The Fix We’re In

Let our journalists help you make sense of the noise: Subscribe to the Mother Jones Daily newsletter and get a recap of news that matters.


THE FIX WE’RE IN….Via Tim Fernholz, Rutgers history professor James Livingston offers his take on the core cause of our current financial meltdown. Naturally I like it, since it confirms many of my existing prejudices about the matter, so maybe you’ll like it too:

The Great Depression was the consequence of a massive shift of income shares to profits, away from wages and thus consumption, at the very moment — the 1920s — that expanded production of consumer durables became the crucial condition of economic growth as such. This shift produced a tidal wave of surplus capital that, in the absence of any need for increased investment in productive capacity (net investment declined steadily through the 1920s even as industrial productivity and output increased spectacularly), flowed inevitably into speculative channels, particularly the stock market bubble of the late 20s.

….[Likewise], a shift of income shares away from wages and consumption, toward profits, has characterized the pattern of economic growth and development over the last twenty-five years….The offset to this massive shift of income shares came in the form of increasing transfer payments — government spending on social programs — since the 1960s; these payments were the fastest growing component of labor income (10 percent per annum) from 1959 to 1999. The moment of truth reached in 1929 was accordingly postponed. But then George Bush’s tax cuts produced a new tidal wave of surplus capital with no place to go except into real estate, where the boom in lending against assets that kept appreciating allowed the “securitization” of mortgages — that is, the conversion of consumer debt into promising investment vehicles.

….And while consumers were going deeper into debt to service the current account deficit and finance economic growth, corporations were abstaining from investment: “The recent household deficit more than offset the persistent financial surplus in the business sector. For a period of six years — the longest since the second world war — US business invested less than its retained earnings.” (FT 8/22/07, p. 13)

….So the Bush tax cuts merely fueled the housing bubble — they did not, and could not, lead to increased productive investment. And that is the consistent lesson to be drawn from fiscal policy that corroborates the larger shift to profits, away from wages and consumption.

I’ll leave it to economists to argue over whether Livingston is right in detail. But the confluence of stagnant middle class wages; the resultingly vast pools of idle money looking for places to go; a rising federal deficit and a skyrocketing current account deficit; and then a series of tax cuts to make it all even worse — that’s the big-picture core of what’s wrong with our economy. It won’t get fixed overnight, but the sooner we start the better.

POSTSCRIPT: And on a similar note, how about that capital gains tax cut in 1997, passed just in time to direct even vaster streams of cash into the dotcom bubble? Not such a good idea in retrospect, was it?

UPDATE: See Tyler Cowen here and Daniel Davies here for related thoughts. Though, really, I’m not sure “related” is quite the right word. But beneath the surface there’s a sort of family resemblance.

IT'S NOT THAT WE'RE SCREWED WITHOUT TRUMP:

"It's that we're screwed with or without him if we can't show the public that what we do matters for the long term," writes Mother Jones CEO Monika Bauerlein as she kicks off our drive to raise $350,000 in donations from readers by July 17.

This is a big one for us. It's our first time asking for an outpouring of support since screams of FAKE NEWS and so much of what Trump stood for made everything we do so visceral. Like most newsrooms, we face incredibly hard budget realities, and it's unnerving needing to raise big money when traffic is down.

So, as we ask you to consider supporting our team's journalism, we thought we'd slow down and check in about where Mother Jones is and where we're going after the chaotic last several years. This comparatively slow moment is also an urgent one for Mother Jones: You can read more in "Slow News Is Good News," and if you're able to, please support our team's hard-hitting journalism and help us reach our big $350,000 goal with a donation today.

payment methods

IT'S NOT THAT WE'RE SCREWED WITHOUT TRUMP:

"It's that we're screwed with or without him if we can't show the public that what we do matters for the long term," writes Mother Jones CEO Monika Bauerlein as she kicks off our drive to raise $350,000 in donations from readers by July 17.

This is a big one for us. So, as we ask you to consider supporting our team's journalism, we thought we'd slow down and check in about where Mother Jones is and where we're going after the chaotic last several years. This comparatively slow moment is also an urgent one for Mother Jones: You can read more in "Slow News Is Good News," and if you're able to, please support our team's hard-hitting journalism and help us reach our big $350,000 goal with a donation today.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate