Wealth Grab by a Few = Unending Economic Crisis

Nov 28, 2011

The following is based on parts of a report given to the Spark Public Meeting in Detroit in November.

There obviously has been widespread popular support for the “Occupy Wall Street” movement. Even the polls say it–and they always skew the reaction of ordinary people. But those polls only confirm what we hear in Detroit workplaces. People are angry, and happy that someone is expressing that anger.

No wonder. Look at what has happened over the last few decades: the gap between the wealthy and everyone else has grown rapidly, even as the economy barely limps along.

In 2007, the wealthiest 1% raked in almost 24% of the total income produced in this country. The last time those on top took in such a disproportionate share was 1928–just before the last great crash, the one which produced the Great Depression, fascism and World War II.

This is not just an interesting coincidence. Both times, the wealthiest people rapidly increased their share of the national income, at the expense of most of the population. And both times, this helped strangle the economy.

But annual income is only a small part of the story. The wealth that has been accumulated over decades in the hands of a few is what really weighs on society. Today, the wealthiest 1% own 43% of the nation’s accumulated financial wealth. Worse–the wealthiest 20% own 93% of the nation’s wealth. What is left of the nation’s wealth–only 7%–is divided up among the remaining 80% of the population.

But it gets worse still. The ones who really COUNT are found, more or less, among the 400 richest families. In 2008, these 400 families owned 1.57 TRILLION dollars. Just by themselves, they could pay off a big share of the debt the government has accumulated over the years. And they ought to, since their class has been the beneficiary of trillions of dollars in gifts from the government.

They are the very top of the capitalist class. Their wealth, which has been accumulated from decades and decades of exploitation of all those who do the work, allows them to determine the fate of the whole population. They don’t control our fate consciously, nor in a kind of conspiracy, but as the result of what their position in the economy drives them to do–and what it drives them to do is to accumulate still more. If not, they fall by the wayside, as Lehman Brothers did in early 2008–or are gobbled up, as Bear Stearns was a few months later, or Chrysler was several times.

This capitalist drive to accumulate has created not only rapidly increasing inequality, but an economic crisis that has gotten worse by the decade, and more recently by the year.

From One Crisis to the Next

For the last 40 years, the capitalist economy has been stumbling from one financial crisis to the next. And the capitalists–in order to protect themselves from the mess they created–have drastically increased the exploitation of the working class; that is, they have taken a bigger and bigger share of the wealth that labor produces.

If, over those decades, our income had increased in proportion to growing productivity, we would be earning twice as much today as we actually are: $1200 a week, for example, instead of $600. But not only have we not gotten any of the benefit of this increased productivity, we have given up some of what we once had. Today, we are earning less than we were in 1974, when inflation is taken into account. And we are getting a smaller and smaller share of the value of what we produce.

That makes it harder for us to buy. And when we can’t buy, the capitalist market shrinks. The companies can’t sell their goods and services–which cuts into the profits the corporations realize, and the bonuses the CEOs grab and the dividends shareholders get.

Yes, the capitalists themselves, and probably even most of that top 20%, can consume more. But there is a limit to how much they can consume. How many mansions can one family inhabit, how many vehicles can they drive, how many furs, jewelry, and latest style clothes can they wear?

The capitalists need a wider market than just themselves and a few other wealthy people. But the very thing the capitalists do to protect themselves–that is, reduce the standard of living of the working class–quickly comes back to haunt the capitalists themselves. They destroy their own markets.

Blowing Credit Bubbles...

For a whole period, the capitalist class tried to get out of this dilemma by artificially building up demand for goods and services, pushing credit on the population. Mortgages went from 25 years, with one quarter down; to 30 years with 10% down; to 40 years, with practically nothing down. Car notes stretched out so far that when people went to trade in their car, they owed more than what the car was worth. People bought used cars, using their credit cards, with their 25% loan-shark interest rate. Credit-card debt piled up as people maxed out one card, then a second card, and then a third. Growing credit-card debt made many people potential victims for the sub-prime-refinance-your-mortgage scam–“use your house as an ATM machine to pay off your credit cards.”

With states cutting funding to public universities, tuition jumped–and the banks jumped right in to push student loans. Student loans, which are one of the very few debts you cannot dump in a bankruptcy, mushroomed. The banks know they have you hooked for life.

It was an orgy of debt, presided over by the biggest banks in the country, which were pushing one debt after another, bundling them into various securities, selling them to unsuspecting pension funds and middle-class people seeking to save something for their retirement.

It worked for a while, this orgy of debt, keeping the economy limping along. But credit brings its own problems. People are spending more than they have; the banks are recording as current income what they don’t have but pretend they will get in the future.

Financial wheeling and dealing opened the door for a vast amount of speculation. Financial companies gobbled up houses, intending to flip them, selling them a few months later, making a quick profit as prices continued to shoot up.

The Governments Bail Out the Banks

The bubble in house prices burst in 2006. Mortgages began to go into default. Many of the financial instruments based on mortgages became worthless, and the banks knew it. A number of financial companies faced bankruptcy.

