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Our Political Economy Is Designed to Create Poverty and Inequality
Poverty is not an abstraction. People wear it on their faces, carry it on their backs as a constant companion-and it is heavy.
Let me begin by sharing with you the story of an inner-city Cleveland family of seven, two adults and five children all under the age of 11.
The family did not own a home. They were renters. As the family grew, it became ever more difficult to find rent. At one point the old car in which they roamed the city in search of rent became their living quarters. Evenings, the father and mother and a newborn slept in the car’s front seat, and the four other children, in the back.
They found rent by understating the number of children, which, when discovered, led to eviction and the same cycle of wandering as urban nomads. The father, a truck driver, had a war-related injury that occasionally required medical treatment, taking him out of work. Bills piled up, which led to garnishments. The mother suffered from post-partum depression, compounded by noisy, rambunctious children.
The children were sometimes out of school, as the family did not know where its next shelter or its next meal would come from.
This inner-city family lived in 21 different places in 17 years, including a couple of cars.
When we gather today to speak of poverty and inequality, I understand, because I was the oldest child in that inner-city family, which grew to nine persons, a family that was riveted to a day-to-day struggle to survive.
Ours was an intense experience of poverty and inequality that led to social disorganization, chronic instability that made daunting every encounter with every institution in a society, instability that created severe emotional difficulties in four of the seven children. Poverty and its partner chaos can play on people’s minds.
One of my most powerful memories was of listening to the sound of my parents’ counting pennies to pay utility bills. “Click, click, click,” I could hear the pennies drop, one by one, as they hit the metal top table.
Today I can hear those pennies dropping all over America for families not able to scrape together the cash to pay their bills, families who lack adequate housing, families who do not have adequate health care, families trying to raise children in a chaotic urban environment, families who truly do not know where their next meal will come.
In America today there are tens of millions of people with a hard-luck story. Tens of millions out of work, in ill health, in search of affordable rent, having neither a place nor a home to call their own; millions of people for whom, as Langston Hughes put it, life “ain’t been no crystal stair.”
No one who escapes such an environment physically or economically does it alone. There are teachers, coaches, doctors, lawyers, aunts, uncles, neighbors who appear as angels in our lives, who catch us when we are about to fall, who lift us up at the right moment, who show us a different path, who guide us in a new direction, who transport us to new possibilities, new futures.
But for every person upon whom fortune smiles, opportunity calls, and destiny stirs, there are many others for whom the future is obscured, for whom society is harsh, punitive, and unwelcoming.
I call these people my brothers and sisters, my cousins, my kinfolk who are ill-fed, ill-clothed, lacking in basic health care, working (if able) for low wages, hostages to debt, owning little, credit starved, renting if they can, and estranged from even rudimentary knowledge of wealth creation.
Poverty is not an abstraction. People wear it on their faces, carry it on their backs as a constant companion, and it is heavy.
Those of us acquainted with that condition often lack understanding of the nature of the material world, and, since access to material wealth seems random, are prey to the notion about wealth preached ironically by the Pardoner in The Canterbury Tales, “Radix malorum est cupiditas,” ‘The love of money is the root of all evil.”
One does not need to have taken a vow of poverty to be poor, one needs only the unconscious or conscious acceptance of the underlying precepts of a class-based society, the meek acceptance of a doctrine of predestination, the assumption of one’s status as merited and the acceptance of a political economy that equates one’s personal wealth with one’s innate value as a human being, while the so-called invisible hand of the marketplace quietly dips into the public till, and “moral hazard” is a polite term for theft.
All are created equal, indeed, but all do not have the same access to privilege, nor the same friends inside the government or financial centers of power, nor the same accountants.
Our reality is socially constructed and culturally affirmed. We have come to accept a system of things as inevitable without challenging the assumptions upon which a system is based.
Where does money come from? How is it made?
Before answering that question, let me state the obvious: Our political economy is structured to create poverty and inequality.
Nineteen of every 20 dollars of new wealth created goes to the top 1 percent. The top 1 percent has more wealth than the bottom 90 percent.
This cataclysm for our democracy was accelerated with the subprime meltdown of a decade ago.
According to the National Center for Policy Analysis, as many as 10 million families lost their homes to foreclosure during the housing crisis, and as a result had to move, in some cases resulting in a resegregation of city neighborhoods.
During this period, the Federal Reserve created trillions of dollars and gave them to banks, while Congress authorized $700 billion to bail out banks, without passing a program to make sure that the masses of people underwater in their mortgages or those caught up in no-doc low-doc schemes would have a chance to hold onto their homes.
Meanwhile, one of the few investments held by the middle class, home equity, plummeted as housing values sank in many city neighborhoods.
Much of America has not recovered from the carnival of financial corruption of a decade ago-except for the finance economy, of course.
For those barely holding on to middle-class status, the median income for a four-person family is just over $54,000. Yet the average US household owes more than $16,000 to credit card companies, $172,806 on its mortgage, $28,535 on its car and $49,042 in student loans.
Health-care consumes about 17.8 percent of America’s GDP, or three trillion two hundred billion dollars. The Kaiser Foundation reports that the average month premiums for family coverage in 2016 is $1,511 a month, or $18,132 a year.
The country is held hostage by insurance companies, while politicians wrangle over what is the best system of predatory for-profit health care, as pharmaceutical companies receive near-unlimited patent extension and public funding for 84 percent of new drug research, yet price their products out of the reach of millions of Americans, while their stocks perform at twice the Standard and Poors stock index.
