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Tale of two countries

from David Ruccio

countries

This semester, we’re teaching A Tale of Two Depressions, a course designed as a comparison of the first and second Great Depressions in the United States. And one of the themes of the course is that, in considering the conditions and consequences of the two depressions, we’re talking about a tale of two countries.

As it turns out, the tale of two countries may be even more true in the case of the most recent crises of capitalism. That’s because the two countries were growing apart in the decades leading up to the crash—and the gap has continued growing afterward. 

It seems we learned even less than we thought about the first Great Depression. Or maybe those at the top learned even more.

As Thomas Piketty, Emmanuel Saez, and Gabriel Zucman remind us,

Because the pre-tax incomes of the bottom 50% stagnated while average national income per adult grew, the share of national income earned by the bottom 50% collapsed from 20% in 1980 to 12.5% in 2014. Over the same period, the share of incomes going to the top 1% surged from 10.7% in 1980 to 20.2% in 2014.

What is clear from the data illustrated in the chart at the top of the post, these two income groups basically switched their income shares, with about 8 points of national income transferred from the bottom 50 percent to the top 1 percent.

groups

The consequence is that the bottom half of the income distribution in the United States has been completely shut off from economic growth since the 1970s. From 1980 to 2014, average national income per adult grew by 61 percent in the United States, yet the average pre-tax income of the bottom 50 percent of individual income earners stagnated at about $16,000 per adult after adjusting for inflation, which barely registers on the chart above. In contrast, income skyrocketed at the top of the income distribution, rising 205 percent for the top 1%, 321 percent for the top 0.01%, and 636 percent for the top 0.001%.

Clearly, “an economy that fails to deliver growth for half of its people for an entire generation”—and, I would add, distributes the growth that has occurred to a tiny group at the top—”is bound to generate discontent with the status quo and a rejection of establishment politics.”

  1. April 6, 2017 at 8:50 pm

    The top graph is a good one. One think that concerns me about calling the post 2008 period a Depression is it hides how bad things can really get if we actually go fully into a 1929-style depression. For the 2000-2003 bear market to have been as bad as the 1929 bear market, after dropping 70% it would have had to drop *another* 70%. Now, for only the third time in history after 1920-1932 and 2000-2006 (I am ignoring a minor Eisenhower blip), Red is controlling all three elected bodies in the US. If Republicans continue to hold all three for the next decade, a 1929-style depression is extremely likely.

    • April 7, 2017 at 2:53 am

      The idea that republicans are the only ones who cannot see that capitalist free lunch on Earth is over is a bit naive, I think.

      • April 12, 2017 at 4:04 pm

        “The idea that republicans are the only ones who cannot see that capitalist free lunch on Earth is over is a bit naive, I think.”

        Perspective is required here. Hillary Clinton is an Eisenhower Republican and Modern Republicans didn’t exist in the 1950s. On the other hand, if you ignore the issues of trade and gold, a modern Republican would have felt like Calvin Coolidge’s or Warren Harding’s twin brother. The closest thing we have today to the type of politician that was a large majority in the 1930s and 1940s (after 1933) is “Berniecrat”.

        This is the Kondratiev cycle – The selfish in society get more and more control for about 80 years and then society goes through a major crisis, followed by a generation of “doing things right” because first-hand experience trumps propaganda and wedge issues.

        And the Capitalist free lunch is not over. We can solve most of the problems in society with veganism, which has grown from .5% to over 2% in the US in the last decade. This is really orthogonal to the issue of economic growth, as even slow economic growth takes us into crisis and fast economic growth can take us into ecological balance via sustainable development.

  2. patrick newman
    April 7, 2017 at 10:33 am

    Corporations have ‘achieved’ this through their incredibly methodical manipulation of the product, services and jobs market aided by anti trade union laws and propaganda. Their increasing dominance of the economy and politics is a nascent totalitarianism.

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