Hear the chief economist at Bank of America-Merrill Lynch, Ethan Harris, who truthfully told the Times: "There's no question that there is an income shift going on in the economy. Companies are squeezing their labor costs to build profits."
Or the chief economist for Credit Suisse in New York, Neal Soss: As companies have wrung more savings out of their work forces, causing wages and salaries barely to budge from recession lows, "profits have staged a vigorous recovery, jumping 40% between late 2008 and the first quarter of 2010." (The rich are getting richer off of wage repression.)
Just recently the New York Times reported that the private equity business is roaring back: "While it remains difficult to get a mortgage to buy a home or to get a loan to fund a small business, yield-starved investors are creating a robust market for corporate bonds and loans."
If this were a functioning democracy, our financial institutions would be helping everyday Americans and businesses get the mortgages and loans -- the capital -- they need to keep going; but they're not doing that, even as the financiers are reaping robust rewards. Even more importantly, our government would be helping workers get the increased wages and higher paid jobs they need in order to buy the products that companies might then produce. That's what the German government did for their workers, and by that means the German economy largely escaped the worldwide recession.
Yes, Virginia, there is a Santa Claus. But he's run off with all the toys
Another story from the Wall Street Journal: Above an op-ed piece by Robert Frank the headline asked: "Do the Rich Still Need the Rest of America?" The author wasn't ambivalent about the answer. He wrote that as stocks have boomed, "the wealthy bounced back. While the Main Street economy was wracked by high unemployment and the real-estate crash, the wealthy -- whose financial fates were much more tied to capital markets than to jobs and houses -- picked themselves up, brushed themselves off, and started buying luxury goods again." How nice. For them.
Citing the work of Michael Lind at the Economic Growth Program of the New American Foundation, the article went on to describe how the super-rich earn their fortunes with overseas labor, selling to overseas consumers and managing financial transactions that have little to do with the rest of America, "while relying entirely or almost entirely on immigrant servants at one of several homes around the country."
Another story from the Wall Street Journal, three years ago: The private equity firm Blackstone Group swooped down on a travel reservation company in Colorado, bought it, laid off 841 employees, and recouped its entire investment in just seven months, one of the quickest returns on capital ever for such a deal. Blackstone made a killing while those workers were left to sift through the debris. They sold their homes, took part-time jobs making sandwiches and coffee, and lost their health insurance.
That fall, Blackstone's chief executive, Stephen Schwarzman, reportedly worth over $5 billion, rented a luxurious resort in Jamaica to celebrate the marriage of his son. According to the Guardian News, renting the Montego Bay facility for the wedding cost $50,000, plus thousands more to sleep 130 guests. Earlier in the year Schwarzman had rented out the Park Avenue Armory in New York (near his 35-room apartment) to celebrate his 60th birthday at a cost of $3 million.
Adding insult to injury, the stratospheric income of people like Schwarzman is for the most part taxed at the 15% rate -- considerably less than the 25-30% rate paid, say, by a middle class family. And when Congress considered raising the rate on their Midas-like compensation, the financial titans flooded Washington with armed mercenaries -- armed, that is, with hard, cold cash -- and brought the "debate" to an end faster than it had taken Schwartzman to fire 841 workers. The financial class had won another round in the exploitation of working people who, if they are lucky enough to have jobs, are paying a much higher tax rate than the super-rich.
So the answer to the question, "Do the Rich Still Need Most of the Rest of Us?" is as stark as it is ominous: Increasingly they don't any longer need most of us. As they form their own worldwide, international financial culture, ever more separated from the fate of everyone else in the U.S., it is hardly surprising that so many of them should be so hostile to paying taxes to support the infrastructure and the social programs that help the majority of the American people.
You would think the rich might care, if not from empathy, then from reading history. Ultimately gross inequality can be fatal to civilization, as shown by anthropologist Jared Diamond in his book Collapse: How Societies Choose to Fail or Succeed. Here the Pulitzer Prize-winning author tells how governing elites throughout history have isolated and deluded themselves until it is too late. He reminds us that the change people inflict on their environment is one of the main factors in the decline of earlier societies. For example: the Mayan natives on the Yucatan peninsula suffered as their forest disappeared, their soil eroded, and their water supply deteriorated. Chronic warfare further exhausted dwindling resources. And although Mayan kings could clearly see their forests vanishing and their hills eroding, they were able to insulate themselves from the rest of society, which they bled right to the very end. By extracting wealth from commoners, they could remain well-fed while everyone else was slowly starving. Realizing too late that they could not reverse their deteriorating environment, the last leaders to continue this folly became casualties of their own privilege and pillage. Any society contains a built-in blueprint for failure, Diamond warns . . if elites insulate themselves from the consequences of their decisions, separated from the common life of the country -- which is exactly what is happening today in America.
Yet the isolation of our super-rich continues -- and is even celebrated! Consider this document published in the spring of 2005 by the Wall Street giant, Citigroup, setting forth an "Equity Strategy" under the title and I'm not making this up! -- "Revisiting Plutonomy: The Rich Getting Richer (pdf)."
Now most people know what plutocracy is: the rule of the rich, with political power controlled by the wealthy. Plutocracy is not an American word and wasn't meant to become an American phenomenon -- some of our founders deplored what they called "the veneration of wealth." But plutocracy is here, now, and a pumped up Citigroup even boasted of coining a variation on the word -- "plutonomy," which describes an economic system where the privileged few make sure the rich continue to get richer and that government helps them do it! Five years ago Citigroup decided the time had come to "bang the drum for plutonomy." And bang they did.
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