The health-care industry is not the only institution casting Americans into poverty. The average family of four sees some $13,200 a year of its collective wealth deposited into America’s largest piggy bank, the Pentagon, which, according to noted economist Chalmers Johnson, now siphons off about a trillion dollars annually from all sources to prosecute several wars simultaneously, while managing nearly 800 military bases in 130 countries, this while never successfully completing an audit and having trillions in accounts that cannot be reconciled.
Martin Luther King Jr. said, “A nation that continues year after year to spend more money on military defense than on programs of social uplift is approaching spiritual doom.”
The cost of the war against Iraq, alone, adds $3 trillion to the national debt while bolstering the bi-party line that there simply is not enough money to meet domestic needs. Families have no reserves. More and more people are tethered to low-paying jobs, with few, if any benefits. Jobs are not there for young people coming out of school. The burden of debt, its extractive nature, forces survivors to borrow and borrow and borrow, to go deeper in debt.
In biblical times there was debt jubilee. Today we have not a jubilee but debt peonage for many, with a national debt compounded by environmental disasters, military misadventures, and Wall Street bailouts, and seldom suffered by those who helped to create it.
The bailout of Wall Street, the utter neglect of Main Street, the collapse of the housing market, the obscene escalation of the cost of private health care, the metastatic cancerous military leviathan point to a massive ethical failure in a society where egalitarian principles have been discarded in favor of a warped, Darwinian, meritocratic society built by gamblers insured by the government, insurance companies subsidized by the government, defense contractors made extravagantly rich by the government, banks that forced people out of their homes and were then bailed out by the government.
Growing poverty and inequality in America and other countries can be tied to a dismantling of the public sphere through the privatization of public services, which imposes the rentier’s premium on parking meters, toll booths, waste and sanitation services, water and sewer fees, and health care, to name a few.
In urban areas privatization looms as a major economic issue. People, through taxes, fees and utility rates, pay once for public services to be created. Once services are privatized, the public is forced to pay again and again, at higher rates, for less service.
The public is told that money is saved. Whose? Wages are cut, services are reduced, increased rates and fees follow. The loss of public accountability and political control shifts onto the public as increased economic burdens and the social and economic costs borne by displaced public workers.
In such a climate, unions are under attack, since they exist to promote economic justice. The right to organize, the right to collective bargaining, the right to strike, the right to decent wages and benefits, the right to a secure retirement, the right to sue an employer for maintaining an unsafe work place, all these rights and more are at risk. Labor unions helped to build economic equality. Their demise means less bargaining power for all American workers.
The ability to bargain collectively is essential in a democratic society, for upholding opportunities for advancement.
A recent article in The Atlantic estimates that “$1 trillion of America’s $6 trillion in annual federal, state and local government spending goes to private companies.”
A few examples are instructive. In Chicago an investigation showed that the city received $974 million less than the parking-meter franchise was worth.
Forty years ago, I was elected mayor of Cleveland, a city of 700,000, on a commitment to block the privatization of an electrical system which was worth at least a quarter of a billion dollars and was to be sold for $88.1 million, a scheme promoted by the state’s largest bank, a business partner of the private utility seeking to acquire the city’s division of light and power.
When I refused to sell the system, the bank forced the city into default over $5 million in debt, taken out by my predecessor. Subsequently, its municipal electric system intact, the people of Cleveland saved as much as a half-billion in combined charges for taxes and electricity bills.
Tom Johnson, mayor of the City of Cleveland at the turn of the 20th century, disciple of social reformer and progressive economist Henry George, brought to Cleveland the cheapest streetcar fares and the lowest-cost electricity through public ownership.
He once said, “I believe in municipal ownership of waterworks, of parks, of schools. I believe in the municipal ownership of these monopolies because if you do not own them, they in turn, will own you. They will rule your politics, corrupt your institutions and finally destroy your liberties.”
The ultimate privatization that reframed the entire of our economic and social system and set the stage for a permanent debt mentality occurred in 1913, when the money supply of the United States was privatized through the creation of the Federal Reserve.
Prior to the passage of the Federal Reserve Act, the US Constitution, Article 1, Section 8, placed the power to coin or create money with the United States Congress. That changed under the Federal Reserve. Central banks took over control of the money supply.
From that point on, money equaled debt. The Federal Reserve usurped the power of the government to spend money into circulation and assumed for central banks the power to create money out of nothing, a device called quantitative easing, and give it to their member banks.
In Cleveland, the banks focused a profit-taking scheme on lower-income black and white neighborhoods, touting low-documentation and no-documentation loans, which were bundled into securities and became the collateralized-debt obligations that collapsed and pulled the entire economy down 10 years ago.
It was all fraud, and it was underwritten by the never-audited Federal Reserve, the erstwhile cop who walked off the beat when the pinstripe-wearing robbers were casing the neighborhoods of our cities, bankers cum croupiers, trolling for unsuspecting dreamers in search of that elusive first home, or an upgraded second home, not really knowing about adjustable rates, balloon mortgages, and penalties attached to late payments, but trusting the assurances of their friendly banker, who suddenly reversed years of redlining policies and made loans available without proof of ability to repay.
When you are desperate for a home, you sign on the dotted line. I think back to my parents, who never owned a home, and I can tell you that, if given the offer extended to thousand in Cleveland’s neighborhoods, they would have signed on the dotted line, taken the keys, celebrated, and months later been devastated by foreclosure.
The privatization of the money supply is one of five major factors in poverty and inequality today, the other four being the emergence of the military-industrial-intelligence-congressional complex, the maintenance of the for-profit health-care system, and the erosion of public education through the creation of charter schools and the tremendous lifelong debt burden placed on those seeking higher education.
Today we face a renewed threat of privatization that could dramatically thrust the American people deeper into poverty. The privatization of Medicare will make health services inaccessible to millions of elderly. The privatization of Social Security would cause the jackpot lights to flash and spin at Wall Street’s casino as retirees check stock advances, declines, and unchanged to discern what the value of the monthly check will be when it arrives at the mailbox.
