Fix This or Nothing Else Matters
The top 10% are the dog sipping a drink as the cafe burns down, saying "this is fine."
What's the one thing we need to fix or nothing else matters? There are plenty of potential candidates: immigration, healthcare, wokeism, hot war in Europe, inflation, draining The Swamp, etc.
Human history offers a definitive answer, and it's none of these issues. The answer is wealth inequality. Historian Peter Turchin has focused on the tedious task of assembling data (as opposed to opinions, ideological positions and theories) on the crises and collapses of previous nations and empires. The keystone dynamic is soaring wealth inequality, which is shorthand for power inequality, as wealth generates power, income inequality, as wealth generates income, and health inequality, as wealth buys the best healthcare.
Turchin has written a number of books on the topic of social discord and collapse, but his recent article succinctly summarizes his findings: The deep historical forces that explain Trump's win: "We're in a good position to identify just those impersonal social forces that foment unrest and fragmentation, and we've found three common factors: popular immiseration, elite overproduction and state breakdown."
All three are the consequences of exploding wealth inequality. As wealth--which can be understood as claims on future time, energy and productive assets--is concentrated in fewer hands, the prosperity of the bottom 90% decays as costs rise and wages stagnate (i.e. immiseration), the economy no longer produces enough highly paid slots for the ever-increasing production of highly educated, high-expectations professionals, and since extreme concentrations of wealth corrupt the state, the state breaks down as bread and circuses no longer mask the gap between the top 1% (what Turchin calls "the proverbial 1%") and the top 10%, "a highly educated or 'credentialed' class of professionals."
The top 1% and top 10% set the contexts, narratives and agendas of the economy and society, and they're naturally coy about their role in soaring inequality. In their view, the extraordinary rise in their personal wealth is the result not of asset bubbles generated by policies adopted to serve the influential, but of their "hard work" and remarkably excellent decisions--in other words, their soaring private wealth is the natural order of things, and those left behind are, well, the losers in a Darwinian competition which they won and continue winning.
This self-congratulatory hubris cloaks the reality few admit to, which is their wealth is largely the result of policies that inflated bubbles in assets which they happened to own or buy early in the bubble.
The top 10% fear a real rebalancing will transfer some of their wealth to the bottom 90%, and so they cling with fanatic tenacity to the fantasy that increasing their wealth will "trickle down" to the little people. In their view, the correct policy decisions are those that will increase their wealth and income: cut taxes (which fall mostly on the top 10%), run trade and federal budget deficits that keep asset bubbles inflated, reward corporate monopolies and cartels, and promote the fantasy that "draining The Swamp" will somehow magically increase the wages of those who have lost ground for the past 45 years.
This chart of trade balances (i.e. trade deficits), wages as a share of U.S. GDP and the S&P 500 stock market index (SPX) is instructive. Note the diminutive size of the enormous asset bubbles of 1996-2000 and 2004-2008 compared to the stupendous Everything Asset Bubble which has so richly rewarded the owners of assets...
... who just happen to be the top 10%, who own almost 90% of all stocks:
And stockholders have done very, very well as corporate profits have skyrocketed in multiples of inflation:
The top 10% are also coy about how the bottom 50% of U.S. households--65 million households, 170 million Americans--fared as the Everything Asset Bubble "raised all boats:" well, not quite all boats, as the bottom 50%'s share of assets fell sharply (down 25%) as the wealth was concentrated in America's ruling / professional class.
The top 10% are equally coy about the immense divide between the stagnating prospects of the bottom 50% and the unprecedented wealth pouring into the vaults of the top 1% as their share of total assets rose 26%:
The net worth of the top 0.1% (330,000 Americans) exploded from $4 trillion in 2000 to $20.8 trillion today, more than 5 times the net worth of the bottom 50% of Americans (170 million people).
From low-Earth orbit, these obscured by the self serving realities become visible:
1. The top 10%, regardless of ideology, orbit the same nodes of wealth and power. The ideological differences are exaggerated to mask their common interests. They jet around the world to the same places, eat in the same pricey bistros, hire the same CPAs to "save on taxes," and they own homes in exclusive neighborhoods and manage the same portfolios of soaring stocks.
Turchin describes how counter-elites arise to fragment the status quo, but let's not kid ourselves: these counter-elites are nothing more than manifestations of Christopher Lasch's revolt of the elites, elites who share a keen interest in buying off the bottom 90% with distracting sensationalized "news," misdirecting narratives, and a minimum of bread and circuses. Their only goal is to replace the existing elite: Meet the new boss, same as the old boss.
End Times: Elites, Counter-Elites, and the Path of Political Disintegration (2023)(Peter Turchin)
The Revolt of the Elites and the Betrayal of Democracy (1996)(Christopher Lasch)
2. The top 10% are the dog sipping a drink as the cafe burns down, saying "this is fine." They are defensively aware of the hollowness of their hubristic claims to have "earned my wealth," but blind to the precariousness of their place at the top of the heap. Their complacent embrace of self-congratulatory hubris does not have a good track record in terms of survival strategies. We are in the final stages of let them eat brioche: AI will fix everything, etc.
3. We either fix wealth/power/income inequality or nothing else matters. Everything else is either a symptom or consequence of wealth/power/income inequality or it's signal noise generated to distract the bottom 90% from the 45-year erosion of their standard of living.
