We are entering the billionaire bailout society.
For the past thirty years we have minted billionaires, and we have created the most unequal distribution of wealth since 1928-29. This didn't happen by accident. We deliberately deregulated the financial sector and we deliberately eliminated the steep progressive taxes on the super-rich that had kept in check our income distribution.
By unleashing capital and finance we were supposed to get an enormous investment boom in real goods and services. Instead we got a fantasy finance boom as Wall Street marketed derivatives to those with excess capital.
We also got the biggest crash since the Great Depression.
Perhaps the most dramatic measure of our emerging billionaire bailout society is seen by comparing compensation for the top 100 CEOs and to that of average workers (the 100 million or so non-supervisory production workers). In 1970 the ratio was 45 to 1. By 2006 it was 1,723 to one. (The Looting of America p.167)
Another critical feature of the billionaire bailout society is the creation of institutions that are too big to fail. Historically, our anti-trust division was supposed to prevent that. But it became another casualty of our grand deregulatory experiment. So financial institutions grew to the point where their failure would bring down our system. We tested that idea last fall when we let Lehman Brothers go under: It crashed global financial markets and moved us to the brink of a depression.
So in our billionaire bailout society we bail them out instead of breaking them up. We bail out all of them - not just the basket cases like A.I.G, Citigroup, GM etc. The popular media line is that once a financial institution repays TARP, it no longer is on government welfare. No so.
TARP is only one of the many government bailout programs that pours billions into the coffers of Goldman Sachs, JP Morgan Chase and, Morgan Stanley. Their bottom-lines and bonuses, for example, were fattened when we allowed A.I.G. to pay off its bets (with our money) at par value to these large financial institutions. Had A.I.G. gone under they all would have been on the edge of collapse.
As Joe Nocera put it in the New York Times :
So let's add it up: the $12.9 billion in A.I.G. help, the $10 billion in TARP, the F.D.I.C. guarantee program, the easy money trading distressed securities into the TALF program. I can't say for sure how much of the $16 billion the firm has set aside for bonuses can be attributed to government assistance of one form or another. But it's got to be a fairly substantial amount -- at least $2 billion or $3 billion.
Perhaps the most damaging feature of our billionaire bailout society is the "jobless recovery." This oxymoron refers to an economy that is growing, but that can't produce nearly enough jobs to reach full employment (an unemployment rate below 5 percent). Our current jobless recovery will be the worst ever. Right now the BLS (U6) jobless rate stands at 17.0 percent -- and climbing. (This counts those without work plus those who have part-time jobs because they can't find full-time work.) If the billionaire bailout society becomes permanent, we may never see full employment again.
Why is that? Because you don't need a full employment society to mint billionaires. Reflect for a moment on Goldman Sachs. They do not have individual depositors. They are not public brokers. They do not make loans to small business. They are in the business of making money by playing the financial markets, from mergers and acquisitions, from trading, and from creating and selling fantasy finance instruments.
In our billionaire bailout society these are unquestioned positive activities. But what value do they produce in the real economy? What is their contribution to market efficiency? How do they lower the cost of capital? How do these activities create jobs in the real economy? Good luck answering those questions because they don't do any of that. They just make money for themselves while producing little or no value to our society.
It's obvious we need to break up these large institutions so that we won't have to bail them out the next time around -- which may come sooner than expected given the lack of jobs and the fact that the financial casino is open again.
But we can't solve the bailouts without addressing the billionaire part of the equation.
Two years ago the richest 400 Americans had a combined wealth of $1.57 trillion. Last year during the crash their wealth dropped to "only" $1.27 trillion. Now they are set to rise again. We need to tie their wealth of our richest to putting our people back to work.
Here's the simplest and most controversial approach: a 10 percent wealth tax on all those with more than $500 million -- until unemployment drops below 5 percent. The money collected would come to about $150 billion a year. That money should be directly invested in public works programs to put our people to work -- a Green Corps to weatherize every home and office in the country -- a Youth Corps to provide work for unemployed high school and college graduates.
(I realize that many Americans detest the idea of taxing anyone's assets, even billionaires'. But let's be realistic: That's where our society's wealth has gone and we need that wealth to put people back to work. Some billionaires do create large numbers of jobs, but not enough. They can contribute more and not feel a bit of pain or suffering.)
To break away from the billionaire bailout society we need to tie the creation of wealth to the creation of work. We no longer have a system that can produce an adequate number of jobs through the normal working of the business cycle. The invisible hand of the market just won't do it. That's why it's called a jobless recovery. We need direct intervention.
But more importantly, we need to end our pell-mell slide into the billionaire bailout society in which everyone is out for themselves. We need to pull together to create a full employment society that can tackle our most pressing needs. Billionaires, no matter how thoughtful, kind, generous and inventive, can't do that for us.
We once understood that the common good required full employment. We once understood that the common good was more precious than individual riches. We once believed that public service to achieve such goals was a high calling. I hope that spirit still lies within us.
Les Leopold is the author of The Looting of America: How Wall Street's Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It, Chelsea Green Publishing, June 2009.
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