The planned privatization of the Post Office will mean the end of universal service, less rural delivery, higher costs pricing people out of basic mail service, and cuts to three-days-a-week delivery.
The prison-industrial complex is set for growth with privatization schemes that raise serious constitutional questions.
More and more military services are being privatized, which of course makes for an additional incentive for businesses to support wars and to support the politicians who vote for wars.
As the national debt rises toward $20 trillion, the debate intensifies over privatization of Medicare, Social Security, the Post Office, and government service at all levels, a practice that steals the commonwealth and institutionalizes poverty and inequality as wealth accelerates upwards, furthering economic divisions and erasing the cultural memory of public service, devouring the civic soul, once the animating principle of community, the spirit breath of participatory democracy.
As wealth accelerates upwards, the mass of people are told we cannot afford a living wage, cannot afford a full-employment economy, cannot afford universal pre-K, cannot afford school breakfast and lunch programs, cannot afford supplementary-nutrition programs, cannot afford women’s and infant-care assistance, cannot afford more adult education, cannot afford free public college and universities, cannot afford guaranteed retirement security, cannot afford Medicare for all, cannot afford a guaranteed annual income. We are constantly told that the country cannot do these things because it would add to the debt, or destroy individual initiative.
Let me tell you that we can reverse this entire system. Thanks to my wife, Elizabeth, who came to the United States to study monetary policy with Stephen Zarlenga of the American Monetary Institute, I began to explore the equation of money with debt, and the ways of the Central bank that create money out of nothing for the benefit of private banking through quantitative easing and another device known to the industry as fractional reserve banking and recognized by the rest of society as great moral hazard.
As a result of studying the structure of the system, as a member of Congress, I drafted the National Emergency Employment Defense act, which reclaims the power appropriated by the Federal Reserve through the Federal Reserve Act of 1913 and enables the government to issue money debt-free to meet the job creation, infrastructure repair, health care, education, and retirement-security needs of Americans.
Some believe that such a system would be inflationary. Then let me ask: Why has the Federal Reserve created trillions of dollars and placed us in a deflationary period? The middle class does not have enough money to buy goods.
The consumer economy is stalled. The Fed-created money did not get into the right hands. How is it that 19 of 20 new dollars of increased income have gone to the top 1 percent? Really? It is because the system is engineered to transfer wealth upwards, a perpetual inequality machine.
Through reclaiming our constitutional heritage, we can lower taxes and have a full-employment economy, universal pre-kindergarten, school breakfast and lunch programs, full funding for public education K-12, free college and university, guaranteed retirement security, Medicare for All, and a guaranteed annual income, eliminating poverty.
This is not magic. It requires a shift in federal policy, away from private banks’ running the economy, solely in the interest of private banks, to the government’s reclaiming its ability to be able to spend money into existence to meet the needs of the country, without going into debt.
Private banking would continue through dollar-for-dollar reserves, and have to survive without its government-granted license to speculate.
The government could reduce taxes, increase productivity, enable America to reach new heights of wealth shared by all, or we can stumble along our present course, with the children of the 99 percent being indentured servants to the 1 percent, with more than 50 million in poverty while political parties tinker with a totally corrupt system en route to death on the installment plan institutionalized by a government in thrall to banks, insurance companies, and the military-industrial complex.
Imagine an America whose government was not prepossessed with military force projection around the world, a government that set aside failed doctrines of interventionism, unilateralism, and first strike to concentrate on the practical needs of its citizens for jobs, for health care, for housing, for education, for retirement security, for safe neighborhoods, for clean air and clean water; a government that derived its support not from the power of its armaments but from the power of its commitment to the humanity of its citizens.
Abraham Lincoln spoke at Gettysburg of a nation, “conceived in liberty and dedicated to the proposition that all men are created equal.” The inner equality of our political heritage must be matched by our constant striving for economic justice.
If we have the intent, the vision, and the courage to reclaim the reality of equality, we can make poverty a thing of the past. Now, perhaps, you can understand that when I first began my public career, 50 years ago, as a candidate for City Council, I focused on economic issues, making sure phone, gas, electric, water, and sewer bills were kept low; that privatization schemes were rejected; that perishable foods were labeled and dated; that neighborhoods were safe, recreation facilities in repair, and the quality of life in the city was optimum, wherever it intersected with city services, especially the police, fire department, and housing.
Forty-five years ago, I advocated free public transit in Cleveland and was met with objections that, if transportation was free, why, everyone would be riding the bus!
Exactly.
Our Political Economy Is Designed to Create Poverty and Inequality
Throughout history, the best ways to reduce inequality have been disease and destruction
How do you solve a problem like inequality? Economic policymakers have been grappling with this for a long time, with varying degrees of urgency. The search for solutions has become increasingly serious since the 1980s, when inequality began rising again, recently reaching historic highs.
But the problem has been solved before.
After studying thousands of years of human history, Stanford professor Walter Scheidel identified four indisputable ways to reduce inequality: war, revolution, state collapse, and deadly pandemics. These “four horsemen,” as Scheidel dubs them in The Great Leveler: Violence and the History of Inequality from the Stone Age to the Twenty-First Century (Princeton University Press), have proven far more effective at reversing inequality than more peaceful efforts, like improving education, or non-violent shocks, like financial crises.
Today’s levels of inequality aren’t unprecedented, Scheidel notes. The share of income owned by the wealthiest Americans has only recently risen to levels last seen in 1929. In the UK, the richest 10% held more than 90% of all private wealth before the First World War; today, it’s a little more than half.
This suggests that the inequality seen today has the scope to become far more extreme. Globalization, aging populations, and immigration all contribute to inequality by diverting public services away from redistributive policies. What’s more, new technologies and widespread automation will further widen the gulf between high-skilled and low-skilled workers.
Addressing the high levels of inequality in the US, UK, and elsewhere requires radical policy changes, Scheidel says. And the only time those policies led to a meaningful “leveling” in the past was in the aftermath of catastrophes.
Scheidel spoke to Quartz from New York about the long history of inequality. The conversation has been edited and condensed.
Quartz: Past periods of reduced inequality were preceded by catastrophe. How does something so destructive-the “four horsemen” you describe in the book-produce anything positive?
Scheidel: The first one is mass-mobilization warfare and the classic examples are World War One and World War Two. A very large share of the population got drafted into military service, while the civilian labor force also became fully mobilized for the war effort.
A strong nation state was needed to organize the war effort and tax rates went up to extremely high levels on the rich-90% in some cases-to pay for it. Capital lost value because of government interventions and physical destruction, particularly in Europe. Meanwhile, there’s massive redistribution to workers. Then there’s the knock on effects on democracy. Voting rights, membership in trade unions, etcetera. All these things really surged around these wars because governments have to offer the people something in return.
The second, in a sense, is a no brainer: it’s transformative revolution. If you are Lenin or Mao and you go out in Russia or China and expropriate all the rich, often killing them in the process, and nationalize everything, you plan an economy where you set all the wages and all the prices. That’s an extremely invasive process but if you are only interested in equality that’s a very quick way of doing it.
And the others?
The other two are more common in the distant past: state collapse and epidemics. State failure is an even less desirable way of leveling compared to the others because everyone is objectively poorer-it’s just the differences are wiped out. When the Romans incorporated Britain into their empire there was a massive increase in inequality, but then it falls apart in the 5th century. The Anglo-Saxons come in and all of a sudden you are back to where you were before.
Finally, there are massive epidemics that sweep in and kill a really large share of the population, like the Black Death in medieval Europe. It doesn’t destroy the physical infrastructure-the land or capital-so there is a fundamental reset in the value of labor. Workers can ask for higher wages and the employers’-the capitalists’-assets lose value.
Could any of these can happen again now, and have a similar impact on inequality?
Thanks to technological change, the style of warfare has really moved on. Instead of intense mobilizations that were possible 50 or 100 years ago, you’d have a quick, high-tech war. It could be very expensive and disruptive but it wouldn’t necessarily produce the same effects on inequality. Overall, the whole world has become more peaceful for any number of reasons. The same is true for transformative revolution. Most people have little desire to repeat what happened in the big communist countries earlier in the 20th century.
Could we see revolution coming from populist movements on the right instead?
They would be more bourgeois; it wouldn’t necessarily be overtly redistributive. You could give the example of the Nazi takeover or revolution but, there was no real interest in bringing about greater equality beyond the rhetoric.
Massive epidemics, though, still seem possible, after Ebola, Zika, and with general fears of biological warfare.
Plagues worked really well in an agrarian society, but modern economies are so interconnected and sophisticated that if you randomly killed just 10% of all people it might cause real damage and destabilize the entire system. But it wouldn’t necessarily have the same distributional effect for workers as it has in the past. One option that exists now that didn’t in the past is more automation. If there was a big plague you’d build more robots and you might have more inequality in the long run.
So if these four ways have historically been the only effective means of reducing inequality, and they are both undesirable and less “effective” than they once were, where do we go from here?
That’s exactly the question. Today people like Trump in the US and populists in Europe say, to various degrees, “look what things were like 40 years ago, let’s make sure we go back to that.” They are implicitly going back to this post-war period when you had economic growth, an expanding middle class, low inequality, and everything was great. And it’s true, it’s a very desirable state of affairs. But look at the policies, the taxes and tariffs, and unions. All this arose in a very specific context. Policymakers, advocates, and academics have to think harder to develop more noble ways to reduce inequality that might work today.
Has anyone come up with policies that are both effective and realistic?
In the US and UK inequality has risen so much that policies which could be implemented would only produce improvements at the margins. Famously, the late Tony Atkinson wrote a book-Inequality: What Can Be Done?-and he tried to price the cost of these policies. He’s the only one I know who tried to do this in a careful way. It showed improvements are possible but only up to a point. The more radical measures become, the costlier they are and the less likely they will be implemented because of the politics.
How much worse can now inequality get, then, if there isn’t the political will or the financial resources to address it?
Inequality can’t go up indefinitely. There has to be some kind of limit-we just don’t know where it is. If you operate in a globalized economy where there are so many ways of obtaining resources from other countries, or parking your assets in other countries, then there is the potential for extreme inequality, especially at the very top of the distribution, like we haven’t seen before.
Your book suggests this extreme inequality could lead to a class of “superhumans.”
This hasn’t quite happened yet, but if you talk to geneticists we’re on that trajectory. It’s already well known that some of the boldest or ethically questionable experiments have been undertaken in East Asia, and there’s a great potential for that continuing. A couple of decades down the line and it might be possible for parents to create designer babies. If that were ever to happen, you could end up with an upper class that is genuinely different from everybody else. It doesn’t just have to be genetics; many people are working on implants that will enhance your capabilities.
I live in Silicon Valley, where all these people talk about living to be 1,000 years old. It’s probably not going to happen any time soon, but it shows that the will exists.
That’s a troubling future. I’m not surprised, given the subject of your book, but it seems like this interview won’t end on a hopeful note.
There is certainly room for hope, but what is unlikely to happen is a really substantial equalization, the way it happened earlier in the 20th century.
