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EXCERPTS: INEQUALITY, CLASS AND ECONOMICS, by Eric Schutz

Schutz

From the Introduction:

In the media in the last few years, wealth and income inequality have become a seething political issue. The campaign rhetoric of Barack Obama, the Occupy Wall Street movement, the passage of the Affordable Care Act, and the nearly successful campaign of Bernie Sanders for the Democratic Party presidential nomination brought the issue something like the widespread attention it deserves. Indeed, the political campaigns of Hillary Clinton and then soon-to-be President Trump both responded by somewhat coopting the issue themselves…

International affairs brought the matter even more closely to Americans’ attention. Uprisings in the Middle East and Europe were explicitly aimed at rising economic disparities. The Catholic Church appointed a new pope, Francis, whose pronouncements and actions often focused on economic injustice. The pope even published an encyclical that succinctly articulated the issue. The British newspaper, the Guardian, has a permanent section on inequality. Perhaps most surprising of all, the American economics profession actually took up the subject of inequality, after decades of studied avoidance. They did so partly in response to the French economist Thomas Piketty’s fine work Capital in the Twenty-First Century. That book is now widely used in American economics classes. It is an important, albeit controversial, source of insights on the connections between capitalism and economic inequality. Most recently, the United Nations published the work of a special team investigating poverty in the United States. The U.S. government, under Donald Trump, responded by dropping out of the UN’s Human Rights Council.

The topic of inequality fairly seethed beneath the simmering political conflict of Trump’s one term, and the dominance of the retrogressive forces brought to worldwide expression during that time. The issue seems so far beyond the capabilities (and probably the interests) of the establishment that the opposition to his re-election nearly collapsed over the question of appropriate policies for dealing with it. Yet economic inequality is indeed getting so bad, especially in the United States, and so steadily and unremittingly, that it has been difficult for even mainstream media to avoid. We are in the midst of a pandemic that not only has stifled the world economy but also has provided rich grounds for an uninvited and unexpected political participation by millions of ordinary people. The Black Lives Matter movement reminded the world of the ongoing issue of racial oppression and economic inequality as issues of equal import in the United States.

The economic expansion just prior to the pandemic seemed to justify optimism about inequality. But Covid-19 showed just how little grounds there were for optimism. The pandemic demonstrated how poorly prepared for such a crisis a society could be that fails to provide universal, high-quality health care to a significant proportion of its population, as the case and death rates in the United States have demonstrated.

That the economic downturn following the pandemic was so strong and hit middle- and lower-income people so hard was partly because of the prior lack of consumer demand by those who lost their jobs and had practically no savings from their inadequate incomes. The politics developing in this country for several decades set the groundwork for the government’s failure to react appropriately to either the health or the economic crisis. What was needed was massive relief and fiscal and monetary stimulation, state investment and resource management. Such intervention was and continues to be too much for U.S. ruling elites, who greatly benefited during all this. The stock and housing markets soared and the profits of the new tech titans exploded while the rest of the economy floundered. There is now a widespread sense that all of this has signaled the end of the American experiment.

The economic inequalities are astonishing. The net worth of the 650 billionaires now in the United States increased by $1 trillion (from $3 to $4 trillion) during the nine months of the Covid-19 pandemic from March to December 2020. Meanwhile, working-class unemployment kept wages and benefits at rock bottom, imperiling or erasing for a significant number of people their fragile right to quality health care as well, based as it was partly on employment (in states without Medicaid). U. S. poverty rose by the largest rate in a single year since it began to be tracked sixty years ago, from 9.3 percent in June 2020 to 11.7 percent in November.

….poverty in the United States increased substantially during the pandemic. There has been about a 20 percent increase in the official poverty rate. The latter rate has remained within a range of a few percentage points on either side of 12–13 percent since 1972. No lasting progress has been made in significantly reducing poverty over the long term since the War on Poverty of the 1960s—at least relative to that of other advanced industrial nations. Further progress any time soon looks doubtful.

