Commentators are prone to blame the sub-prime lending crisis for the current meltdown in the American financial system. No doubt it is the proximate cause. But there is a much deeper cancer that underlies the current crisis and the eight year long stagnation of American incomes: a massive increase in the concentration of wealth.
The now famous post bail-out AIG spa retreat has served to focus public outrage over the sense of entitlement that Wall Street's "Masters of the Universe" seem to have when it comes to claiming their "share of the pie." Voters were infuriated that after the taxpayers reached into their jeans and provided an $85 billion bailout, a group of top executives and salesmen saw fit to spend $443,000 of company money being wined, dined and massaged at the expensive St. Regis Monarch Beach resort in California.
The stories about this episode also served to highlight what we really mean by the "increased concentration of wealth." Joseph Cassano AIG's financial products manager -- whose complex investments helped lead to AIG's near collapse -- receives $1 million per month in consulting fees. That's right, Cassano makes more in one month than a normal family making a good income of $100,000 annually brings home in 10 years.
And Cassano's just a piker when it comes to the CEO's of many American Corporations. CEO's of America's largest corporations (The Fortune 100) make an average of $17.6 million per year. That is $67,692 per day or approximately $8,461 per hour.
Before they break for lunch on the first work day next January, these CEO's will earn more than their minimum wage workers will earn all year.
Why does all of this matter to the overall economy? The bottom line is that the top two percent of the population has managed to siphon off all of America's economic growth over the last eight years. Real income for average Americans has dropped while the share of wealth and income controlled by the elite few has exploded.
The problem is that this can't go on forever. All of those average Americans are the customers that have to buy the products and services made by the companies those CEO's manage. For a time, consumers could keep buying -- using their credit cards or borrowing on the inflating equity in their homes that resulted from the real estate bubble. But after while the house of cards had to collapse.
Of course we've been here before. Just before the Great Depression the top 1% of the population owned almost 40% of the nation's wealth. In 1929 the economy collapsed along with it the right wing notion that we should leave the fate of our economy to an "invisible hand" that would "invariably" convert the greed of the few into the public good.
The New York Times' Paul Krugman has chronicled what happened next. After the collapse came the great compression between 1929 and 1947. Real wages for workers in manufacturing rose 67% while real income for the richest 1% of Americans fell 17%. This period marked the birth of the American middle class. Two major forces drove these trends -- unionization of major manufacturing sectors, and the public policies of the New Deal.
Then came the postwar boom 1947 to 1973. Real wages rose 81% and the income of the richest 1% rose 38%. Growth was widely shared, and income inequality continued to drop.
From 1973 to 1980, everyone lost ground. Real wages fell 3% and income for the richest 1% fell 4%. The oil shocks, and the dramatic slowdown in economic growth in developing nations, took their toll on America and the world economy.
Then came what Krugman calls "the New Gilded Age." Beginning in 1980, there were big gains at the very top. The tax policies of the Reagan administration magnified income redistribution. Between 1980 and 2004, real wages in manufacturing fell 1%, while real income of the richest one percent rose 135%.
According to Federal reports, by 2006 the top 1% of the population once again owned almost 34% of the nation's wealth -- more than all of the Americans in the bottom 90% of the population combined. Together the top 5% controlled almost two thirds of the wealth in America -- including 88% of the nation's business assets and almost 80% of the value of stocks.
The wealthiest Americans often try to justify their disproportionate share of wealth and income by saying that they make a disproportionate contribution to the economy. That, of course, is simply baloney -- particularly when it comes to Wall Street.
Wall Street traders are basically engaged in very sophisticated gambling. They often claim that they are "allocating risk." In fact, of late they have been allowed by the Bush-McCain economic policies to engage in such risky behavior that they have endangered us all. They don't create wealth. Wealth is created through productive activity -- by manipulating the physical world or the world of information to enable people to achieve their goals. The people who create wealth are the people who build houses, or grow food, or craft computer programs, or train young minds, or transport us from Chicago to Kansas City.
The increasing dominance of the financial sector in the American economy has meant that economic decisions have increasingly been guided by the desire of Wall Street types to win speculative games rather than increase productivity and widely shared economic growth. The creation of complex derivatives that sliced and diced mortgage securities was driven by the imperative to sell more and more financial instruments that would generate the "golden crumbs" that Wall Street investment firms shave off every transaction -- and the highly leveraged speculative bonanzas that make them into billionaires.
Their decisions lead to the creation of a speculative bubble that has collapsed and left economic disaster in its wake.
In the short term it is critical to staunch the bleeding and protect the pension funds, home values, and jobs of everyday Americans. But to cure the disease we need to return to a bottom up economic policy and encourages higher wages for average Americans and broadly shared economic growth. That will mean enacting tax policies that put money into the hands of the middle class and requires that the wealthy pay their fair share. It will require that we pass the Employee Free Choice Act that will make it easier to workers to organize and bargain with employers. It will require that we relearn the lesson that the "invisible hand" is not infallible -- that markets need rules, regulation and transparency or they inevitably veer into speculative excess. And most of all it will require that we make a national priority of reducing the inequality of wealth and power and recommit our country to fulfilling America's promise of becoming a truly democratic society.
Robert Creamer is a long-time political organizer and strategist and author of the recent book: "Stand Up Straight: How Progressives Can Win," available on amazon.com.