Throughout history, the best ways to reduce inequality have been disease and destruction
Our Political Economy Is Designed to Create Poverty and Inequality
Poverty is not an abstraction. People wear it on their faces, carry it on their backs as a constant companion-and it is heavy.
Let me begin by sharing with you the story of an inner-city Cleveland family of seven, two adults and five children all under the age of 11.
The family did not own a home. They were renters. As the family grew, it became ever more difficult to find rent. At one point the old car in which they roamed the city in search of rent became their living quarters. Evenings, the father and mother and a newborn slept in the car’s front seat, and the four other children, in the back.
They found rent by understating the number of children, which, when discovered, led to eviction and the same cycle of wandering as urban nomads. The father, a truck driver, had a war-related injury that occasionally required medical treatment, taking him out of work. Bills piled up, which led to garnishments. The mother suffered from post-partum depression, compounded by noisy, rambunctious children.
The children were sometimes out of school, as the family did not know where its next shelter or its next meal would come from.
This inner-city family lived in 21 different places in 17 years, including a couple of cars.
When we gather today to speak of poverty and inequality, I understand, because I was the oldest child in that inner-city family, which grew to nine persons, a family that was riveted to a day-to-day struggle to survive.
Ours was an intense experience of poverty and inequality that led to social disorganization, chronic instability that made daunting every encounter with every institution in a society, instability that created severe emotional difficulties in four of the seven children. Poverty and its partner chaos can play on people’s minds.
One of my most powerful memories was of listening to the sound of my parents’ counting pennies to pay utility bills. “Click, click, click,” I could hear the pennies drop, one by one, as they hit the metal top table.
Today I can hear those pennies dropping all over America for families not able to scrape together the cash to pay their bills, families who lack adequate housing, families who do not have adequate health care, families trying to raise children in a chaotic urban environment, families who truly do not know where their next meal will come.
In America today there are tens of millions of people with a hard-luck story. Tens of millions out of work, in ill health, in search of affordable rent, having neither a place nor a home to call their own; millions of people for whom, as Langston Hughes put it, life “ain’t been no crystal stair.”
No one who escapes such an environment physically or economically does it alone. There are teachers, coaches, doctors, lawyers, aunts, uncles, neighbors who appear as angels in our lives, who catch us when we are about to fall, who lift us up at the right moment, who show us a different path, who guide us in a new direction, who transport us to new possibilities, new futures.
But for every person upon whom fortune smiles, opportunity calls, and destiny stirs, there are many others for whom the future is obscured, for whom society is harsh, punitive, and unwelcoming.
I call these people my brothers and sisters, my cousins, my kinfolk who are ill-fed, ill-clothed, lacking in basic health care, working (if able) for low wages, hostages to debt, owning little, credit starved, renting if they can, and estranged from even rudimentary knowledge of wealth creation.
Poverty is not an abstraction. People wear it on their faces, carry it on their backs as a constant companion, and it is heavy.
Those of us acquainted with that condition often lack understanding of the nature of the material world, and, since access to material wealth seems random, are prey to the notion about wealth preached ironically by the Pardoner in The Canterbury Tales, “Radix malorum est cupiditas,” ‘The love of money is the root of all evil.”
One does not need to have taken a vow of poverty to be poor, one needs only the unconscious or conscious acceptance of the underlying precepts of a class-based society, the meek acceptance of a doctrine of predestination, the assumption of one’s status as merited and the acceptance of a political economy that equates one’s personal wealth with one’s innate value as a human being, while the so-called invisible hand of the marketplace quietly dips into the public till, and “moral hazard” is a polite term for theft.
All are created equal, indeed, but all do not have the same access to privilege, nor the same friends inside the government or financial centers of power, nor the same accountants.
Our reality is socially constructed and culturally affirmed. We have come to accept a system of things as inevitable without challenging the assumptions upon which a system is based.
Where does money come from? How is it made?
Before answering that question, let me state the obvious: Our political economy is structured to create poverty and inequality.
Nineteen of every 20 dollars of new wealth created goes to the top 1 percent. The top 1 percent has more wealth than the bottom 90 percent.
This cataclysm for our democracy was accelerated with the subprime meltdown of a decade ago.
According to the National Center for Policy Analysis, as many as 10 million families lost their homes to foreclosure during the housing crisis, and as a result had to move, in some cases resulting in a resegregation of city neighborhoods.
During this period, the Federal Reserve created trillions of dollars and gave them to banks, while Congress authorized $700 billion to bail out banks, without passing a program to make sure that the masses of people underwater in their mortgages or those caught up in no-doc low-doc schemes would have a chance to hold onto their homes.
Meanwhile, one of the few investments held by the middle class, home equity, plummeted as housing values sank in many city neighborhoods.
Much of America has not recovered from the carnival of financial corruption of a decade ago-except for the finance economy, of course.
For those barely holding on to middle-class status, the median income for a four-person family is just over $54,000. Yet the average US household owes more than $16,000 to credit card companies, $172,806 on its mortgage, $28,535 on its car and $49,042 in student loans.
Health-care consumes about 17.8 percent of America’s GDP, or three trillion two hundred billion dollars. The Kaiser Foundation reports that the average month premiums for family coverage in 2016 is $1,511 a month, or $18,132 a year.
The country is held hostage by insurance companies, while politicians wrangle over what is the best system of predatory for-profit health care, as pharmaceutical companies receive near-unlimited patent extension and public funding for 84 percent of new drug research, yet price their products out of the reach of millions of Americans, while their stocks perform at twice the Standard and Poors stock index.
The health-care industry is not the only institution casting Americans into poverty. The average family of four sees some $13,200 a year of its collective wealth deposited into America’s largest piggy bank, the Pentagon, which, according to noted economist Chalmers Johnson, now siphons off about a trillion dollars annually from all sources to prosecute several wars simultaneously, while managing nearly 800 military bases in 130 countries, this while never successfully completing an audit and having trillions in accounts that cannot be reconciled.
