fiscal austerity policy can solve this and other problems in our economy for the good of all.  Stay tuned.    GERALD    E

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