Plutonomy update: “middle-class serfdom”
from Edward Fullbrook
The middle classes, including nearly all economists, continue to prefer not to talk about plutonomy nor even admit its existence. But among themselves the hyper rich are not so inhibited and so occasionally, as with the notorious Citigroup plutonomy reports, their analyses leak to us 99 percent.
Two such leaks are reported in a short article by Timothy Noah in the October 6th issue of The New Republic. He quotes Michael Cembalest, the chief investment officer of JPMorgan Chase, who
wrote in July of this year (in a clients-only newsletter obtained by Washington Post columnist Harold Meyerson) that “profit margins have reached levels not seen in decades,” and “reductions in wages and benefits explain the majority of the net improvement.” (Cembalest printed the latter quote in boldfaced lettering.) “US labor compensation,” he explained, “is now at a 50-year low relative to both company sales and US GDP.”
Noah also has quotes Dan Alpert, managing partner of theNew Yorkinvestment bank Westwood Capital.
Once upon a time, Alpert explains, American capitalists paid American laborers with something called a “salary.” Henry Ford famously boosted his workers’ pay to $5 a day so they could buy the Model Ts they were assembling. The better part of a century passed, and, by the early aughts, globalization had created a world oversupply of free-market labor—a hiring hall now housing about 2.6 billion recruits from emerging nations, together with roughly 550 million in the developed world. It no longer made financial sense to pay American workers high wages when you could pay Chinese workers low wages to do the same work. On the other hand, if American workers lost their spending power, who would keep the U.S.economy afloat?
The rise of cheap credit provided the answer. American labor effectively got paid in a different currency: debt. Instead of Model Ts, the latter-day working class bought overpriced houses and all sorts of other stuff it couldn’t afford. The beauty for the capitalists was that, when laborers got paid with debt, they had to pay it back with interest. Alpert calls it “middle-class serfdom.”
Noah’s article “Brooks Brothers Bolshevism: Wall Street discovers income inequality” is behind a paywall, but I accessed it for free at http://dispatches.us/post/10483612514/must-read-brooks-brothers-bolshevism