The Great Recession and neo-liberalism

…The United states is by every measure the world’s largest economy …

Of all countries in the world, the impact of neo-liberalism was felt most purely there. All political ideologies in the end are evaluated according to their consequences. And oftenthe impact of an ideology in the life of a particular country provides the crucial test. Just as communism was judged by what occurred inside the Soviet Union between 1917 and 1991; just as social democracy is orften judged by what has occurred in Sweden since the 1930s – so will neo-liberalism be judged by what it brought to the United States from the late 1970s until today.

One thing that neo-liberalism brought the United States was a greater degree of social inequality than advanced democratic capitalism has ever before seen. Between the mid-1970s and 2006 the Gross Domestic Product of the United States trebled; the level of labour productivity almost doubled; the Dow Jones Index rose from 1000 to 13,000.

Yet astonishingly enough, during that entire period, according to several studies, the income of the average American worker and family essentially remained stagnant. This stands in very marked contrast to the preceding period of the Keynesian consensus, when the income of average working people in America increased by 2.5 to 3 per cent each year, roughly in line with the general rate of economic growht. Around 1980 the wages of ordinary workers were decoupled from gains in productivity. The long story of growing equality in the United States that had begun in the 1930s, of growing equality in the United States that had begun in the 1930s, that economic historians had christened the Great Compression, was now very dramatically reversed.

The most startling statistical account of the process Joseph Stiglitz has called the new era of “trickle-up economics” is to be found in a couple of pages of a recent boo, The Two-Trillion Dollar Meltdown, by the by-no-means left-wing banker Charles Morris. From 1980 to 2006, Morris tells us, the wealthiest 10 per cent of Americans increased their share of national income from 35 per cent to 49 per cent. But what was much more remarkable, as he goes on to point out, was that almost all the action occurred at the very top of the social tree.

By 2006 the wealthiest 1 per cent earned 20 per cent of national income. This represented a return to the position of 1929. Of this, the wealthiest 0.1 per cent earned 9 per cent and the wealthiest 0.01 per cent, 3.8 per cent.

To put some flesh on the statistical skeleton we can turn to some of the astonishing figures contained in Robert Reich’s Supercapitalism. During the era of the Keynesian consensus, American CEOs earned about 25 to 30 times the income of their workers. On the eve of the Great Recession, they earned 300 to 500 times their salary, incomparably more than their French or German or Japanese equivalents.

One of the best-paid CEOs ran Walmart. He received 900 times the income of his workers, thus earning more each fortnight than they would earn in their lifetime.

By now a top investment banker took home in salary, bonuses and stock options $20 to $25 million a year; a top financial trader took home some $40 to $50 million. By the standards of the tiny hedge-fund-managing elite they were, however, paupers.

George Soros (Pictured) paid himself $840 million; James Simons a cool $1.5 billion. A similar story emerges if one looks not at what the super-rich earned but at what they owned. In the 1970s, the richest 1 per cent of Americans owned 20 per cent of America. On the eve of the Great Recession, they owned some 40 per cent. By this time Bill Gates was worth $46 billion; Warren Bufft $44 billion. With wealth amounting to $90 billion, the Walmartfamily was by now worth almost as much as the bottom 40 per cent of Americans.

I cannot resist one final figure, although it takes us beyond the United States …

A decade before the Great Recession, the three richest human beings on earth owned as much as the poorest 600 million …

Earlier, from the same QE on Tasmanian Times: Clancy from the other side…