The Root Cause of Our Economic Woes
The biggest economic story of our era, is the devaluation of labor compared to capital. Globalization, the soft labor market, the primacy of the financial sector in the economy, the policies that favor low interest rates and austerity and even the global financial crisis are the different manifestations of the same problem. The shift started taking place in the late 70s. Keynes’ policies that saved capitalism from its own worst excesses in the aftermath of the Great Depression gave way to the policies of the Chicago School economists, lead by Milton Friedman. Naked greed was given an intellectual wardrobe. This happened not just in the US under Reagan but globally due to the policy prescriptions of the World Bank and the IMF.
The section of the populace that has done extremely well under these policy prescriptions of the last few decades are the extremely wealthy, the ones whose income comes mainly from capital gains not wages. It is a hedge fund manager’s world and we are just living in it. In fact the 1% have bounced back quite nicely from the latest downturn, with their incomes increasing by more than 11%.
For broad based prosperity and a dynamic economy we need both capital and labor to be valued. We need both the government and the private sector. It was the unique public-private partnership that made the US a formidable economic engine. Both in the twentieth century and before. If the current trends continue we are headed towards a neo-feudal society where the top 1% will be like the Crawleys of Downton Abbey while the rest of us work downstairs.