“It is easier for a camel to pass through the eye of a needle than for a rich man to enter the Kingdom of God.” — Matthew 19:24
“The love of money is the root of all kinds of evil.” — 1 Timothy 6:10
“Greed is good.” — Gordon Gekko
The old biblical credos regarding private wealth seem to have been erased in favor of Gordon Gekko’s paean to capitalism; perhaps calling wealth evil was necessary when the poor had to expect to remain poor and needed something to assuage their pain. Today, when we are told than anyone can become rich, ambition harnessed to free markets is held up as the highest good, and the winners in the race for wealth are hailed as the “job creators” and the successful and admired “1%”.
This is a very recent phenomena. As late as the 1960s, the rich felt a bit embarrassed by their wealth and had a great need to show their social spirit and compassion by supporting community causes. This at a time when they could usually justify their wealth in terms of producing social goods — for great fortunes were usually built on large enterprises that provided jobs, strengthened communities, and made things that millions of people used and enjoyed. What is more, government action was seen as essential to make sure that unbridled greed and market competition did not squeeze the social life out of society; government investments in roads, schools, airports, parks, bridges, research, health care and safety regulation was seen as necessary to assure opportunity, safety, and quality of life for society.
Taxes were of course much higher — top income tax rates were well above 50% in the US, and estate taxes were confiscatory. The latter was deliberate; after all, America was founded as a republic, not an aristocracy so there was supposed to be no place for hereditary wealth and privilege by birth. Democracy meant equal chances and an equal voice for all (except women and minorities, struggles that had to be fought in the 1960s, 1970s, and to this day).
But as Hedrick Smith skillfully shows in his book Who Stole the American Dream, a new corporate and private wealth culture took root in the 1980s. At first it was justified in terms of corporate/shareholder value. Corporate executives argued that their only responsibility should be to shareholders and increasing shareholder value (for which they should be handsomely rewarded if they succeeded). Workers were transformed from people, community members, and stakeholders into costs to be minimized, whether by automation, offshoring, union-breaking, or contract renegotiation, part-timing, out-sourcing, and reducing benefits. The result is that quality of available jobs declined even as the number of jobs fell. The high-paying, secure, high-benefit jobs for manual and lower-level white collar workers that had built the American middle class started to fade into history.
The worst culprits became financial institutions. Following the path of any way to create wealth is good; they developed novel financial instruments. The main role of banking and financial institutions in an economy should be to encourage and reward saving and then direct the saved capital into its most efficient uses. That was banking when depositors were courted and protected, and banks identified enterprises to which to lend. That too is in the past. Instead, banks encourage people to borrow, as bank revenues come from lending; the capital can be gotten cheaply from governments or foreign countries. Moreover, instead of directing funds to the most solid enterprises, banks sold investment products to unwary investors, creating complex derivatives and other products of which the banks believed they understood better than their customers. Banks in effect transformed into extremely profitable bookies, selling bets to customers who took the risks, and running up huge gains for themselves.
These processes did in fact generate a great deal of wealth for those most successful in plying these strategies. Corporate and banking profits have soared, and incomes of top corporate executives and bankers have reached stratospheric levels, hundreds and thousands of times the level of ordinary workers.
However, contrary to the claim that the rich are “job creators,” the link between growth in corporate profits and private gains and the growth in jobs and wages for workers has been severed. The offshoring and automation of manufacturing, the growth of profit-centers in sale of financial assets, and the digitization of more and more activity, means that jobs for people doing services and making things no longer increase with overall economic activity. We have seen this in several “jobless recoveries” from recessions. Each of the last few recessions, especially the Great Recession since 2007, saw companies throw millions out of work. But then in the recovery, corporate profits and the incomes of the wealthy quickly recovered and soared to new heights, while the levels of unemployment and wages stagnated. Hence the often-cited observation that real wages have been flat for the last two decades, even as the rich have grown far richer than before.
Most pernicious, but understandably, the winners in this process have declared that their gains are the fully deserved fruits of their virtue, and must be protected from any efforts by the rest of society to more broadly distribute prosperity, security, or opportunity. This had led to the cult of private wealth vs. denigration of all government spending.
We have reached the point at which Republicans in Congress seriously argue that one dollar spent by a rich man in gilding his doorway or collecting his sixteenth luxury car is a greater social benefit than one dollar spent by the government saving the life of a sick baby or providing education for the next generation of children or repairing a bridge that might collapse and take lives. This is because any spending or accumulation of private wealth is seen as good — a reward to keep the game going — while any spending on public goods is seen as bad — an undeserved benefit that discourages private effort and punishes those who are the most successful earners by diverting the latters rewards.
I understand the logic of this position; but do its advocates appreciate where it leads? It is not just a matter of the rich enjoying their wealth while the poor are motivated to struggle to create their own wealth. It creates a society in which people are discouraged because the quality of life declines; where people are sickly and endangered because they cannot obtain medical care and sound diets; where democracy fails because educational and other opportunities to advance are increasingly monopolized by the best off. It even creates a society where those making $1 million per year are distressed that they are “poor” compared to those making $20 million per year or more. Because after all, if wealth and winning is all that matters, there is never enough; someone else will always have more. And in an income distribution that funnels ever more to the top one-tenth and one-hundredth of the 1%, others will have much, much more.
So what is to be done? The answer is simple, and President Obama articulated it in his speeches this week. America needs to replace its emphasis on the virtue of private wealth with an emphasis on a strong middle class, public services, equal opportunity, and social goods (a healthy population, a healthy and safe environment, safe roads and bridges). Attaining these goals requires public spending and social investments.
These are not complicated issues. America cannot hope to remain a wonderful place if the middle class declines and public services rot. I know because I have spent the last six weeks in Russia. This is a country that has completely given itself over to the virtues of private wealth. The oligarchs who benefitted from the privatization of Soviet assets make Russia home to more billionaires per capita than any country in the world. Moscow is the most expensive city in the world. Inequality is higher than in any other industrialized country. And life is very good for those who benefit from the concentration of wealth.
But most people in Russia are increasingly unhappy and the goal of the ambitious is simply to leave. The government has not been tamed by the accumulation of private wealth — quite the reverse. It has bullied the wealthy into supporting the government, and taken over some of the largest resources for itself. The cult of private wealth has led to pervasive and intolerable corruption, with everything from educational access to housing to medical care requiring side payments and privileged access. The courts do not enforce the law but protect the wealthy and the powerful. Media is limited and cowed (and boring). The middle class is resentful and worried about the future. The population is shrinking.
So this is the question for America: will we follow Russia into the pit of unbridled deification of private wealth and the corruption and collapse of spirit and democracy that goes with it? Or will America reassert itself as the land of opportunity, middle class growth, outstanding public services and infrastructure, and quality of life?
That is the question for Congress and American in the coming months of budget battles. President Obama has laid out his priorities; I think they are the right ones. But we shall have to see if the argument is made clear and how the debates unfold. There is much at risk.