This op-ed by Matthew O’Brien, an associate editor at The Atlantic covering business and economics, appeared on May 12, 2012. O’Brien writes:
“This is what a second Gilded Age looks like.
“The above chart compares the inflation-adjusted incomes of the top 0.1 percent with annual inflation-adjusted S&P 500 prices, both indexed to 100 beginning in 1913. (Note: The income numbers for the 0.1 percent come from Picketty and Saez. The real S&P prices come from Robert Shiller).“It tells a three-part history of our economy over the last century. It’s a story about the age of the rentiers, their retreat, and subsequent return.”
“And then the New Deal happened.
“Something, well, new happened. Markets went up, but incomes at the top didn’t. This change wasn’t evident until after the war because neither the Great Depression nor a time of mass rationing were exactly good for stocks — but it seems fair to ascribe it to FDR’s fundamental reshaping of the social contract. Most obviously there were very high top marginal tax rates, up to 94 percent at its peak. But it wasn’t just about higher taxes. Tough financial regulation reined in the casino culture that had prevailed on Wall Street before the Great Crash — which in turn reined in both incomes and how sensitive they were to the market. But even this isn’t the full story. There was a cultural shift too. Executives were embarrassed by high pay. Executives like George Romney, who turned down a bonus, because he didn’t think anyone deserved to be paid that much.
“It’s hard to imagine such reluctance nowadays. Consider the following chart, comparing real incomes of the top 0.1 percent, 1 percent and GDP per capita over the past three decades.”
“Say hello to the return of the rentiers. After three decades of broad-based prosperity following World War II, the superrich have once again decoupled from everybody else. Remember: median households have underperformed GDP per capita (the blue line) over this period.”
The fact of the matter is that wealth disparity has been expanding at a dramatic rate. CEOs used to earn around 50 times what their average workers earned. Today they earn around 500 times. There is an unjust balance perpetuated by the financial systems.
The resulting impact of our current approaches has been plutocratic government and concentration of capital ownership, which denies every citizen his or her pursuit of economic happiness (property). Market-sourced income (through concentrated capital ownership) has concentrated in individuals and families who will not recycle it back through the market as payment for consumer products and services. They already have most of what they want and need so they invest their excess in new productive power, making them richer and richer through greater capital ownership. This is the source of the distributional bottleneck that makes the private property, market economy ever more dysfunctional. The symptoms of dysfunction are capital ownership concentration and inadequate consumer demand, the effects of which translate into poverty and economic insecurity for the 99 percent majority of people who depend entirely on wages from their labor or welfare and cannot survive more than a week or two without a paycheck. The production side of the economy is under-nourished and hobbled as a result.