Deep or extreme poverty in the United States (measured by, for example, the fraction of the population in households with incomes less than half the poverty line) had been increasing since 1980 until the height of the recovery from the Great Recession and the advent of the pandemic. As of this writing, more than a half-million people are known to be homeless in the United States. Many are living along main streets in urban tent cities, much to the consternation of more fortunate city dwellers. Deep poverty also is extensive in rural areas. There much of it is more or less hidden and probably not counted. Even suburbia is experiencing rising poverty, generally because of job scarcity, stagnant wages, and rising urban and suburban housing costs.

…After all this absconding with the country’s wealth by those at the top, wealth ownership at the bottom of the distribution is minimal and precarious. A broadly representative 2017 survey of 8,000 households found that 69 percent had less than $5,000 in savings, and 57 percent had less than $1,000. As of 2019, the poorest 25 percent of families (by net worth) had a median net worth of about $300.9 Given the stinginess of relief payments during the Trump presidency during a major pandemic and economic depression, the situation among the worst-off is insecure to say the least, even as many of them do the most important work of this or any other time.

It is sometimes argued that great and increasing economic disparities such as are now commonplace in the United States need not necessarily be of much concern in an economically mobile society like ours. The sting of inequality is supposedly lessened by the possibility of “moving up the ladder.” Yet mobility is merely another part of the myth of American classlessness. Other nations show significantly greater mobility up the income ladder, both between generations and within one generation, than the United States….Statistical studies today indicate that the ease of movement from one income level to another in the United States has actually declined greatly since the Second World War.

Not only is the length of the ladder increasing as the degree of wealth and income inequality rises; it is also getting harder to climb the ladder as upward mobility is decreasing.

BUT HAS IT NOT ALWAYS BEEN SO?

Inequality such as seen in the United States today is not all that unusual historically. Greater inequality than ours today has come and gone in societies many times, including in our own past, and for reasons well appreciated. From that lofty perspective, what is happening today is just more of the same old same old, with human civilization merely returning to what would seem its primary business: class hierarchy that is structured more or less rigidly for the glory of privileged elites.

Yet to have any success in dealing with the situation today, we must understand the roots of economic inequality in the capitalist system that has dominated human life worldwide in modern times. Considering broadly the thrust toward inequality that seems to have been present throughout the human experience, capitalism does not appear to constitute a significant departure from the story of class societies throughout history. But in its critical details and in its most recent incarnations, it represents a significant departure from that experience. Those differences must be comprehended if there is to be any hope of rising above our sordid past. Is capitalism actually conducive to a socially egalitarian life, as its mythology proclaims? Does it at least tend to mitigate the more stratifying tendencies that may seem to be built into the human species? Or, does it embody forces that tend to move those societies that embrace it toward even greater economic inequality regardless of their propensities otherwise?

In the United States, the relatively egalitarian post–Second World War period up to the late 1970s was one in which all income groups’ living standards rose about equally. The rich did not get richer relative to the poor and the rest did not get poorer. Today that seems to have been an exception to the normal drift of our history. As the now increasing disparity between the rich and the rest progresses, it is difficult to sustain the pretense any longer that ours is a classless society. But in that more congenial time, not only did most of the world’s advanced market economies experience uninterrupted high rates of growth unlike anything seen before or since, in each country, growth was shared among its population. The social democracies of Europe worked to redistribute the gains from growth away from those who would normally have monopolized them and down to the middle- and lower-income classes. In the United States, all income classes participated roughly equally in the unprecedented material bounty. This was a consequence partly of extensions of the Social Security system, of the War on Poverty and the efforts to lessen racial disparities in the 1960s, of a historically exceptional balance in American labor-management relations, and of strong economic growth itself, which helped to keep unemployment low.

