Tuesday, April 22, 2014

The New Gilded Age

I guess if we needed any further proof that the rich are getting richer while the poor are getting poorer, Capital by Thomas Picketty is it.  Judging by the reactions to the book, Picketty offers a very sober and disturbing portrait of wealth and democracy.

As Paul Krugman and other economists have long argued, we have drifted into a new "Gilded Age," where the accumulation of wealth in the hands of a few exceeds economic growth therefor leading to a greater consolidation of wealth, which only further stagnates the economy.  Picketty, a French economist, provides a method of research to bolster this argument, charting the distribution of wealth back to the late 18th century, with particular focus on early 20th century Britain and America, which Krugman refers to.

Picketty offers hard numbers which are hard to refute, but what critics do dispute is Picketty's belief that the only way to restore balance is to institute a Global Wealth Tax, especially given that a staggering $21 trillion is hidden offshore, out of reach of any individual country.  This sum is greater than the combined GDP of the United States and Japan.

It makes you think of Ayn Rand's Atlas Shrugged where the world's wealth was silently disappearing, as wealthy industrialists essentially opted out of the New Deal, creating their hidden society in the Rocky Mountains.  It may have seemed like fantasy then, but appears to be very much the reality today, only much of this money is socked away in secretive accounts in exotic places like the Cayman Islands.

Little wonder Ayn Rand is being quoted so often these days, and her book held in high regard by many conservative economists including the former chairman of the Federal Reserve, Alan Greenspan.  But, Picketty argues against the idea of an unrestrained "free market" as it has only served to widen the gap between rich and poor, not created a competitive and fair market place.

The irony is that the very persons we would expect to address this issue have aided and abetted the wealthy elite by furthering the globalization of the economy.  Bill Clinton and Tony Blair were major advocates of globalization and pushed the US and Great Britain in this direction during their long tenures.  Granted, the foundations had been set by their more conservative predecessors, Reagan and Thatcher, but they offered virtually no resistance by easing financial regulations across the board, and offering copious tax cuts to "spur" their respective economies.

Since 1963, when Kennedy first introduced tax cuts as part of a stimulus bill, which Johnson later pushed through Congress, we have seen a steady reduction in federal taxes and an ever increasing national debt as a result, with the government still carrying many of the New Deal "burdens" conservative critics love to bemoan.

Clinton was going to end welfare as we know it, falling in line with the Republican "Contract with America" which called for greater domestic cuts to balance the tax cuts.  But, he failed to address the spiraling costs of Medicare and other federal programs that now haunt the Obama administration.  The Democrats attempted to address these skyrocketing health care costs with the Affordable Care Act, which in itself is a conservative response to health care costs, although you would never know it by the fierce rhetoric of the Republicans.

Meanwhile, we see only superficial cuts in military spending, which accounts for no less than 20 per cent of the annual budget.  Add in other "security" related expenditures and that percentage is close to 40% of the annual budget.  Yet, we see few conservative politicians asking for the kind of draconian cuts we have seen in social programs.  Instead, they clamor over themselves in support of the military, extolling the troops in battle when in actuality it is the defense contracts they badly want back in their states.

I find this deeply unsettling as we seem to be drifting toward a corporate fascist state, with the military serving as Teddy Roosevelt's metaphorical "Big Stick," which John McCain recently alluded to.  We appear to have completely turned our backs on the "Great Society" Johnson envisioned in the 60s with increased spending on housing, education and welfare to end poverty as we know it.  Or, for that matter TR imagined back in the Gilded Age, only to be thwarted at every turn by wealthy industrialists (Ayn Rand's Titans).

I guess Bill Clinton and Tony Blair decided that if you can't beat them, join them, and as a result they greatly accelerated the process with their embrace of "Globalization."  The income gap didn't seem so pronounced back in the 90s with a rapidly growing GDP, but as Thomas Picketty notes, once growth peters out, wealth inequality becomes much more visible.  Unable to get any meaningful financial reform passed in the wake of the 2008 economic collapse, and further adding to the national debt with renewed tax cuts, the Obama administration has been unable to address the wealth imbalance in any appreciable way, which is why we see such a disgruntled American public.  Unfortunately, getting any tax increase through Congress seems as distant a notion as it was back in the 90s, let alone a "Global Wealth Tax."

1 comment:

  1. Capital is all the rage now. I ordered a copy to see what it is all about.