Nothing will change until we admit that the policies of the past two generations have only one possible result: extreme concentration of wealth. Either we face this directly or we fiddle around with histrionic distractions until it's too late.
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Thank you for the commentaries. John, you're spot-on about the elite classes being protected from the consequences of their actions. We can also say this about the entire asset bubble, which is the result of "moral hazard" (the casino will cover the losses, so gamble bigger and with greater recklessness). This goes hand in hand with moral collapse, of course.
It seems the pattern is the public won't demand real change or accept responsibility for their own communities until there is no other choice, i.e. the status quo is collapsing. The elites won't allow any real change until there is no other choice other than their complete overthrow. The problem is that by the time the public and elites are finally willing to accept radical change, it's too late to save the status quo.
In this context, to Polistra's point, FDR had the mandate to throw a bunch of experiments against the wall and see which one stuck / helped. What is generally overlooked is that debt was not defaulted on or liquidated; the closure of small banks wiped out the savings of ordinary people but the big banks kept the debt on their books. I can't recall the source, but the debt overhang from 1929 wasn't cleared until 1954. IOW the Depression dragged on b/c the debt was never allowed to be liquidated. The solution--global war-- consumed vast quantities of resources we no longer have to squander.
Many of the reforms Trump seeks might move the needle on inequality, but they may be offset by other reforms--for example, tariffs might fuel inflation and lowering taxes will only benefit the wealthy as most households pay little in income tax.
The dominance of capital is now so total that reforms would have to be radical to move the needle. For example, eliminate Medicare / Social Security taxes on wages and transfer that entire burden to capital via 40% tax rates on all capital gains, transaction fees on every financial buy/sell, etc.
Radical reform is "politically impossible" until it's too late. The buffers have been thinned to the point that the system is far more precarious than most people realize.
We can hope for the best, but don't assume centralized power is going to "save us" from the consequences of credit-asset bubbles popping, extremes of greed and speculation, the moral collapse of the ruling class, etc. As David points out, this is all in the open but denial / excuses / AI are the go-to sources of "hope."
warm regards, charles
BJ, here's the thing. There are distinctive periods of time, easily discernable in the factual data, in which prosperity (i.e. the output of the economy) is broadly distributed--not perfectly equal, but in accordance with the Pareto Distribution I often refer to--and then there are periods where the gains of the economy are not broadly distributed, they are concentrated in the top of the heap (i.e. the present era, The New Gilded Age).
In both periods, the Fed and government existed and intervened on a mass scale. So they can't be the controlling factors. The Fed and government were busily intervening in 1955-1975 when the vast majority of wage earners gained ground (i.e. the purchasing power of their wages increased), ditto in the inflationary 1970s, and in the period of broadly distributed prosperity circa 1984-1998, (i.e. an economy that didn't need bubbles to be "prosperous") and now in the era where the gains are concentrated in the top few--facts displayed in the Fed charts I mark up.
So how do you explain these factual differences? Many claim the "problem" is the Fed or government, but these have been "meddling" through both broad-based and Gilded Ages.
We're told the Great Depression was the result of a "Fed policy error," as if the wild speculative credit bubble of the 1920s didn't arise in the private sector. So the Fed is bad when it "errs," but not when times are good?
As for government "meddling," the federal government has been "meddling with the private sector" since 1790. The Whiskey Rebellion was not "nothing." It was a violent reaction to government controls of the economy. The idea that government only recently "intervened" is simply not factual.
The American economy suffered from a lack of credit in the early 1820s, and there were various ideas about how to address this. Some were private-sector, some were governmental. This reflects what I see as a data-based reality, that there is a dynamic balance between government and private sector, in which labeling one or the other "good" or "bad" doesn't add any explanatory value. The same can be said of the dynamic balance of labor and capital, which you distill down to "steal from the rich," as if that's the sole dynamic in play.
Henry Ford and Karl Marx both understood the flaw in unregulated capitalism is the labor force can be squeezed to the point they can't afford to buy the output of the economy. So Henry Ford took the extraordinary step of raising wages above "market rate."
In other words, for the economy to function, there must be a dynamic balance of labor and capital. The "capital controls," "stealing from the rich" tax rates, "Fed manipulation" of the 1950s and 60s did not lay waste to the economy, rather this era was beneficial to both labor and capital. That capital has currently been granted enormous advantages by the Fed and government policies is simply fact, as laid out in the RAND paper I reference and a container-load of other easily accessible data.
How do we explain that a tiny percentage of Americans own 5 times more wealth than 170 million Americans, although this wasn't the case in recent eras of broad-based prosperity? Something changed; something's different, to the detriment of the wage earner, economy and nation.
I know you're well-read, so you must be familiar with Peter Turchin's work. (A similar account can be found in David Hackett Fischer's "The Great Wave: Price Revolutions and the Rhythm of History") Turchin goes to painstaking lengths to correlate periods of extreme wealth inequality (like now) with social discord and upheaval.
I'm all for solutions, but we have to start with the correlations between periods in which capital (or monarchy, nobility, etc.) destabilize the balance of state and private sector and labor and capital to their own advantage and the resulting social destabilization, revolution and collapse. warm regards, charles