The Economy of the Rich, by the Rich, and for the Rich

As anyone closely following economic news knows, the American economy lost 4,000 jobs in August, even as analysts had expected job gains of over 100,000--a fact that caused tremors in the markets, even as fed bank presidents played down the results as a temporary aberration from a strong economy.

These assertions of a strong economy are based on a variety of misleading indicators, but principally rest on retail sales and consumer spending. As Atlanta Federal Reserve Bank president Dennis Lockhart said today, the recent bad news

should be evaluated with recently positive reports in retail sales...readings from July show that consumer spending remained strong.

Ignoring for a moment that heavy retail spending by the American consumer is only made possible by increases in consumer debt, it is important to note that consumer spending accounts for 70% of U.S. GDP; if Americans slow their spending significantly, the consequences for the global economy would range from harsh to dire.

The only problem is, consumer spending is propped up almost enitrely by the rich, while the middle class and certainly the impoverished struggle on valiantly in conditions that are little different from those of a recession. This disturbing but unsurpising phenomenon was reported on this Friday in a fantastic article by Daniel Gross in Slate, titled Will the Rich Save the Economy? The full article is fairly short and well worth the read--it's dificult to pull the juiciest parts and still fall within fair use. As Gross says, the incomes of the wealthy have increased dramatically; with those increases have come a concomitant rise in spending at the shopping venues they frequent.

First, the incomes:

And how are the rich doing? Quite well, thank you. Median income has been stagnant lo these many years, as the Census Bureau reported last month, and it is still below the level of 1999. But as David Cay Johnston reported (article purchase required) in the New York Times last month, people making more than $1 million "reaped almost 47 percent of the total income gains in 2005, compared with 2000" and "received 62 percent of the savings from the reduced tax rates on long-term capital gains and dividends that President Bush signed into law in 2003." Jonathan Chait's excellent new book, The Big Con, smartly argues that such outcomes are the intentional results of economic policies designed to redistribute income upward. (Few members of the Bush economic team will cop to the intent.)

Actually, I can verify this intent with more than just numbers. I had the personal opportunity to hear Commerce Secretary Gutierrez tell an audience of CEOs and CFOs in Washington D.C. (more on this to come in future posts, I promise) last month that he viewed it as the federal government's job to allocate as much capital as possible in their hands in order, ostensibly, to spur investment and growth in the global economy. Most progressives would argue that this upward redistribution of wealth is pure theft by Republicans to reward themselves and their wealthy donors. I am convinced, however, that it goes beyond even that: Republicans, by hollowing out the middle class economy, have created a situation wherein the rich must continue getting richer, or else the entire economic house of cards will collapse on their heads. Consumer spending is the most prominent example of how the rich are the only ones keeping the American economy from sputtering into the ground. After all, even as sales figures from mainstream retailers such as Wal-Mart, JC Penney and Sears have faltered, retailers catering to the wealthy are booming:

At Saks, same-store sales in August were up a stunning 18.2 percent; at Tiffany, same-store U.S. sales rose 17 percent in the second quarter. Indeed, luxury retailers are in an expansive mood. The Wall Street Journal reported earlier this week (subscription required) that "this year, some 30 high-end retailers have opened boutiques in Austin [Texas], including Tiffany & Co., Michael Kors, Ralph Lauren, David Yurman, Louis Vuitton and Burberry." These stores are located in a new mall anchored by Neiman Marcus, where same-store sales rose a healthy 4.6 percent in August. Among the strongest performers: "designer handbags, shoes, designer jewelry, women's fine apparel, and men's."

This phenomenon has been written about extensively, of course. My favorite term for it is Plutonomy: an economy that is driven by and/or that disproportionately benefits wealthy people. In a plutonomy, energy prices or unemployment numbers have muted impact on overall consumer spending, since they don't significantly affect the wealthy. In a plutonomy, retail sales in mainstream stores fall, but consumer spending remains "strong" due to heavy spending on ultra-expensive items and niche investments. In a plutonomy, asset bubbles that fall in the general market continue to rise in the tony markets. Another such example of this plutonomy, as Gross says, is in real estate:

Nationwide, the housing sales market may be a bust. But the Journal reports (subscription required) Friday morning that while many California housing markets suffer, "[e]ye-popping sales are spreading along a 40-mile stretch of southern Santa Barbara County." In July, sales in the area, "the only region of California where the median sales prices surpassed $1 million," rose nearly 28 percent. Publicly held home builders that cater to middle-class buyers are faring poorly. But the very wealthy are still building. This 50,000-square-foot home under construction in West Hartford, Ct., is worth 20 starter homes—and probably more, given the amenities. Or take personal transport. While auto sales are down, "the market for private jets is stronger than it has ever been," said Richard Aboulafia, analyst at the Teal Group. Economically speaking, a Gulfstream G550, which is made in the United States and goes for $48 million, is worth the equivalent of 3,200 Ford Focus coupes, which go for about $15,000 each.