Martin Luther King Jr. said, “A nation that continues year after year to spend more money on military defense than on programs of social uplift is approaching spiritual doom.”
The cost of the war against Iraq, alone, adds $3 trillion to the national debt while bolstering the bi-party line that there simply is not enough money to meet domestic needs. Families have no reserves. More and more people are tethered to low-paying jobs, with few, if any benefits. Jobs are not there for young people coming out of school. The burden of debt, its extractive nature, forces survivors to borrow and borrow and borrow, to go deeper in debt.
In biblical times there was debt jubilee. Today we have not a jubilee but debt peonage for many, with a national debt compounded by environmental disasters, military misadventures, and Wall Street bailouts, and seldom suffered by those who helped to create it.
The bailout of Wall Street, the utter neglect of Main Street, the collapse of the housing market, the obscene escalation of the cost of private health care, the metastatic cancerous military leviathan point to a massive ethical failure in a society where egalitarian principles have been discarded in favor of a warped, Darwinian, meritocratic society built by gamblers insured by the government, insurance companies subsidized by the government, defense contractors made extravagantly rich by the government, banks that forced people out of their homes and were then bailed out by the government.
Growing poverty and inequality in America and other countries can be tied to a dismantling of the public sphere through the privatization of public services, which imposes the rentier’s premium on parking meters, toll booths, waste and sanitation services, water and sewer fees, and health care, to name a few.
In urban areas privatization looms as a major economic issue. People, through taxes, fees and utility rates, pay once for public services to be created. Once services are privatized, the public is forced to pay again and again, at higher rates, for less service.
The public is told that money is saved. Whose? Wages are cut, services are reduced, increased rates and fees follow. The loss of public accountability and political control shifts onto the public as increased economic burdens and the social and economic costs borne by displaced public workers.
In such a climate, unions are under attack, since they exist to promote economic justice. The right to organize, the right to collective bargaining, the right to strike, the right to decent wages and benefits, the right to a secure retirement, the right to sue an employer for maintaining an unsafe work place, all these rights and more are at risk. Labor unions helped to build economic equality. Their demise means less bargaining power for all American workers.
The ability to bargain collectively is essential in a democratic society, for upholding opportunities for advancement.
A recent article in The Atlantic estimates that “$1 trillion of America’s $6 trillion in annual federal, state and local government spending goes to private companies.”
A few examples are instructive. In Chicago an investigation showed that the city received $974 million less than the parking-meter franchise was worth.
Forty years ago, I was elected mayor of Cleveland, a city of 700,000, on a commitment to block the privatization of an electrical system which was worth at least a quarter of a billion dollars and was to be sold for $88.1 million, a scheme promoted by the state’s largest bank, a business partner of the private utility seeking to acquire the city’s division of light and power.
When I refused to sell the system, the bank forced the city into default over $5 million in debt, taken out by my predecessor. Subsequently, its municipal electric system intact, the people of Cleveland saved as much as a half-billion in combined charges for taxes and electricity bills.
Tom Johnson, mayor of the City of Cleveland at the turn of the 20th century, disciple of social reformer and progressive economist Henry George, brought to Cleveland the cheapest streetcar fares and the lowest-cost electricity through public ownership.
He once said, “I believe in municipal ownership of waterworks, of parks, of schools. I believe in the municipal ownership of these monopolies because if you do not own them, they in turn, will own you. They will rule your politics, corrupt your institutions and finally destroy your liberties.”
The ultimate privatization that reframed the entire of our economic and social system and set the stage for a permanent debt mentality occurred in 1913, when the money supply of the United States was privatized through the creation of the Federal Reserve.
Prior to the passage of the Federal Reserve Act, the US Constitution, Article 1, Section 8, placed the power to coin or create money with the United States Congress. That changed under the Federal Reserve. Central banks took over control of the money supply.
From that point on, money equaled debt. The Federal Reserve usurped the power of the government to spend money into circulation and assumed for central banks the power to create money out of nothing, a device called quantitative easing, and give it to their member banks.
In Cleveland, the banks focused a profit-taking scheme on lower-income black and white neighborhoods, touting low-documentation and no-documentation loans, which were bundled into securities and became the collateralized-debt obligations that collapsed and pulled the entire economy down 10 years ago.
It was all fraud, and it was underwritten by the never-audited Federal Reserve, the erstwhile cop who walked off the beat when the pinstripe-wearing robbers were casing the neighborhoods of our cities, bankers cum croupiers, trolling for unsuspecting dreamers in search of that elusive first home, or an upgraded second home, not really knowing about adjustable rates, balloon mortgages, and penalties attached to late payments, but trusting the assurances of their friendly banker, who suddenly reversed years of redlining policies and made loans available without proof of ability to repay.
When you are desperate for a home, you sign on the dotted line. I think back to my parents, who never owned a home, and I can tell you that, if given the offer extended to thousand in Cleveland’s neighborhoods, they would have signed on the dotted line, taken the keys, celebrated, and months later been devastated by foreclosure.
The privatization of the money supply is one of five major factors in poverty and inequality today, the other four being the emergence of the military-industrial-intelligence-congressional complex, the maintenance of the for-profit health-care system, and the erosion of public education through the creation of charter schools and the tremendous lifelong debt burden placed on those seeking higher education.
Today we face a renewed threat of privatization that could dramatically thrust the American people deeper into poverty. The privatization of Medicare will make health services inaccessible to millions of elderly. The privatization of Social Security would cause the jackpot lights to flash and spin at Wall Street’s casino as retirees check stock advances, declines, and unchanged to discern what the value of the monthly check will be when it arrives at the mailbox.