Looking at the steady growth of those times, many believed capitalist economic policymaking had finally matured into a mere management science. It appeared that economics had become, as J. M. Keynes had hoped, a kind of “humble and competent” trade peopled by trusted social engineers. Considering the even distribution distribution of income in modern market economies was fixed by the market system and essentially unchangeable. Since all boats were being lifted on the rising tide, mainstream economists found little of interest in the subject of income and wealth distribution. Few seemed to care much about why some boats were so enormous while most were pretty small, why some others were barely large enough to hold their passengers, and why some others failed even to float despite the apparently benign flow of things.

Some serious thinking about the matter among mainstream American economists might have been helpful then. Certainly, the gross wealth and income disparities we have today are no small matter. Yet the disparities that prevailed in the relatively egalitarian post–Second World War period of American history were themselves not at all insignificant—the rich were very rich, the poor were very poor. By the end of that period in the 1970s, the United States still had troubling economic disparities of race and sex. Its poverty level remained twice that of its competitors in Western Europe. Various measures of overall inequality in that period, even if considered moderate by today’s standards, were nonetheless quite staggering.

For example, here in paraphrase is how Dutch economist Jan Pen described the situation in late 1960s America in his famous parade metaphor: Imagine in those times a street parade going by as one stands on the curb. The parade will last one hour. The heights of the people marching in the parade are proportionate with their incomes, and paraders march in increasing order of their height, that is, their incomes. Suppose a six-foot-tall marcher represents the mean income level. At the ten-minute mark, marchers are still not up to the spectator’s knees in height; at the thirty-minute mark, halfway through the parade, the paraders are still not yet five feet tall. The six-foot-tall parader of average height does not even pass until around forty-five minutes into the parade. (The mean income is considerably more than the median, represented by the midpoint of the parade, with half lower and half higher, since the mean is raised above the median by the very high incomes of the super-rich.)

As the parade advances further and marchers’ heights continue to increase, with six minutes to go, the top decile of income earners begins to march by, twenty-feet-tall and growing with dizzying rapidity from one to the next into the hundreds of feet tall. In the last few seconds, the spectator looking is J. Paul Getty, the Jeff Bezos of his time. As he strolls past, thousands of feet tall, spectators looking upward to get a glimpse of him can barely see beyond the soles of his shoes.

That was around 1970, during the most egalitarian period in modern United States history. Today, Pen’s parade would be something else again—the height of the tallest individual passing at the end of the parade in these times would boggle even the most agile mind. In 2017, CEO Hock E. Tan of Broadcom made $103 million in income. In a Pen’s parade today, he would stand almost four miles tall, his knees barely visible at all, his face well past visibility. However, he would be dwarfed by any of the five United States hedge-fund managers of that year who made more than a billion dollars each in income, the leader among them James Simon, grossing $1.8 billion,16 who would stand sixty-six-miles tall!

Although that is beyond outlandish, upon reflection, the extent of inequality in the modern market economy, even in what were once considered normal times, was astonishing enough. Think of J. Paul Getty: even in those relatively egalitarian times, inequality in this economy was extreme. The increasing inequality of our own time is certainly a call to action, as an army of analysts and commentators has emphasized and as this book also attests. But the inequality in our economy at any time in our history should never have been a matter for complacency.

Although it is not completely clear, the trend of rising economic inequality appears to have begun because of the same developments that led to the end of that happy era of strong economic growth after the Second World War. As the global economy gradually came into its own after the war, globalization in today’s form began around that time. The competition among advanced national economies grew keener. The postwar Bretton Woods international finance system began to collapse under the gradually developing stresses of export and import competition. In combination with the consequent stagflation, these trends led to stresses also on the postwar labor-capital accord that had arisen in that period.

A kind of multinational, corporate-oriented free-market reaction had begun to develop in public governance and private business policy as an incipient response to the welfare state that had also arisen. That reaction was greatly strengthened and emboldened by the government’s apparent inability to deal with the changing economy in the customary business-friendly manner.