This is the product, of course, of a redistribution of income and economic power from the middle class to the wealthy--a redistribution that has been taking place on massive scales virtually unabated since Reagan, and accelerated under George W. Bush. This trend has been partly due to the pressures of global trade, but mostly due to an intentional scheme of income displacement fostered and brought about by hyper-conservative and corporate ideology. Reagan, Bushes I and II, Norquist, Gringrich, Rove and corporate K-street have conspired each in their own way to create an economy in which Main Street is no longer connected to Wall Street--unless, of course, Wall Street suffers major losses. In that case, Main Street becomes a Brazilified place of increasingly disquiet desperation.

And that is exactly what we are in danger of today. While the American middle class suffers in a recessionary environment, the only things that continue to prop up the house-of-cards economy are the stock market and real estate gains of the wealthy. The stupidity, greed and sheer incompetence of the uber-rich and their Republican allies, however, has resulted in exploitation of the middle class through the very credit and mortgage ponzi schemes that are now causing such fear and even panic in the financial markets. Add poor employment numbers, a declining dollar, an unpopular, expensive and disastrous foreign occuption, huge trade and national deficients, and slow mainstream retail sales to the list of economic downward pressures on the investment markets, and the situation becomes even more precarious.

In the old days, if stocks lost significant value, the country could count on the resilience of the American middle class to absorb Wall Street's shock and excess, take cuts, send more family members into the labor force and rely on savings during periods of income instability. No longer. Now that the entire economy, such as it is, depends on the spending of the very wealthy, it is almost unthinkable to imagine what will take place once the trust find kiddies lose their trust funds and the rich get spooked by evaporating paper wealth. And yet here we are.

But that's what you get when you create an economy of the rich, by the rich, and for the rich.

The End of NeoLiberalism: A Crisis of Unimaginable Consequence

It is a common tendency among human beings to believe that the problems and challenges facing their particular generation during their particular lifetimes are more momentous and of greater consequence than almost any that have come before them. Every war, it seems, is crucial to the fate of liberty; every political battle of the essence in determining the fate of the nation, or even the world. It is therefore important to keep some perspective when making grand pronouncements about political struggles in which one is presently engaged.

Nonetheless, I think it not unreasonable to suggest that we are embroiled today in a climactic and deeply consequential struggle that will not only test the mettle of the collective human spirit, but also has the opportunity to discredit for at least one generation or more an entire ideology of evil and selfish greed.

I speak, of course, of the battle over global warming.
Almost anyone reading this piece is aware of the imperative urgency surrounding the problem: the melting of the Antarctic and of the Arctic ice caps at rates faster than anyone had predicted; the threatened loss of millions of species; the Pentagon's own report on food and water shortages causing mass instability and migrations; the list of catastrophic consequences of failure to act on this crisis is nearly endless.

It is also a given that any action taken to mitigate the crisis must be global in nature, with the participatory cooperation of all the major industialized nations for any movement towards a reduction in greenhouse gases and an increase in sustainability to be meaningful over the long run. This will, of course, require the firm hand of governments worldwide in regulating corporate behavior and spurring investment in new technologies. While America consumes the lion's share of the world's oil and produces increasingly enormous amounts of greenhouse gases, failure to engage China, India and other industrialized nations in the collective effort will render much of this activity moot.

It will be a difficult challenge--one that could easily cause waves of pessimism in students of human history. How we as a species react to this unprecedented challenge will say a great deal about who we are and what are capable--or incapable--of.

All of this, however, has been said before at various times and in various ways. What has been less reported on, but is of nearly equal importance to my mind, is the almost Manichean socio-political and ideological consequences of this battle for both the United States and constitutionally democratic (at least in theory) nations across the globe.

