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Capital Accumulation But Not For You

Jay Gould, Railroad Magnate, Securities Fraud, Commodities Fraud, Not a Criminal


From its beginning, the United States government has done everything in its power to encourage the accumulation of private capital. In doing so, the government has served the rich quite well, but has done nothing for average people. In the 1800s, the government gave millions of square miles of public lands to the rich people who controlled the railroads, rather than develop those railroads for the benefit of all of us. The railroad magnates responded by charging all the traffic would bear, ruining farmers and small towns across the country.

The government did nothing as a few men piled up enormous fortunes through ruthless consolidation of the steel industry, the oil industry, utilities and of course, the financial sector. When the workers in those industries protested and struck, the government stepped in on the side of private capital, and it took death and destruction and a deep-rooted fear of socialism to get the government even to consider the possibility of minor restrictions on the rich and powerful people who controlled those private fortunes.

The government did nothing to encourage the accumulation of small amounts of capital in the hands of ordinary citizens. The Federal Reserve Board uses unemployment to keep wages down, supposedly to fight inflation, but the reality is the creation of a pool of unemployed workers to keep wages down. You can watch the Fed put people out of work in this chart, which shows that every recession is accompanied by increased unemployment.

Civilian Unemployment Rate from FRED

The Roosevelt Administration recognized that the transition from a war economy to a peace economy would be difficult and it did not want a return to the militant posture of unions from the 1930s. It worked with giant industries created by the war to transition to a peace economy, and encouraged the returning soldiers to go to college, which kept them out of the workforce during the initial phases of the transition. Women were sent home from the workplace and returning soldiers took their jobs.

It all eventually came together in the rise of a group of working people who could legitimately aspire to a home of their own, a car, a better life for their kids, and a pleasant retirement. That lasted 20 years, during which time a lot of people were able to live that life. They had stable jobs, good pensions, and a decent level of Social Security and Medicare, so they didn’t feel the need for massive personal accumulation of capital.

Besides Social Security and Medicare, there were a few government actions intended to benefit average citizens. One group focused on the housing sector, using relatively cheap mortgage interest supplemented by the home mortgage interest deduction to encourage home ownership. We’ve seen how that worked out. The other is a large number of tax-supported retirement account plans, mainly IRAs and 401(k)s. We’ve seen how that worked out too. The government also provided good education, including college, at prices reasonably within the reach of most people.

That’s over. If you don’t have personal wealth, you are out of luck. Few Americans are covered by pensions today, and going forward, even fewer people will have them. Social Security and Medicare are under attack by Republicans and Democrats alike. Food stamps and unemployment benefits are the tool of the devil according to right-wing mythology, robbing people of their natural ambition and willingness to work. Politicians are cutting the public sector and selling it to the rich to pay down debts, making everything a source of income for the rich. If you want a college education, you need a fortune, or else you start your life under a nasty burden of student loans.

The Great Crash is just the most recent example of massive accumulation by the rich at the expense of the rest of us. Recent reports show the impact in graphic detail. The following is from the 2010 Fed Survey of Consumer Finances (figures in thousands, not adjusted for inflation):

Percentile of Net Worth Median Net Worth 2007 Median Net Worth 2010
Less than 25 1.4 1.1
25–49.9 13.4 7.8
50–74.9 60.2 45.1
75–89.9 217.8 200.0
90–100 776.0 889.5

The United States is 27th world wide in median net worth, according to the Credit Suisse global Wealth Data Book. The following table is from the Data Book. It says that the bottom 50% of Americans have 1.1% of the wealth in the country. Compare that to Japan with 12.2% or France with 3.9%. Or compare that to Chile with 4.7% or Indonesia with 3.8%.

From the Global Wealth Data Book 2012 by Credit Suisse

The conventional wisdom says that being in the middle class is about your aspirations, not your wealth or your economic class. The only people who benefit from that pipe dream are the feral rich and their politician servants.

Other posts in this series:
High Class
Middle Class Muddle
Thinking About Class Structure of the United States

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masaccio

masaccio

I read a lot of books.

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