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December 6, 2015


As my followers know, I have blogged on several occasions that our economy is in transition and that the old rules (or some of them) that worked so well in our postwar WW II industrial economy may not work or work well anymore.  Clearly we need new rules of engagement which result in a fairer distribution of the income and wealth of our economy to all Americans rich and poor in this new regime of altered means of production, distribution and consumption of goods and services. We are into a digital age in the midst of robotization of tasks in a global marketplace that has become a vehicle for the rich to get richer and the poor poorer in America, an outcome much as the old industrial domestic economy has provided us for the last four decades as we proceed with this ongoing transition in fashioning policies to assure continuing domination of rich over poor. Stiglitz would agree such policies need drastic change.

Wages as adjusted for inflation have been stagnant for almost 40 years; relative corporate costs have decreased in part via offsetting corporate hijacking of increases in their workers’ marginal productivity, which was formerly shared with their workers via increases in wages, health care costs, pensions etc., and also in part for the last several years as a result of policy directives by the Fed which gave and still gives banks and corporations access to virtually free money, some of which was hijacked from savers who anticipated a higher rate of interest on their savings than near zero, a little-discussed financial disaster for millions of Americans which has had negative implications for plans for retirement by many and has caused lesser demand in the market for goods and services due to loss of anticipated revenue to savers deprived of marginal wherewithal as would-be consumers. Savers have to some extent thus effectively financed the operations of Wall Street banks and multinational corporations, among others, in a funding transfer in the nature of ongoing bailout for corporate costs of capital, a grotesque result. Why should you and I as savers help finance costs of capital acquisition for Wall Street banks and multinational corporations, whose coffers are already historically awash in cash?

Further practical results of flawed policies? The Dow has zoomed, the rich and corporate class and especially the banking sector have corralled virtually all the wealth and most of the income from our economy’s performance. Ordinary wage-earning Americans have been effectively excluded from sharing in the performance of their economy, an economy which is itself under-performing and inefficient due to giveaway tax policy, monopoly pricing, shareholder return demands and under-regulation of investments of the rich and investment class (such as credit derivatives and fraudulent mortgage-bundling which led us to Bush’s Great Recession), millions of former homeowners kicked out of their homes via foreclosed mortgages, accelerated increases in chronic unemployment and under-employment etc., all while equity markets achieved historic highs and our poverty and homeless classes simultaneously expanded by the millions.

Is there a connection between the cascading wealth of the rich and investment class and the increasing poverty of those in the economy in which you and I live? Are two and two four? They are joined at the hip, and with the help of paid politicians the rich will continue to profit at the expense of the poor unless, to be blunt, we vote in new politicians who will adopt fairer policies looking to shared prosperity.

Present day improvement in employment numbers means little due to wage inequality, overhanging student debt and sky-high interest and fees paid on credit card balances, among other such economic negatives as accelerating health care costs etc. Even with decreased prices for gas, aggregate demand remains tepid at best as the underperforming economy you and I live in continues to sputter even while the economy lived in by the rich and investment class gushes dividends and capital gains opportunities.

Substantial reform of such a system that (legally) ordains winners and losers is clearly necessary, and Stiglitz and Piketty (with the latter’s dour r > g formula and his “central contradiction of capitalism”) agree. The present system is unsustainable per Piketty “unless attended to,” and we are not attending to it but are rather feeding the fire of implosion of the entire system with our wrong-headed policymaking by corrupted legislators in constant search of what we euphemistically call “campaign contributions” (known in my day as bribes but now a matter of bragging rights among candidates for the Oval Office about who gathered in the most “bribes” as a mark of distinction in their campaigns for office)! Does anyone reading this join me in getting a sense of what Romans must have felt in 475 A.D. (the year before Rome’s final sack and fall due not to “barbarian hordes” but rather to internal political rot and corruption)? In plain words, do elections mean anything if those elected are for sale to the highest bidder? Has our representative democracy (will of the people) been hijacked for cash?

Globalization has not brought prosperity to the broad swath of America that was promised by lobbyists for the rich and investment class who wrote our trade treaties and amendments to our internal revenue and bankruptcy codes. Quite the contrary – while it has brought unprecedented prosperity to Wall Street, to be sure (witness the Dow), it has simultaneously brought outsourcing and a race to the bottom in wages paid to American workers whose jobs stayed in this country which has added to the cancer of wage inequality already existent here for some 40 years. The Chinese, Wall Street banks, multinational corporations and the rich and corporate class have prospered greatly, but working Americans did not prosper, are not prospering, and absent dramatic changes in policy, will not prosper.

Stiglitz points out that Americans hear about economic “growth” and “recovery” on the news but don’t see that translated into steady income or growing paychecks, correctly noting further that those at the top have more than recovered what they lost in Bush’s Great Recession as the stock market soared. But, he writes, not so the rest, who saw what little wealth they had wiped out (trillions in the aggregate in home equity lost due to millions of foreclosures), finally noting that 91 percent of all increases in income from 2009 to 2013 went to the wealthiest 1 percent of Americans – the epitome of unequal growth.

As to how we got here, Stiglitz writes that in the last 30 years, sometimes under the radar, our economy, politics, and society have shifted. Where there was once a balance of powers between the private sector, labor institutions and government, we now have forces pulling us in the direction of greater inequality, which result in weak demand and reduced growth. It also means less long-term investment in education and research and development, and thus less innovation (a dangerous future deficiency in a globally competitive world).

I think his insight in this connection is very significant. When an economy produces wealth and income to be gathered in only by the few due to political corruption masked as policy, little is left for important initiatives like education, infrastructure and other of such investments in our people and our country and our future, and though we know that the result of current policies is weak demand and unequal growth, I fear that even if politically successful we will initiate reforms too slowly to save a badly mangled and unfair system from further damage or even the potential crash Piketty has predicted (unless “attended to”). I think we must not only “attend” to this cancer on our economy, but if afforded an opportunity, quickly. I will discuss reforms and the pace of change in instituting them in Part III. Stay tuned.    GERALD    E


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