The ideology most under threat from worldwide acceptance of the necessity to act in mitigating global warming is that of "Free-Market" Neoliberalism. Just as the disasters in Iraq and Afghanistan have helped to discredit the concept of neoconservatism everywhere but the lame-duck halls of the White House, the free market's failure to stop the devastating creep of global warming will, if brought to internationally recognized popular consensus, obliterate the credibility of the prevailing economic conventional wisdom surrounding the Washington Consensus.

This baleful philosophy of neo-liberalism holds as its guiding principle the idea that--if given enough time--corporations in a free-market system unfettered by governmental (i.e., consumer and labor) regulation will provide the greatest variety of products and services at the lowest prices to the greatest number of people. It also holds that unswerving allegiance to this principle will result in greater worldwide prosperity, increased jobs, and a brighter future for the world's citizens.

When confronted with the abject failures of this ideology (though many would argue that rather than failures, these consequences were the entire goal from the beginning--namely, the redistribution of wealth from the middle-class and the poor to the very rich), such as America's large number of uninsured, the unquestionable disaster that was energy deregulation, the increasing gap between the massively rich and the rest of us, the disastrous consequences of IMF/World Bank-controlled "globalization", etc., the defenders of the status quo usually engage in one of two different responses:

"Give it more time and even less regulation--it will work, I swear!"

or

"The cure would be worse than the disease."

In the case of uninsured children or the bleak future of many African and South American countries under the weight of IMF loans, the former is the usual response: that the healthcare industry is under the weight of too many lawsuits; that corruption is still too rampant in third-world countries; that the market will eventually provide a solution for healthcare for the American poor; that we just haven't given African economies enough time.

The latter, however, is often cited as well on a host of different issues: single-payer healthcare is supposed to be worse than the present system; reasonable economic protections are supposed to lead to even greater poverty; state-controlled electricity is supposed to lead to even higher prices. Though these arguments are all demonstrably false, they are continually employed by the desperate mandarins eager to continue the fleecing of the hoi polloi.

Time and fear are the greatest assets of the neoliberal--a situation remarkably similar to that of the neoconservative, whose mendicant pleading for yet another Friedman Unit in Iraq and threats of another 9/11 in the wake of Democratic electoral victory manage to hum the same tune--if only on a lower, more ominous octave. The melody in both cases is sharp, disturbing and painful to the ears of Truth.

Global warming, however, is a problem that not only points to an utter failure of the neoliberal system, but also cannot be assuaged by appeals to fear or to a continued stay of patience on the part of the world's increasingly suffering population.

The fact that a problem of such momentous impact has gradually arisen under the watchful eyes of our quarterly-report-obsessed Wall Street bureaucrats with nary the movement of a little finger to stop it is itself proof of the myopic blindness (not to mention selfish greed) that afflicts a purely market-driven system. It is proof of a failure of long-term thinking and visionary planning in pursuit of higher and higher record corporate profits.

But the fact that global warming is an autocatalytic process--i.e., one whose negative impact will increase, feeding off itself--means that there IS NO MORE TIME. We cannot wait for the "free market" to eventually provide the bounties that the Thomas Friedmans of the world insist are at the end of the neoliberal rainbow, if only we march long and hard enough in pursuit of the mirage. The threat is upon us NOW--and if nothing is done to stop it NOW, soon nothing will be able to stop it.

And the corporations in the free market certainly won't be able to stop it themselves.

Meanwhile, there is almost no cure that could be worse than the disease of apocalyptic climate change resulting in the elimination of polar ice caps, the loss of millions of species, world wars, famines, droughts, diseases, natural disasters, mass migrations, energy depletion, and the very real possibility of global economic and even civilization collapse. One is reminded of Al Gore's joke in his potent documentary An Inconvenient Truth in which the Earth is balanced on a scale, counterweighted with gold bars. In comparison with losing one's civilization, one's freedom, one's stability, even the planetary patterns of life we have come to know and depend on, almost any economic cost is preferable.

And it is instructive to note that most of the corporatist effort has at this point been to attempt to discredit the very premises behind global warming, rather than to mitigate the perceived need to act. Because they know that if the public comes to accept the basic premises, there will be no way for them to defend the ideology that has been their prevailing basis of power for decades.

These are truly momentous times, and the stakes could not be higher: not only for the world and for our environmental futures, but for our political and ideological futures as well.