on temporary contracts.49)
When asked whether class war existed, billionaire investor Warren Buffett said: “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.”50
Explosion of Debt and Speculation
One of the prominent features of contemporary capitalism has been growth of the financial portion of the economy. As it became more difficult to profit by making and selling commodities, capital began to flow to the financial system; banks and non-bank lenders, investment companies, and insurance companies. Why not just make money without actually making a commodity? As commodity production (M–C–M′) became financial wizardry (M–M′), an expansion of debt and an orgy of speculation followed. With real wages falling, much of the growth of the economy in the developed countries during the last forty years was accomplished through debt expansion, allowing people and companies to spend much more than they actually have: total debt in the United States (government, household, and business) swelled to around 150 percent of GDP in the mid-1980s and reached a peak of over 360 percent of GDP during the Great Recession (2007–2009). There has been an explosion of easy credit—for automobiles, home mortgages, college education, and credit cards that can buy anything—greatly expanding consumption and thereby stimulating the economy.51
The sheer magnitude of speculation and accumulated debt and the size of the housing bubble that occurred leading up to the Great Recession were staggering.52 A good portion of the financial system was converted into a giant casino where bets could be made on just about anything, such as changes in relative currency values, the price of corn, oil, or interest rates at some time in the future, or concocted financial “instruments” so complex no one really understood them. Though there has been a retreat in total debt in the United States relative to GDP (standing at about 330 percent in mid-2016), total debt of the major economies as a whole has continued to grow since 2009. According to a 2016 article in the Financial Times: “Since 2008, total public and private debt in major economies has increased by over $60tn to more than $200tn, about 300 per cent of global gross domestic product (GDP), an increase of more than 20 percentage points.”53
The importance of debt is that it allows a person or company or government to buy and do things that they would otherwise not be able to do, thereby stimulating the economic activity. But, though there is no firm boundary of how much debt there can be in an economy, the system becomes increasingly fragile as debt increases relative to the underlying economy (GDP). And personal debt can grow relative to one’s income until it reaches a level where it becomes increasingly difficult to pay the money back. That’s what happened to many households in the lead-up to the Great Recession of 2007–2009. Although the very rapid growth that occurred in China during the first fifteen years of the twenty-first century was certainly impressive, much was based on economic activity stimulated by borrowing by individuals, local and regional governments, and commercial enterprises. Many are now concerned that the debt and asset bubbles in everything from housing to stocks to raw materials (stimulated by massive amounts of debt) cannot be sustained and that difficulties lie ahead for China’s economy, with potential global repercussions.
Speculation occurs on an international scale, with literally trillions of dollars sloshing around the world, seeking higher returns first in the poorer (“developing”) countries and then in the wealthier ones, depending on relative interest rates and currency values. This is how financial instability is exported, with crises developing when vast quantities of money quickly move out of a country as investors and speculators seek safety and/or higher returns.
More Wealth, More Inequality
Neoliberal economic and political policies and the growth of the financial industry have dramatically increased inequality in many countries of the world, including the United States. In 2015, total global wealth was $250 trillion—over three times the total global GDP of $73 trillion (2014).54 But 10 percent of the population owned 87 percent of that wealth (see Figure 2.1) and the richest 1 percent owned half. Conversely, 70 percent of the population owned less than 3 percent of global wealth.55
Figure 2.1 Percent of total global wealth ownership by decile (10 percent portions of the population).
Source: Credit Suisse Global Wealth Databook 2015.
Income distribution, though very unequal, tends to be less so than wealth ownership. Income inequality decreased during the Great Depression, and again in the 1950s and 1960s, when many workers were members of strong unions that helped obtain significant wage increases. But that didn’t last: in the mid-2010s, the top 10 percent in the United States received about half of all income—a share last seen in the 1920s. At the same time, the top 1 percent increased their income share from around 10 percent to over 20 percent of all income.56 During nearly four decades, through 2015, as income of the rich and its portion of total income was skyrocketing, the adjusted income of the bottom half of the U.S. population actually declined by 1 percent.57
In the United States inequality by race is even greater, with white homeownership rates at about 72 percent whereas only 42 percent of African Americans owned their own homes. The median wealth of African American households is only about 8 percent that of white households.58 And of course women still earn only 78 cents for every dollar earned by men in similar jobs and suffer a host of other problems in a society organized to perpetuate gender inequality.
The vast inequalities experienced by large portions of the world’s people are not a result of fate, or technological change, automation, population growth, lack of education, or any of the other random factors trotted out to explain income and wealth inequality. Economic inequality is a reflection of the inequality of power between workers and capital built into the system. In its pursuit of perpetual profits and growth, capitalism guarantees that incredible amounts of wealth flow to a small portion of the population while the poor and near-poor are deprived of the resources needed to live full lives. Capitalism has no mechanism to rationally manage the human interaction with resources or promote the general social well-being.
Some of the harmful social effects today result from capitalism’s history of slavery and colonization, land theft and marginalization of native peoples, and imperialist interventions. Decades of stagnant or falling wages, increased pressure on the job to do more with less, and more insecure, temporary, and part-time work have also taken their toll on working people in many countries.59
Part of the explanation for the election of Donald Trump as President of the United States and the UK’s decision to “Brexit” the European Union occurring at the same historic moment is that a significant portion of the working class in these countries justifiably feels that their economic situation is stagnant or getting worse while others enrich themselves. They are aware that this system is unfair with very unbalanced wealth and power. However, not understanding the causes of their predicament, and in the face of showmanship and propaganda playing to their fears, many end up voting for people who will make the situation even more unjust.
At the same time as challenges to neoliberal orthodoxy are occurring, the declining power of the United States to control or even greatly influence events around the world introduces another level of global instability. There is significant dissatisfaction and anger in the European Union with neoliberal policies adopted by center-left governments, with questions arising about more countries withdrawing from the European Union or dropping use of the euro. Across the world people are struggling against the declining quality of life.
The primacy of private profits, a result of the basic way capitalism functions, creates social and ecological dislocation and degradation all around us. The next two chapters explore the consequences of this economic system for the environment and humanity.