The press of globalization on the economic condition of labor continues worldwide, of course, with plant closings, import competition, and outsourcing of production at all stages toward race-to-the-bottom low-wage countries. That, and the growth of neoliberal laissez-faire governance and the corresponding reactionary business attitude, were the historically proximate, or at least the most obvious, causes of the rise in the degree of inequality in the distribution of income and wealth in the United States today. But three additional, later developments dramatically compounded these powerful forces.

“First, there was the continued progression of the technological developments that had undergirded capitalist globalization in communication and transportation, culminating most recently in the latest phase of the digital revolution in production, robotics. As the latter came on, it created for the first time unambiguously unmitigated unemployment, with all its attendant downward pressures on wages and salaries, especially those of lower-income people. Second, there was the collapse of the Soviet Union beginning in 1990. That nemesis of everything American had served as an unacknowledged check on the excesses of the post–Second World War rise of the corporate capitalist world order. Its collapse began the final unleashing of neoliberal laissez-faire both inter- nationally and at home. The third development was the Great Recession of 2008 and its aftermath, which highlighted the enormous shortcomings of corporate laissez-faire for all to see. It also solidified many of the financial privileges garnered in public and business sector policy by those most benefiting from the previous decades of increasing disparity.

The upshot is a “One Percent” that today has been nearly” usurped by the “0.1 percent”… and what appears to be a powerful corollary movement seeking entrenchment as a kleptocratic oligarchy in government. At the same time, indicative of life on the other end of the distribution, a homelessness crisis and housing pressures even for the middle classes are now approaching a critical stage and in the context of the historical stagnation of wages threatening a long-term rise in poverty. Such heightening tensions and the rigidifications inherent in these kinds of disparities devastate the capacity for governance and the ability to respond to the increasingly pressing events of the global environmental crisis. As will be argued in this book, they indeed portend the end of the American version of democracy.

CLASS AND POWER

Until very recently, virtually no mainstream American commentators looked very closely at the real heart of inequality, the problem of class. By “class” we mean a division of society into strata defined not merely by wealth or income, but by positions of power or relative powerlessness for those occupying them. This is an aspect of inequality so widely neglected in the United States as to have been virtually taboo. Even recently, class has been mostly discussed as a phenomenon not of power, but merely of the privilege or status that comes with wealth and income in a capitalist society.

Thus, an extensive New York Times online special series in 2005 on inequality and class mentioned neither the word nor the concept of power in the sense of individuals decisively influencing other people. It portrayed the American class system as one of conspicuous privilege and status for the affluent and relative degrees of pain and anonymity for the rest. That is obviously an important enough aspect of the subject and certainly deserves elaboration. Still, neither the role of power in structuring and maintaining the classes described by the Times, nor the power structures and processes constituted by those class inequalities, were discussed.

Today, however, little more than a decade later, populist uprisings both abroad and at home have given clear witness to a widespread consciousness of the power structures of class. That awareness has not entirely failed to percolate into media and political commentary. In the United States, from the Occupy Wall Street movement, the Bernie Sanders presidential campaign, and the ostensible new progressivism of part of the Democratic Party, to the Tea Party and later the Trump movements on the right, class as a system of social influence and rule has at least begun to move into public discussion.

Class in this sense is not a particularly pleasant subject for public discussion. The proscriptions against serious comment about it are strong, and jobs and livelihoods depend on knowing how to skirt matters that would displease direct superiors and others with power.

This book maintains, however, the increasingly widespread view that the problem of rising economic inequality is not one of economics, nor of demographics or other social developments, but of class as a system of social influence and rule, and that the problem cannot be effectively dealt with except by acknowledging and dealing with that reality…..

Inequality, Class, and Economics

Eric A. Schutz is a Professor Emeritus at Rollins College, where he taught a great variety of Economics courses from 1987-2015. He is the author of Markets and Power: The Twentieth Century Command Economy and Inequality and Power: The Economics of Class, as well as articles in the Review of Radical Political Economics, the Forum for Social Economics, the Journal of Economic Issues, and the Encyclopedia of Political Economy.

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