Ill try to sum up the current economic and political situation in a few paragraphs, because the trends are becoming on one hand obvious, but on the other hand obfuscated by mainstream media. The facts are there, we just need to wake up to them, and quickly.
Since the 1970s, after the end of the Bretton woods financial era (AKA, gold-backed dollar system) there has been an accelerating decline of the Middle Class in this country. The graph below shows the discrepancy between rich and poor in the US as of 2007, a trend which has only accelerated since the financial collapse of 2008 (Source: 'Ponds and Streams: Wealth and Income in the U.S., 1989 to 2007').
CNN sums up the current situation as follows:
"The richest 1% of U.S. Households had a net worth 225 times greater than that of the average American household in 2009, according to analysis conducted by the Economics Policy Institute, a liberal think tank. That's up from the previous record of 190 times greater, which was set in 2004."
Why has this inequality happened? In addition to the standard response that we've 'shipped all of our jobs overseas', another reason this shift has happened to a large extent because the productivity gains made in our modern economies have seen the fruits of those gains disproportionately shifted to the upper 10% of society, to the detriment of the lower 90%. To put it another way, Americans should be making more money for their labor relative to the productivity gains we’ve seen in the past 30 years. According to Robert Reich in his book Supercapitalism:
"America is far more productive than it was 20 or 30 years ago, but most people haven't shared much in the bounty. Had median household income continued to grow at the same rate productivity grew over the last thirty years, the typical household would have earned $20,000 more in 2006 than it actually did."
None of this has happened in a vacuum. Government policies dating back to Jimmy Carter have evolved what Foreign Affairs magazine called a 'winner take all' economy that has weakened labor organizations, allowed the elite to profit from the mis-use of de-regulation and technology, and promoted a slow drift away from the gains made by labor under 1930's and 1960's New Deal and Great Society legislation. Not that those policies were perfect; but certainly compared to what we have now, with income inequality in the US approaching that of a 3rd world nation, we need to rethink what we have lost. This policy drift was, according to Foreign Affairs, a very deliberate and well-funded effort by wealthy and conservative forces to turn back the clock. The results are now bearing fruit.
In addition to issues with labor displacement, productivity and bad policy, speculative finance capitalism (newly unleashed by de-regulation of the last 10 years) allows the creation of bubbles that serve to shift enormous amounts of wealth to a small percentage, while the bulk of others are left holding the speculative bag. Moreover, there is overwhelming evidence that the ‘primary dealers’ on Wall Street are improperly gaming the system to the detriment of many.
More recently, the Federal Reserve’s policy of ‘quantitative easing’ (AKA ‘money printing’ as US debt is bought outright by the Fed) has fueled world inflation, particularly in energy, food and other commodities. This impacts not only the American Middle Class, but large swaths of society around the globe. Some would argue that the uprisings in North Africa and the Middle East are to a large part due to inflation, indirectly influenced by the Fed’s actions. While the Middle East’s move toward democracy is positive, the underlying issues of inflation will remain once political change occurs — that is, unless economic reforms are put in place as well.
The challenge is this: how do we distribute wealth in a just and fair way so that the productive gains made by society are distributed fairly across society? And how do we do so in a way that doesn’t undermine our belief in liberty and democracy?
First, we must look at the idea of Economic Justice, which is separate and distinct from socialism — a word so many use to describe any policy aimed at distributing wealth.
According to the late Mortimer J. Adler, justice is part of the three pillars of any democratic society that includes justice, liberty, and equality. In our society, liberty — and more precisely a libertarian ideal of liberty — has taken precedence over equality and justice. In reality, according to Adler, all three ideas buttress and are necessary for the others to survive.
The liberties that we have remaining are due to the fact that the upper 1% still needs liberty to do what they need to do to exploit the lower 99%. But on analysis, liberty taken to its extreme is, according to Adler, not liberty but license. License arises when liberty is used to exploit others in a way that is neither equitable nor just.
In Greece, France, the UK and other countries, we are seeing large-scale protests and rioting, all fueled by questions regarding fundamental justice and fairness arising from the financial crisis and the resulting ‘austerity’ programs. Many feel that the EU's economic bailouts of the banks have come with austerity measures that unjustly punish people at large, while banks are provided ample funds and support by the European Central Bank. To more and more Europeans, the question of Economic Justice is very much on their minds. It is no small irony that the country where democracy was founded (Greece) should suffer inordinately under the boot of finance capitalism, and that Greece may be where democracy rises yet again.
The timing couldn't be better. The rise of authoritarian capitalism in China as a model for the future, and (some would argue) the corollary rise of Homeland Security in this country, are aimed at dismantling the pillar of liberty that the upper 1% see as the final roadblock to financial utopia. In other words, at some point in the future, the top 1% — who live everywhere and nowhere by virtue of their wealth — could literally “buy” liberty within the global economy, while the rest of us either have no liberties (outside of the 'liberty' to consume), or will see those liberties erode. We cannot let this happen.
What is the answer? The answer is simple. We must re-introduce the ideas of equality and justice into our economic sphere. This can happen in a number of ways, to be sure — some incremental, some radical. And while incremental (some would say 'band aid') solutions are proposed in Congress every day, we will eventually most likely need radical shifts in our economic structures over the longer term. This is because we have let the situation devolve to such an extent that merely cutting discretionary spending and raising taxes, along with other incremental solutions, will not get us where we need to go. Moreover, these incremental solutions usually saddle most of with a burden that should be equally distributed among all.
It is not rational for the top 1% to continue to hold the bottom 99% hostage...
