Thursday, December 02, 2010
For an illustration of how income has increased dramatically for the top 20% since Reagan became President, in the absence of any significant growth for the remaining 80%, go here. In the remainder of this article, as well as some others, Smith has some interesting observations about the extent to which much of the populace is now dependent upon some form of government assistance, even if his perspective is rightist (for example, some of the forms of assistance included in Smith's calculation are ones, such as Social Security, where the recipients have already pre-paid a substantial portion of the benefit).
The top 5% of Americans by income are responsible for 37% of all consumer spending-- about the same as the entire bottom 80% by income (39.5%).
David Stockman, director of the Office of Management and Budget under President Reagan, recently noted in an editorial that the top 1% of Americans received two-thirds of the gain in national income from 2002 to 2006.
Over the past 25 years since 1985, the top 1 percent's share of national income has doubled; in 2007, it netted 23 percent of the nation’s total income. The income of the wealthiest Americans--the top 0.1 percent—has tripled in that 25 year period. This wafer-thin slice of Americans now earn as much as the bottom 120 million people.
Out of 113 million households, 1/100 of 1% rake in $10 million or more annually. As consumers, the top 5% carry the same weight as the bottom 80%. The top 10% take in 50% of the income. (The sources are listed in Two Americas: The Gap Between the Top 5% and the Bottom 95% Widens August 18, 2010.)
This explains how Nordstroms' earnings can rise by a healthy 43% while Wal-Mart's sales in the U.S. can decline. Frequent contributor Cheryl A. reported that on a trip to Wilmington, DE, the shopping mall was packed with shoppers and people dining out: It's like there never was a recession.
Meanwhile, I took an old friend who was visiting the San Francisco Bay Area to a restaurant in San Francisco that has never failed to be busy in the past 10 years, and the place had more empty tables than customers. The sidewalks were crowded with people, but how many were spending money?
I think the answer is obvious: the top 20% are spending money lavishly, as per their consumerist lifestyle, while the bottom 80% are taking the kids to Costco for entertainment.
Even so, Smith retains an acute sense of the nature of class conflict in the US:
Leaving aside Smith's deficit hawkery, it is clear that he is painting a familiar picture. It is precisely what transpired in many countries around the world that embraced neoliberal orthodoxy, countries such as Argentina, Greece, Ireland and the United Kingdom, among others. It is a social model that has, as predicted, concentrated wealth and power within a smaller and smaller group of people. Smith's insight is that it has also shrunk the base of consumption within our economy as well.
The net result of this rising inequality is a high concentration of political power which flows from (and protects) the unearned income streams derived from the highly concentrated wealth. . . . The Political Class, the super-wealthy with vast unearned income and those drawing entitlements are all satisfied with this arrangement. Cash and cash equivalents paid to individuals by the Central State have ballooned up 80% above inflation, taxes on the super-wealthy are modest, and the difference--the $1.5 trillion annually needed to keep the swag flowing to the concentrated wealth/power holders (the Plutocracy) at the top and the complicit bottom (standard-issue welfare)--is borrowed from the Federal Reserve and global mercantilist sources of excess dollars accumulated from monumental trade imbalances.
Since the political class of conservatives and progressives are equally dependent on and beholden to the holders of concentrated wealth for their political power, then their protests against the deficits, welfare, corporate power, etc. all ring hollow.
Among some liberals and leftists, there has been a tendency to consider such a social model as unsustainable precisely because of the narrowing of consumption described by Smith. For liberals, it is another example of their tendency to assert that US capitalism cannot escape the gravitational pull of the New Deal. At the end of the day, US capitalists will fall back upon a more egalitarian distribution of wealth for their long term survival. For leftists, it is a softer variation of an old theme that the demise of capitalism is just around the corner.
Of course, elites face the challenge of implementing this vision in such a way so as to avoid the explosion of civil unrest. But, by one important measure, things are going well:
What's not to like? Productivity increasing, expanding markets in East and South Asia accompanied by a quiescent domestic workforce. So, perhaps, I am a pessimist, but, to date, austerity has been quite effectively imposed by refusing to take action to reduce unemployment (such as, for example, providing direct assistance to the states to reduce budget deficits, increasing the the percentage of wage replacement for recipients of unemployment and stalling the rate of home foreclosures through cram down and loan modifications). Now, it is time to move on to the next stage, As long as the federal government, through its control of the money supply, can continue to do so without recourse to the immediate, draconian measures that are now required in Ireland and the UK, the prospects for success remain favorable. The inexorable depreciation of the US dollar is one of the best weapons in this effort.
American businesses earned profits at an annual rate of $1.659 trillion in the third quarter, according to a Commerce Department report released Tuesday. That is the highest figure recorded since the government began keeping track over 60 years ago, at least in nominal or noninflation-adjusted terms.
The government does not adjust the numbers for inflation, in part because these corporate profits can be affected by pricing changes from all over the world and because the government does not have a price index for individual companies. The next-highest annual corporate profits level on record was in the third quarter of 2006, when they were $1.655 trillion.
Corporate profits have been doing extremely well for a while. Since their cyclical low in the fourth quarter of 2008, profits have grown for seven consecutive quarters, at some of the fastest rates in history. As a share of gross domestic product, corporate profits also have been increasing, and they now represent 11.2 percent of total output. That is the highest share since the fourth quarter of 2006, when they accounted for 11.7 percent of output.
This breakneck pace can be partly attributed to strong productivity growth — which means companies have been able to make more with less — as well as the fact that some of the profits of American companies come from abroad. Economic conditions in the United States may still be sluggish, but many emerging markets like India and China are expanding rapidly.
With unassailable control over the US political system, the wealthy can manipulate the provision of social welfare to preserve their wealth while maintaining social order. Hence, now is the time for more permanent, structural changes to their advantage. Indeed, one can argue that this is the mission of Obama's Deficit Reduction Commission. It is possible to characterize the goal of the Commission as guaranteeing the future profits for those who earn their money from investment by ensuring low rates of taxation through cost containment of federal expenditures. Even if the short term prospects of the Commission's proposals are speculative, we can anticipate that many of them will form the basis for future legislative action.
Meanwhile, where should we look for developments that suggest a different, more contentious prognosis? First, and most obviously, the emergence of overt conflict among the major trading regions of the world, between the US, Europe, India and East Asia. Here, there are some signs of serious disagreement, particularly between the US, Germany and China, as expresssed over the Federal Reserve's new qualitative easing program, but it would be a stretch to characterize them as indicative of a permanent rift. Second, there is a possibility of social unrest, but the likelihood of the creation of a strong movement centered around changing the economic structure of the US remains remote, although there is a chance that resistance to austerity in Europe could ignite stronger resistance globally.
Finally, there is that great unmentionable, the eruption of a mutiny within the US military in Iraq, Afghanistan or Pakistan. Given the stresses placed upon people serving in the military (there is an ongoing epidemic of suicides among troops who have returned home), I wouldn't discount such an action as implausbile. And, finally, there is the possibility that the US may actually stumble into a war with Iran, which would radically reconfigure the global order, most likely to the detriment of the US. In any event, there is much organizing to be done. As Marx said, history is not deterministic, it requires us to seize the opportunity to create a better world. The capitalist endeavor to liberate capital from labor constraints, particularly the dependency upon wage labor generated demand, is a potentially dystopian catastrophe unless we collectively push in a different direction.