The planned privatization of the Post Office will mean the end of universal service, less rural delivery, higher costs pricing people out of basic mail service, and cuts to three-days-a-week delivery.
The prison-industrial complex is set for growth with privatization schemes that raise serious constitutional questions.
More and more military services are being privatized, which of course makes for an additional incentive for businesses to support wars and to support the politicians who vote for wars.
As the national debt rises toward $20 trillion, the debate intensifies over privatization of Medicare, Social Security, the Post Office, and government service at all levels, a practice that steals the commonwealth and institutionalizes poverty and inequality as wealth accelerates upwards, furthering economic divisions and erasing the cultural memory of public service, devouring the civic soul, once the animating principle of community, the spirit breath of participatory democracy.
As wealth accelerates upwards, the mass of people are told we cannot afford a living wage, cannot afford a full-employment economy, cannot afford universal pre-K, cannot afford school breakfast and lunch programs, cannot afford supplementary-nutrition programs, cannot afford women’s and infant-care assistance, cannot afford more adult education, cannot afford free public college and universities, cannot afford guaranteed retirement security, cannot afford Medicare for all, cannot afford a guaranteed annual income. We are constantly told that the country cannot do these things because it would add to the debt, or destroy individual initiative.
Let me tell you that we can reverse this entire system. Thanks to my wife, Elizabeth, who came to the United States to study monetary policy with Stephen Zarlenga of the American Monetary Institute, I began to explore the equation of money with debt, and the ways of the Central bank that create money out of nothing for the benefit of private banking through quantitative easing and another device known to the industry as fractional reserve banking and recognized by the rest of society as great moral hazard.
As a result of studying the structure of the system, as a member of Congress, I drafted the National Emergency Employment Defense act, which reclaims the power appropriated by the Federal Reserve through the Federal Reserve Act of 1913 and enables the government to issue money debt-free to meet the job creation, infrastructure repair, health care, education, and retirement-security needs of Americans.
Some believe that such a system would be inflationary. Then let me ask: Why has the Federal Reserve created trillions of dollars and placed us in a deflationary period? The middle class does not have enough money to buy goods.
The consumer economy is stalled. The Fed-created money did not get into the right hands. How is it that 19 of 20 new dollars of increased income have gone to the top 1 percent? Really? It is because the system is engineered to transfer wealth upwards, a perpetual inequality machine.
Through reclaiming our constitutional heritage, we can lower taxes and have a full-employment economy, universal pre-kindergarten, school breakfast and lunch programs, full funding for public education K-12, free college and university, guaranteed retirement security, Medicare for All, and a guaranteed annual income, eliminating poverty.
This is not magic. It requires a shift in federal policy, away from private banks’ running the economy, solely in the interest of private banks, to the government’s reclaiming its ability to be able to spend money into existence to meet the needs of the country, without going into debt.
Private banking would continue through dollar-for-dollar reserves, and have to survive without its government-granted license to speculate.
The government could reduce taxes, increase productivity, enable America to reach new heights of wealth shared by all, or we can stumble along our present course, with the children of the 99 percent being indentured servants to the 1 percent, with more than 50 million in poverty while political parties tinker with a totally corrupt system en route to death on the installment plan institutionalized by a government in thrall to banks, insurance companies, and the military-industrial complex.
Imagine an America whose government was not prepossessed with military force projection around the world, a government that set aside failed doctrines of interventionism, unilateralism, and first strike to concentrate on the practical needs of its citizens for jobs, for health care, for housing, for education, for retirement security, for safe neighborhoods, for clean air and clean water; a government that derived its support not from the power of its armaments but from the power of its commitment to the humanity of its citizens.
Abraham Lincoln spoke at Gettysburg of a nation, “conceived in liberty and dedicated to the proposition that all men are created equal.” The inner equality of our political heritage must be matched by our constant striving for economic justice.
If we have the intent, the vision, and the courage to reclaim the reality of equality, we can make poverty a thing of the past. Now, perhaps, you can understand that when I first began my public career, 50 years ago, as a candidate for City Council, I focused on economic issues, making sure phone, gas, electric, water, and sewer bills were kept low; that privatization schemes were rejected; that perishable foods were labeled and dated; that neighborhoods were safe, recreation facilities in repair, and the quality of life in the city was optimum, wherever it intersected with city services, especially the police, fire department, and housing.
Forty-five years ago, I advocated free public transit in Cleveland and was met with objections that, if transportation was free, why, everyone would be riding the bus!
Exactly.
Our Political Economy Is Designed to Create Poverty and Inequality
Click to viewThroughout history, the best ways to reduce inequality have been disease and destruction
How do you solve a problem like inequality? Economic policymakers have been grappling with this for a long time, with varying degrees of urgency. The search for solutions has become increasingly serious since the 1980s, when inequality began rising again, recently reaching historic highs.
But the problem has been solved before.
After studying thousands of years of human history, Stanford professor Walter Scheidel identified four indisputable ways to reduce inequality: war, revolution, state collapse, and deadly pandemics. These “four horsemen,” as Scheidel dubs them in The Great Leveler: Violence and the History of Inequality from the Stone Age to the Twenty-First Century (Princeton University Press), have proven far more effective at reversing inequality than more peaceful efforts, like improving education, or non-violent shocks, like financial crises.
Today’s levels of inequality aren’t unprecedented, Scheidel notes. The share of income owned by the wealthiest Americans has only recently risen to levels last seen in 1929. In the UK, the richest 10% held more than 90% of all private wealth before the First World War; today, it’s a little more than half.