By 2008, the collapse of the housing bubble had killed off two big Wall Street banks, and other banks were waiting to see who was next. They practically refused to loan money–not only to people, not only to productive corporations; they refused to loan money to each other. The financial system froze up.

But free-running credit is the life-blood of the capitalist economy. Governments stepped in, buying up the bad debt, handing over trillions of dollars to the big banks and, what was even more important, making many trillions more “available” to the banks. Neil Barofsky, who was appointed by Bush to audit the TARP–the first big bailout of the banks–says that the U.S. government today is on the hook for 23 trillion dollars it has either given, loaned or used to insure the banks’ bad debts.

What the U.S. government did, other governments did also.

But where did governments get the money they gave to the banks? They didn’t have it. So they borrowed it–and from the very banks to which they were handing the money.

Think about this: the banks ended up with the money. The governments, who had given the money to the banks, ended up with the debts. And they had to pay interest on top of all that.

The Banks Squeeze the Governments

Over the past year, the loans governments took out have been coming due. Governments need to roll over those loans or refinance them.

What an opportunity for the banks: it lets them increase the interest rates they charge on money loaned out to governments, especially when rumors begin to fly that one or another government won’t be able to meet its debt payments.

This debt that the governments ran up bailing out the banks is the underlying cause of the so-called Euro crisis in Europe, and of the so-called budget deficit crisis in the U.S.

Eliminate from government budgets what the banks say is owed to them–money which the banks got from the governments and benefitted from already–and there would be no Euro crisis.

Eliminate from the U.S. budget the enormous amounts drained over the last decades in service of the wealthy, and there would be no U.S. debt crisis. The Bush/Obama tax cuts cost 3.3 trillion dollars over 12 years. The two wars in Afghanistan and Iraq will take four trillion dollars. The Pentagon’s budget for the next 10 years (not counting any wars) runs to 7.8 trillion. And the Wall Street bailout–well, no one really knows, but remember what Bush’s man Barofsky estimated: 23 trillion dollars.

Just shut off these spigots, and the current 15-trillion-dollar government debt could disappear.

Governments Squeeze the Population

Instead, governments around the globe are demanding that the population pay. In Ireland, Great Britain, Italy, Spain, Portugal and Greece, they call it an austerity policy. Here they call it “reducing the debt.” In the underdeveloped counties, it’s called “structural adjustment.” But whatever it’s called, the pain is imposed on the same classes: those who work to produce the goods and services needed by the whole society.

In the U.S., this year alone, more than one trillion dollars have been cut from federally funded public services, social programs and education. And 1.2 trillion more are to be “automatically” cut if Congress can’t agree on clever ways to cut Social Security and Medicare–without seeming to do it!

It’s absurd, even for the capitalists themselves, since these cuts by governments can only reduce the ability of the working masses to buy anything; that is, they reduce the capitalists’ own market still further.

Nonetheless, the U.S. and European governments impose these cuts on their own population, and above all on the poor masses in the underdeveloped countries–where “austerity” literally means starvation.

These austerity policies are not just the result of bad policy, or stupid politicians–these are choices the banks and other capitalists impose on the governments, and through them on the laboring population, as the only way the capitalists see to protect themselves right now. They’ll worry about tomorrow tomorrow, or even the day after.

Needed: A Fight against Capitalism Itself

One hundred and fifty-four years ago, Frederick Douglass, in a speech dealing with the fights the slaves were making against the slaveholding class, had this to say: “Find out just what any people will quietly submit to and you have found out the exact measure of injustice and wrong which will be imposed upon them, and these will continue till they are resisted with either words or blows, or with both. The limits of tyrants are prescribed by the endurance of those whom they oppress.”

He could well be speaking to the working class today. There will be no let-up in this drive of the capitalists to protect themselves at our expense, so long as working people don’t gird themselves for a fight to take on the capitalists.

Concretely, all of us who work for our living must begin to fight over the most basic needs for human existence today: that is, the possibility for all of us–every single one–to have a job, and the possibility for us all to have an income that supports a life appropriate to the level of technology that exists today.

It’s happened before that people have fought for those things–the working class in the 30s, the black population in the 60s. Those fights were able to push the capitalists back. But what they didn’t do was get rid of the underlying mechanisms of capitalism, which sprang right back to life when the movement receded.

We have every reason to believe there will be new struggles. The Occupy protests are important, not because they have mobilized the working class–they haven’t; and not because they offer a direction–they don’t. But they are a harbinger of people’s wish to say NO MORE. And many of the young people attracted to that movement could play a role in the fight for jobs and a decent standard of living.

It would be such a deadly mistake to go through another long fight, only to give up its rewards at the end. What finally will count is whether enough people exist who understand that capitalism and its mechanisms are really in the center of this vicious assault on most of the world’s population, and that capitalism and its basic mechanisms are the targets against which we have to aim.