Many on the more intelligent financial blogs, including Zero Hedge, Seeking Alpha, Max Keiser and others, can lead the way toward a more equitable financial situation, but in my opinion the majority of those blogs, while often brilliant at analyzing the fundamental problems, generally do not put forward workable solutions. Any solutions so far have been more rage-based actions and lashing out (the recent ‘crash JP Morgan’ campaign is an example). While crashing J.P. Morgan may provide some emotional release, it doesn’t solve our long term problems, and may just indeed cause more suffering.
A commentator in Naked Capitalism put it this way:
"It seems like we've come full circle back to where we were in the latter part of the 19th Century. We did not learn, or we've completely forgotten, the lessons of the lessons of the events of the first half of the 20th Century taught us."
And where those events eventually led were to global conflict and World War II. And we seem very much on that path in Libya, a conflict that could certainly spin out of control and involve Iran and Israel.
But rather than war, what we need is global currency cooperation, and probably a world reserve or trade currency (with its value linked to gold) that all others are indexed against. Economists such as Joseph Stiglitz have in fact supported such an idea, and the IMF (to the chagrin of some) has proposed using their Special Drawing Rights (SDRs) for this purpose. Once such a new reserve currency was established, participating currencies could be revalued vis-à-vis the new world currency in order to tackle trade imbalances. The new world trade currency would be administered in a transparent, democratic way and under a charter that demands it to promote the general welfare, not protect the interests of the few. In tandem, a world minimum wage should be established as part of the process. This would allow some of the wage advances that labor should have seen in the last 30 years due to productivity gains will be realized. In addition, debt jubilees and/or restructuring should be implemented to allow for many of the world’s debts to be either absolved or zeroed out with long-term bonds bought by Central Banks.
Many will cringe at the idea of the IMF creating a world currency, because the danger of any new world currency and (probable) associated world central bank would be that it would remain under control of the current banking oligarchs. Believe me, the need for a new world currency has been heatedly discussed in the back rooms of conferences and think tanks (and has probably been agreed upon as the general, consensus direction by the G20), but it must now be done so openly, and in a way that the common person understands the trade offs. To keep the global financial priesthood in place is not the way forward. We must all, in essence, become economically savvy — or at least enough of us to guide elections intelligently.
A new world currency backed by the IMF’s SDRs will, many argue, only lead us closer to a centralized world government. But the alternative is a devolution into isolationalism, localism and nationalism. In my opinion this would be counterproductive — particularly if global banking institutions and global corporations remained intact as local and national governments were weakened by their inevitable insolvencies. One could, in theory, devolve both government and corporate power in tandem, but this is unlikely to happen and is unrealistic in today’s modern age. Assuming global financial institutions and corporations remain, they will be able to game the system by having no adequate force to counter them (i.e., strong central governments) should further economic collapse occur (and it likely will). The result could be neo-feudalism and much more inequality than seen today. In short, we need some form of global governance, but of a flavor that reflects the general welfare, not the exigencies of the global elite. It’s my belief that the Internet could be a vehicle for such governance, where people are organized via the Internet in as yet un-defined methods (i.e., Internet Unions) — something like large scale, global ‘moveon.org’s’. The catch is that such governance must have the force of law as well as influence — and we are a long way from that. Moreover, so-called ‘kill switches’ for the Internet and telecommunications would need to be universally banned. But again, without some kind of global governance we risk devolving into a modern feudalism as Western Central governments weaken due to economic upheaval and (likely) capitulation to the financial elites, with corporate fiefdoms becoming the modern equivalent of the feudal Lords and Castles of the past (apparently the Earthseed books are a chilling premonition of such a world). What we need instead is a united front, organized globally via the Internet, that allows for localities to make a consistent and unified stand against globalism.
In summary, we need to rework world finances so they align with democratic values, and do so in a cooperative way that recognizes that people need to organize locally but have a global reach, because is it not rational to do otherwise. It is not rational for the top 1% to continue to hold the bottom 99% hostage because they are able to create effective propaganda that labels any attempt to introduce economic equality and justice as ‘socialistic’, and able to use global infrastructure and organizations such as the WTO to undermine human rights and environmental policies using a ‘divide and conquer’ strategy.
Believe me, the wealthy can continue to prosper in the new, more equitable, world financial system moving forward, but in a balanced way.
Further, it is not rational because the wealthy will in fact be, over the long term, much better off if their wealth is correctly revalued and/or taxed down to reflect equity, and the wages of workers are correctly valued up to accurately reflect the gains of greater overall productivity. Believe me, the wealthy can continue to prosper in the new, more equitable, world financial system moving forward, but in a balanced way. Moreover, the promises made in the past of ‘increased leisure and abundance’ due to the miracles of technology will finally be had, and the wealthy will then rise with the rest of us, but all in tandem in a manner that reflects economic justice. Thus would the three democratic pillars of liberty, justice and equality be realized in the economic sphere.
We must all do what we can to educate ourselves and others that this is not only doable, but necessary for our common survival. This, in combination with aggressive moves on the environmental and energy front, can move us into this century without the wars, social strife, and pollution seen in the past. Further, we can avoid the police-state tactics that so many are beginning to see as inevitable if we suffer another major economic collapse; we must fight these fascistic tendencies with absolute vigor. Once a more equitable world financial system in place, and capital is freed up by debt jubilees and currency revaluation and military downsizing, we could intelligently ‘quantitative ease’ in such a way as to develop a world economy that is sustainable environmentally, and hires millions to do the job of building the sustainable infrastructure of the future.
While I’m not an economist, I offer these suggestions as one who has worked in the finance world and studied both the history of democracy and economics. In my mind, true liberty cannot exist without justice, and that includes justice in our economic system. And while some may find these ideas Pollyannaish, the alternative is a new dark age, and we can’t allow that to happen.