Welcome to America, you (everyone but the 1%) don't own much of it. And after the financial crisis (which would have in theory hurt financial interests) you own even less.
It is now an established fact that in America the Top 1% own more financial wealth than the bottom 95% combined and there is little possibility of this changing in the future.
So I pose two interrelated questions:
How did this happen?
What is to be done?
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Better Version
How did this happen?
Slate has done anexcellent series detailing the wealth gap and offering various insights, notably eliminating race/gender, immigration, technology, etc.as the cause. While the series should be applauded for at least broaching the topic, it failed to offer a comprehensive explanation for the problem or any solution. So I will.
You can not tell the economic history of the last 30 years in America, and to a large degree the world, without mentioning the rise of Finance, Insurance, and Real Estate or the FIRE economy. With the deregulation and empowerment of FIRE ushered in by Neoliberalismcame a period of "Capital Gone Wild" that has still largely not ended. Liberating capital to do whatever it pleases, has yielded the results it has always yielded - massive inequality and instability. The controls or "regulations" that were imposed on capital were not done repeatedly in America and around the world by chance or accident, they were done precisely with the understanding of the threat that unregulated capital posed to people's societies and economies. The passage of time did not so thoroughly change the world that what was good in 1950 should suddenly be horrible in 1980.
In 1965, despite considerable social unrest, the American economy was expanding faster than it ever has before or since. At that time the financial services industry was 3% of the Gross Domestic Product (GDP), by 2007 it was 7.5% of GDP. What was achieved by FIRE getting that extra 4.5% slice of the economy? Greater income inequality, major economic crises, and sub par growth.
The beginning of "Capital Gone Wild" started when President Richard Nixon wrecked the most successful financial system ever implement in 1971 with the Nixon Shock. This essentially destroyed fixed exchange rates and other capital controls that were the foundation for the historic growth of the American and World Economy from 1945 on. Now all countries would have to float their currencies subjecting them to immense speculative swings and instability with those countries trying to preserve the fixed exchange rates in danger of speculative attack.
Nixon wrecked theBretton Woods system to try and escape the financial consequences of the Vietnam war and other budget busting programs, but the consequences of his escape would be calamitous as the U.S dollar was tied to nothing. This freed the Federal Reserve (which was designed by and continues to operate for moneyed interests) to create money at will leading to greater volatility and the possible dangers any organization poses when it has no real restraints on its power. The Feds legacy since 1971 has been mixed to say the least, mostly consisting of blowing asset bubbles to benefit speculators.
But the true capital binge came with the elections of Margaret Thatcher and Ronald Reagan in 1979 and 1980 respectively. Championing new economic theories from Milton Friedman and others which demanded the state:
Cut taxes, especially for higher income earners
Cut government spending (often not followed)
Eliminate Tariffs and other barriers to Free Trade
Deregulate Financial and Labor markets
View controlling inflation (not stimulating job growth) as the government's primary macroeconomic policy concern
This policy would not only be embraced in Britain and America but become a foundation for world economic development known as the Washington Consensus which would guide how the International Monetary Fund, World Bank and eventually World Trade Organization operated.
The effects of these policies on the removal of all or most capital controls lead to a series of economic crisis in Latin America, Asia, and continually in America (Savings and Loan, Dot-Com Bubble, Financial Crisis of 2007).
The effect of these policies on the labor market would lead to stagnation in wages, which in America have not risen since 1973. Stagnated wages meant less wealth for the middle and working classes in America but a trick or stopgap fix was found to safeguard business profits despite this lack of wealth gain. This trick was credit expansion or increased borrowing to stopgap the lack of wage increases. This took the form of credit cards, easy mortgage loans and the constant refinancing of debt complimented by low interest rates from the Federal Reserve and a laissez-faire ("hands off") approach by weakened and politically disinterested federal regulators and authorities.
With "Capital Gone Wild" came the increasingly obvious phenomenon of the rich getting richer and the poor getting poorer. Not a surprising trend as FIRE, particularly finance, became one of the most well compensated professions in the world despite no added value to society. With securitization of mortgage loans, deregulation of labor, and no capital controls a wave of financialization hit the American economy. Capital got all it wanted, labor got overwhelmed and the middle class consumers floated on credit thinking the tide would never go out.
In the end, the financial wealth generated and reconfigured via financilization would end up in the few hands of those manipulating the now massive amounts of free flowing capital in America and around the world. They and their beneficiaries/heirs are the Top 1%, the predestined winners of the Neoliberal system.
What is to be done?
It is now inevitable that a new Bretton Woods system will have to be implemented. The remainder of the old system, particular the IMF and Bank for International Settlements are presently being used to fight the current crisis and try to prevent future ones along with the Basel Accords on capital ratios. But this does not go nearly far enough a new system must be created with international/global fixed exchanges rates and capital controls. It's time for capital to stop going wild and get a job.
America must reimpose order on the Federal Reserve in the meantime. Chairman Bernanke's incredible dishonesty and manipulations can not be justified no matter how bad it really is or paralleled to Alan Greenspan's bad behavior, precedent is no excuse. Arbitrary and capricious monetary policy heavily influenced by and for Wall Street is not a sound economic footing. The Fed should be under democratic control inside the Treasury Department subject to continual audit and oversight.
America must make a strong differentiation between earned and unearned income. Wages are now one of the most taxed forms of income with capital gains andrent seeking the least taxed. This incentives Americans to speculate in financial markets rather than participate in the production of goods and services. To gamble instead of working. The capital gains (both short and long term) tax rate should go to 40% with a stock transaction tax of .5% added to thwart speculators - any noncompliance will result in inability to trade on exchanges and own stock in corporations that do business inside the United States or with the United States government.
The most obvious, oddly controversial, and least economically disruptive solution to wealth inequality in America is to raise the inheritance tax. Due to a public relations campaign launched by the Mars, Koch and other Top 1% families, the American version known as the 'estate tax' has come under assault with the faulty logic that a person's property is being additionally taxed despite them ceasing to exist when the tax is implemented. The estate tax is an inheritance tax which is levied on the persons who are being transferred the property, not the deceased. With a possible exemption of $1-5 million, the estate tax should be 80-90%. The alternative to paying the tax is to engage in philanthropic pursuits to benefit the society which granted the wealth in the first place. If not, the wealth can return to the government who provided the necessary public goods and services that allowed the wealth to be made.
And what is to be done with the money gained from taxing the rich? Public investment. But wait, isn't private investment the key to creating jobs and a healthy economy? Isn't that why the rich should never really be taxed?
Private Investment has failed (as it often does) to make long term investments. The quarter to quarter earnings panic attacks create widespread myopia. For example, private investment has failed to :
Initiate and Augment Alternative Energy R&D
Maintain/Strengthen Infrastructure
Make Healthcare Universally Accessible
Regulate itself/sustain working markets
Provide full employment
Whereas the public funds gained by taxing the wealthy do-nothings can be used toreindustrialize Americaby moving from a FIRE economy to one that invests in Transportation, Energy and Communication infrastructure (TECI).
It's time for our political system to stop thinking about the Top 1% and start thinking about everyone else.