No shit, Sherlock

Posted: 11 July 2010 in Uncategorized
Tags: , , , ,

The relationship between inequality and the current crises is so obvious even Robert Reich has noticed.

Actually, Reich is in about the same position as Paul Krugman, in that he notices a parallel between “America’s surging inequality” in relation to the crashes of both 1929 and 2008, as well as the effects of inequality on contemporary politics.

Each of America’s two biggest economic crashes occurred in the year immediately following these twin peaks—in 1929 and 2008. This is no mere coincidence. When most of the gains from economic growth go to a small sliver of Americans at the top, the rest don’t have enough purchasing power to buy what the economy is capable of producing. America’s median wage, adjusted for inflation, has barely budged for decades. Between 2000 and 2007 it actually dropped. Under these circumstances the only way the middle class can boost its purchasing power is to borrow, as it did with gusto. As housing prices rose, Americans turned their homes into ATMs. But such borrowing has its limits. When the debt bubble finally burst, vast numbers of people couldn’t pay their bills, and banks couldn’t collect. . .

A second parallel links 1929 with 2008: when earnings accumulate at the top, people at the top invest their wealth in whatever assets seem most likely to attract other big investors. This causes the prices of certain assets—commodities, stocks, dot-coms or real estate—to become wildly inflated. Such speculative bubbles eventually burst, leaving behind mountains of near-worthless collateral.

Like Krugman, Reich also understands that government policy, under both Republicans and Democrats, did little to counteract these trends.

The reason is simple. As money has risen to the top, so has political power. Politicians are more dependent than ever on big money for their campaigns. Modern Washington is far removed from the Gilded Age, when, it’s been said, the lackeys of robber barons literally deposited sacks of cash on the desks of friendly legislators. Today’s cash comes in the form of ever increasing campaign donations from corporate executives and Wall Street, their ever bigger platoons of lobbyists and their hordes of PR flacks.

But, of course, neither Reich nor Krugman wants to look at the basic structures of capitalism—to understand how inequality arises from capitalist class processes, and how economic and social policies are enacted by policymakers which serve to reproduce that very structure of capitalist class inequality.

In other words, their worrying about the pernicious effects of inequality, however much an advance on the work of many economists, stops short of a thoroughgoing critique of political economy.

Comments
  1. […] attempts to make sense of the role of inequality in causing the current crises by Robert Reich and Paul Krugman look better once you consider the Chicago-style explanation offered by Raghu […]

  2. […] attempts to make sense of the role of inequality in causing the current crises by Robert Reich and Paul Krugman look better once you consider the Chicago-style explanation offered by Raghu […]

  3. […] if Paul Krugman, Robert Reich, and their mainstream colleagues are still looking for the links between inequality and crisis in the United States, one place to start is the work of […]

  4. […] Barbara Kiviat and Justin Fox to the list (which includes Raghuram Rajan, Robert Reich, and Paul Krugman) who have begun to break the taboo and at least pose the question of the […]

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