The Crisis of Inequality

I f I recall correctly, both Greenspan and Bernanke made statements in 2005 that either the housing bubble was not necessarily going to be a problem, that no intervention was needed, and that drops in housing prices would have a limited effect on the broader economy. To those of us that have seen that this house of cards was going to crash and that it would have huge effects, this is, unfortunately, a moment of vindication.

But this is barely pessimistic guessing about our economy and financial systems future. This top-heavy house of cards has been building for decades not a few years. It is interesting that politicians, such as McCain last week, like to state that the economic “fundamentals” are sound, in their attempt to maintain confidence in a failing system. It becomes very clear in a situation like this that the economic fundamentals of this economy on are undermining themselves.

So-called pessimists have in fact developed a critical analysis of the systemic problems that face our social system. So even when economists and media pundits have lauded the growing economy, we have understood that it was based on smoke on mirrors. Record private and public debt, stagnating wages for working class, environmental destruction and mass exploitation, intimidation, and terrorization of peoples of the global South, have been some of the “fundamentals” that have propped up this system

This economy is built on the mass accumulation of wealth by a small class of investors and owners, as well as their close circles of associates. Interestingly, as record numbers of Americans are defaulting on loans, hundreds of thousand losing jobs, losing healthcare, struggling to pay the bills, the rich have never been richer. The easiest way to see this is by looking at census data for the last 40 or so years. This information comes from United States government data: Share of Aggregate Income Received by Each Fifth and Top 5 Percent of Households, All Races: 1967 to 2006.

Between 1967 and 2006 the share of income received by the top 5 percent grew from 17.2% to 22.3%; the top 20 percent from 43.6% to 55.5%. At the same time the middle fifth’s income dropped from 17.3 to 14.5 percent and the bottom 20 percent dropped from 4.0 to 3.4%. In fact every income group saw a drop in income (naturally, adjusted for inflation) except for the top 20 percent. This of course is only income and does not consider wealth, which includes all assets and income, and shows much greater disparities.


In a March 29, 2007 NY Times article entitled “Income Gap Is Widening, Data Shows” stated that

“Income inequality grew significantly in 2005, with the top 1 percent of Americans — those with incomes that year of more than $348,000 — receiving their largest share of national income since 1928, analysis of newly released tax data shows.

The top 10 percent, roughly those earning more than $100,000, also reached a level of income share not seen since before the Depression….

The gains went largely to the top 1 percent, whose incomes rose to an average of more than $1.1 million each, an increase of more than $139,000, or about 14 percent.

The new data also shows that the top 300,000 Americans collectively enjoyed almost as much income as the bottom 150 million Americans. Per person, the top group received 440 times as much as the average person in the bottom half earned, nearly doubling the gap from 1980….”

This growing inequality has impacted the American economy in countless ways. In one testimony to Congress, even Bernanke alluded to the fact that it may cause some problems, but didn't , as I recall, go into too much detail. However, I imagine that his problems are different than those that I have in mind. The fact of the matter is the system is geared towards exacerbating inequality. It is built on sucking wealth to the upper class. That is what it is, in essence, supposed to do.

This crisis is no different. Million or likely billions of dollars were being made based on speculation and when the game is over, we will suffer the consequences. The elite class made a killing on this speculation; everyone else will pay for it.

Unless we address these fundamentals, the fact that we have a economic system that thrives on wealth for the few and struggle for the many, these crisis will continue and the middle class and particularly the poor (global as well as American) will continue to suffer the effects of them. Borrow to make ends meet and increase debt. Get another credit card, consolidate debt, and take a second mortgage.