“A Populace Softened by a Market Rally”

Buried in an article on this week’s stock rally, the WSJ does some reasonable political analysis regarding public attitudes towards finance:

“Perhaps the biggest factor of them all is the market rally. The Dow Jones Industrial Average is up 12.7% in the last six months, 17.5% in the last two years and 97% from the crisis-era low in March 2009.

The recovery of wealth, leaving the market roughly where it was at the end of 2007, isn’t insignificant. Seventy-four percent of Americans who have yet to retire expect to tap funds they have in 401(k)s and other savings plans, while 40% will primarily use money invested in stocks and mutual funds. Even among those already retired, 30% draw most of their income from market sources, according to Gallup.

It’s only natural that people are feeling richer and less afraid. Reform Wall Street? Why spoil the party?

Tally all of it up and you have a populace softened by a market rally, distracted by home economics and lawmakers worn down by a record $474.1 million spent last year on lobbying by the insurance, real-estate, banking and securities industries.

Meanwhile, some of the protagonists are gone. Sen. Chris Dodd and Rep. Barney Frank have left the building. They both decided against running for new terms.

With resistance softening, it’s no wonder regulators are backing down and the president plays politics more than practicalities with his oil and tax policy.”

Of course, a 97% recovery of stock market values, and return to 2007 heights,  is not reflected in a 97% recovery of anything else. The unemployment rate remains 4% above where it was in 2007, and the upper 1% captured 93% of the growth during this ‘recovery.’  Why persistent high levels of unemployment, alongside stagnant wages and benefits, and and even more unequal ‘growth’ have not produced more social protest is still a mystery. Powerful Wall Street lobbyists can explain some regulatory changes (that’s the WSJ’s view), but not social passivity (very few Occupiers were retirees who had lost their 401(k)s…). It is conceivable that even very modest job gains are enough to give many hope that a recovery for everyone else is on the way. And that kind of hope might make many unwilling to rock the boat. But one suspects it has more to do with desperation mixed with the absence of a party or movement able to represent popular interests in a robust and sustained way.

Obama, The Economy and Upwards Distribution

A recent post by Matt Stoller over at Naked Capitalism drew our attention to one of Emmanuel Saez’s recent papers on ‘evolution of top incomes in the United States.’ Under Obama, the top 1% captured 93% of the growth since the recovery began in 2009. As Stoller observes, that’s 28% more than they captured under the 2002-2007 Bush expansion. It is also, on its own, reason to doubt whether it is reasonable to call the recovery anything like a recovery. Since 2009, the real incomes of the bottom 99% have grown 0.2%. (Saez does not break the data down any further.) Based on these numbers, the surprise is not the (momentary) phenomenon of Occupy, but that it was so short-lived and not more popular.

None of the economic data should be all that surprising since the lion’s share of the ‘recovery’ has been in stock market values and corporate profits (up 70-90% since 2009 Q1, highest since 1950), not employment, wages, and benefits.

Stoller explains this shift by Obama’s policy decisions, including his willingness to broker trade deals and stay the hand of regulations that might either impinge on the profits of the wealthy, or strengthen the bargaining power of the poor. And that may be some small piece of the puzzle. Stoller might have added the unwillingness generally among Democrats  to venture anything so radical as a public employment plan (public employment has in fact declined), or defend labor rights. But as much as we would like to blame Obama, there must be wider forces at play here, and we don’t just mean Republicans. The growth model itself, based on cheap labor costs, debt-financed consumption, and so-called ‘knowledge’ and ‘creative’ classes is what has stalled. That model, not just the banks, is what got bailed out, but it doesn’t do much of anything for most people. The upper end gets fantastically wealthy, throws crumbs and crust down to the professional classes, and the rest do what they can. Obama has surely done nothing to challenge the foundations of this economy, but then again, nor has anyone else.

Expropriating the expropriated (1983-2009), or, Why It’s the Top 20 not Top 1% That Matter

Recently, the Economic Policy Institute published “11 Telling Charts from 2011,” including the following one showing the share that different segments of the US Population took of the wealth gain from 1983-2009.

When we first looked at this chart, we started reading from the left and adding the numbers but did a double take by the time we added the Top 1%, Next 4%, Next 5%, and Next 10% – or the top 20%. Add their shares together and you get 101.7%. At first that just didn’t seem right, since our assumption was that when you add up all the shares one would get 100%. Naively, we had assumed that, while radically unequal, the gain in wealth for all quintiles would positive. A piece of folk philosophy in the United States is that the rich can gain huge gobs of money and power, so long as the poorest can also have some piece; and that those who rise do so on their own merits, but not by making the worst off even worse off. That, as it turns out, is also a premise of the most influential theory of justice in contemporary political philosophy, which states that the only permissible inequalities are those that make the worst off better off than they otherwise would be under pure equality.

The past twenty-five years have followed a different path from mainstream, common sense theories of justice. The worst have been made worse off. Meanwhile, the massive gains of the top 20% were only as large as they were because wealth was redistributed from the poor to the rich (with very moderate gains for the top 20-40%). The expropriated were expropriated some more.

These figures are even more important than the income inequality statistics with which everyone is now familiar, because those income statistics alone give the impression that, at the very least, nobody is being made worse off. In addition, wealth is a much better indicator of social and economic power than income, as it shapes individual bargaining power, determines who controls investment, and establishes the distinction between those who are economically secure enough not to have to work, and those who aren’t. Looking at the graph again, a key political point emerges, which we have made before: the problem is not with the 1% alone. The expropriators area larger class than that. After all, the next 4% took just as large a share of the total wealth increase, and overall, the top 20% are doing quite well. To reuse a chart we have used before, the top 20% control 85% of the total wealth in the United States, and if residential wealth were removed (at least, value of primary homes), that would undoubtedly rise much higher.

So the current political obsession with the 1% introduces a very problematic distortion into the actual dynamics of class, and the real distribution of wealth and power, in the current political economy. We are the 99% has a wonderful, quasi-universalist ring, but actually real distinctions under the rug, and implicitly dodges hard conversations about the real class composition of the United States. A real critique would have to reach beyond mere populism.