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Wednesday, October 21, 2015

Inequality and Oligarchy

James Galbraith's 2008 book "The Predator State", touches on so much I consider important, I've been writing in installments. In Chapter Seven he touches on inequality:
"What the Rise of Inequality is Really About"

Galbraith explains how accounting for inequality has two sides. On the one hand is the disenfranchisement of what the Occupy Group came to call "The 99%", and on the other hand is the emergence of a billionaire class and oligarchy, as those benefiting from repeated finance driven bubbles start flexing their political-economic muscle using their newfound wealth. He notes:

"The Rise in income inequality reflects something that happened to a very small group of reflects, ... the rise of a new class -- very small and unbelievably rich. It did not come from the labor market at all. It came instead from the [financial] capital market. Specifically, came from the stock market."

Now note, I inserted the word [financial] before capital market, because the stock market is a derivative capital market. Galbraith notes that even more important than a wage inequality was this income inequality driven by these unearned incomes. The inequality represented financial capital, not necessarily actual capital in production, but money and wealth derived from ownership of capital, property, businesses, startups, copyrights and various other monopoly vehicles, including stock option salary vehicles for those lucky enough to be CEOs of the right companies. The genesis of these incredible fortunes was and is in a very lucrative type of speculation. Thanks to Startups and CEO power over their own pay, these fortunes were made during a bubble. As Galbraith notes:

"For a time, unlimited funds were available, so too nearly unlimited funds could be paid to the boss and a handful of his top associates. This is the source of the 'new class' and it is the source of the rise in income inequality as well."

It has been shown that nearly all the benefits of increases in productivity and technology improvement over the past 35 years went to this tiny sliver of society; mostly people like Gates of Microsoft, but also the heads of other companies who could justify their own awful salaries on "keep up with the Gateses" arguments.

Income Inequality as a Function of Policy

Galbraith notes that income inequality post 1980 was driven by finance, by credit. He traces it from the Bretton Woods Accords when the USA Dollar was made an international reserve currency while the USA Dollar was supposed to be pegged to Gold, through Nixon's shooting the dying horse of the Gold Standard in 1972, and then to the 80s:

" In 1980, we really went through a fundamental transformation. We stopped being a wage-led economy with a growing public sector that was providing new services. Programs like Medicare and Medicaid were major drivers of growth in the 1970s." [Wa-Po]

In Chapter 5 of "The Predator State" he shows how our total budget deficit is driven by the purchases of US Dollars as a reserve currency! He notes that when Clinton cut the Government Budget deficit -- that caused the private budget deficit to go up! He then shows that fighting wage inequality alone does little to stop these income inequalities and that balancing budgets actually increases private indebtedness and that this will continue until we find a new exchange system. That is why he labels Chapter 5 The Impossible Dream of Budget Balance He also notes how we Democrats have been so brainwashed on the subject that we positively gush about balanced Budgets when those are actually hurting people.

Economic Power becomes Political Power

But on page 102 was the chilling observation:

"Economic Power naturally translates into political power. Are the people most favored by an inflating market also those best suited to govern the country and, by extension, the world?"

Hence the entitled attitude of Mitt Romney whose Bain Capital made billions by junking companies while loading them up with debt. And of Donald Trump, who has turned real estate speculation and bankruptcy into a road to great riches. But he continues:

..."it is a view often reflected in the public media, which they ...own. But it is not entirely self-evident that this view is actually correct. The deeper issue raised ... is, therefore ... the distribution of political power. The term ... for ... this... is oligarch.

We've been talking about this word "oligarchy" a lot recently. But the term emerges out of the reality that comes with a Corrupt Supreme Court and these unsightly unearned billion dollar fortunes. Not only did the fortunes of 90% of us go down, 9% stay the same and a new class of billionaires emerge, but they truly feel entitled to rule, directly or indirectly. From behind the throne, or like Romney or Trump, by getting out and buying votes directly. It's not frightening but it should be.

The Predator State
Ezra Klein's Brad Plummer interview with James Galbraith:
How economists have misunderstood inequality: An interview with James Galbraith []
Galbraith got involved with the Greek Rescue:
References and further readings:

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