The Dow Jones Industrial Average hit 13,338
Tuesday, it's highest since December, 2007. The S&P 500 added 16
points. Wall Street will remember May 1 as a great day.
But most of these gains are going to the richest 10 percent of
Americans who own 90 percent of the shares traded on Wall Street. And
the lion's share of the gains are going to the wealthiest 1 percent.
Shares are up because corporate profits are up, and profits are up
largely because companies have figured out how to do more with less.
Payrolls used to account for almost 70 percent of the typical
company's costs. But one of the most striking legacies of the Great
Recession has been the decline of full-time employment -- as companies
have substituted software or outsourced jobs abroad (courtesy of the
Internet, making outsourcing more efficient than ever), or shifted them
to contract workers also linked via Internet and software.
That's why most of the gains from the productivity revolution are
going to the owners of capital, while typical workers are either
unemployed or underemployed, or else getting wages and benefits whose
real value continues to drop. The portion of total income going to
capital rather than labor is the highest since the 1920s.
Increasingly, the world belongs to those collecting capital gains.
They're the ones who demanded and got massive tax cuts in 2001 and
2003, on the false promise that the gains would "trickle down" to
everyone else in the form of more jobs and better wages.
They're now advocating austerity economics, on the false basis that
cuts in public spending -- including education, infrastructure, and
safety nets -- will generate more "confidence" and "certainty" among
lenders and investors, and also lead to more jobs and better wages.
None of this is sustainable, economically or socially.
It's not sustainable economically because it has resulted in
chronically inadequate demand for goods and services. That's meant
anemic growth punctuated by recessions. Without a larger share of the
economic gains, the vast middle class doesn't have the purchasing power
to buy the goods and services an ever-more productive economy can
It's not sustainable socially because it has resulted in rising frustration over the inability of most people to get ahead.
Austerity economics in Europe is fanning the flames, as public
budgets are slashed on the false crucible of fiscal responsibility. In
the United States, an anemic recovery and plunging home prices are
taking a toll: a large portion of the public believes the game is
rigged, and no longer trusts that the major institutions of society --
big business, Wall Street, or government -- are on their side. In Europe
and America, 30 to 50 percent of recent college graduates are unemployed
Inequality is also widening in China, where the scandal surrounding
Bo Xilai and his family is serving as a public morality tale about great
wealth and official corruption. Students in Chile are in revolt over
soaring tuition and other perceived social injustices.
It's a combustible concoction wherever it occurs: Increasing
productivity, widening inequality, and rising unemployment create
Public anger and frustration can ignite in two very different ways.
One is toward reforms that more broadly share the productivity gains.