This suggests that the inequality seen today has the scope to become far more extreme. Globalization, aging populations, and immigration all contribute to inequality by diverting public services away from redistributive policies. What’s more, new technologies and widespread automation will further widen the gulf between high-skilled and low-skilled workers.
Addressing the high levels of inequality in the US, UK, and elsewhere requires radical policy changes, Scheidel says. And the only time those policies led to a meaningful “leveling” in the past was in the aftermath of catastrophes.
Scheidel spoke to Quartz from New York about the long history of inequality. The conversation has been edited and condensed.
Quartz: Past periods of reduced inequality were preceded by catastrophe. How does something so destructive-the “four horsemen” you describe in the book-produce anything positive?
Scheidel: The first one is mass-mobilization warfare and the classic examples are World War One and World War Two. A very large share of the population got drafted into military service, while the civilian labor force also became fully mobilized for the war effort.
A strong nation state was needed to organize the war effort and tax rates went up to extremely high levels on the rich-90% in some cases-to pay for it. Capital lost value because of government interventions and physical destruction, particularly in Europe. Meanwhile, there’s massive redistribution to workers. Then there’s the knock on effects on democracy. Voting rights, membership in trade unions, etcetera. All these things really surged around these wars because governments have to offer the people something in return.
The second, in a sense, is a no brainer: it’s transformative revolution. If you are Lenin or Mao and you go out in Russia or China and expropriate all the rich, often killing them in the process, and nationalize everything, you plan an economy where you set all the wages and all the prices. That’s an extremely invasive process but if you are only interested in equality that’s a very quick way of doing it.
And the others?
The other two are more common in the distant past: state collapse and epidemics. State failure is an even less desirable way of leveling compared to the others because everyone is objectively poorer-it’s just the differences are wiped out. When the Romans incorporated Britain into their empire there was a massive increase in inequality, but then it falls apart in the 5th century. The Anglo-Saxons come in and all of a sudden you are back to where you were before.
Finally, there are massive epidemics that sweep in and kill a really large share of the population, like the Black Death in medieval Europe. It doesn’t destroy the physical infrastructure-the land or capital-so there is a fundamental reset in the value of labor. Workers can ask for higher wages and the employers’-the capitalists’-assets lose value.
Could any of these can happen again now, and have a similar impact on inequality?
Thanks to technological change, the style of warfare has really moved on. Instead of intense mobilizations that were possible 50 or 100 years ago, you’d have a quick, high-tech war. It could be very expensive and disruptive but it wouldn’t necessarily produce the same effects on inequality. Overall, the whole world has become more peaceful for any number of reasons. The same is true for transformative revolution. Most people have little desire to repeat what happened in the big communist countries earlier in the 20th century.
Could we see revolution coming from populist movements on the right instead?
They would be more bourgeois; it wouldn’t necessarily be overtly redistributive. You could give the example of the Nazi takeover or revolution but, there was no real interest in bringing about greater equality beyond the rhetoric.
Massive epidemics, though, still seem possible, after Ebola, Zika, and with general fears of biological warfare.
Plagues worked really well in an agrarian society, but modern economies are so interconnected and sophisticated that if you randomly killed just 10% of all people it might cause real damage and destabilize the entire system. But it wouldn’t necessarily have the same distributional effect for workers as it has in the past. One option that exists now that didn’t in the past is more automation. If there was a big plague you’d build more robots and you might have more inequality in the long run.
So if these four ways have historically been the only effective means of reducing inequality, and they are both undesirable and less “effective” than they once were, where do we go from here?
That’s exactly the question. Today people like Trump in the US and populists in Europe say, to various degrees, “look what things were like 40 years ago, let’s make sure we go back to that.” They are implicitly going back to this post-war period when you had economic growth, an expanding middle class, low inequality, and everything was great. And it’s true, it’s a very desirable state of affairs. But look at the policies, the taxes and tariffs, and unions. All this arose in a very specific context. Policymakers, advocates, and academics have to think harder to develop more noble ways to reduce inequality that might work today.
Has anyone come up with policies that are both effective and realistic?
In the US and UK inequality has risen so much that policies which could be implemented would only produce improvements at the margins. Famously, the late Tony Atkinson wrote a book-Inequality: What Can Be Done?-and he tried to price the cost of these policies. He’s the only one I know who tried to do this in a careful way. It showed improvements are possible but only up to a point. The more radical measures become, the costlier they are and the less likely they will be implemented because of the politics.
How much worse can now inequality get, then, if there isn’t the political will or the financial resources to address it?
Inequality can’t go up indefinitely. There has to be some kind of limit-we just don’t know where it is. If you operate in a globalized economy where there are so many ways of obtaining resources from other countries, or parking your assets in other countries, then there is the potential for extreme inequality, especially at the very top of the distribution, like we haven’t seen before.
Your book suggests this extreme inequality could lead to a class of “superhumans.”
This hasn’t quite happened yet, but if you talk to geneticists we’re on that trajectory. It’s already well known that some of the boldest or ethically questionable experiments have been undertaken in East Asia, and there’s a great potential for that continuing. A couple of decades down the line and it might be possible for parents to create designer babies. If that were ever to happen, you could end up with an upper class that is genuinely different from everybody else. It doesn’t just have to be genetics; many people are working on implants that will enhance your capabilities.
I live in Silicon Valley, where all these people talk about living to be 1,000 years old. It’s probably not going to happen any time soon, but it shows that the will exists.
That’s a troubling future. I’m not surprised, given the subject of your book, but it seems like this interview won’t end on a hopeful note.
There is certainly room for hope, but what is unlikely to happen is a really substantial equalization, the way it happened earlier in the 20th century.
Throughout history, the best ways to reduce inequality have been disease and destruction