Something began happening to America’s powerful economic engine around 1980: growth slowed and, much more importantly, the growth in incomes slowed, or often declined. It happened almost without our recognizing it. Indeed, even as the economy was failing to deliver prosperity for large parts of the population, the champions of a new era of financialization, globalization, and technological advances were bragging about the “new economy” that was destined to bring ever-greater prosperity, by which they seemed to mean simply a higher level of GDP. Some of our economic leaders—including successive heads of the Federal Reserve—bragged about the “great moderation,” how we had finally tamed the business cycle, the fluctuations in output and employment that had marked capitalism from the start.
The financial crisis of 2008 showed that our seeming prosperity had been built on a house of cards, or more precisely, a mountain of debt. As new data came in giving a deeper picture of the economy, it became increasingly clear that there were long-standing and deep-seated problems. The growth that had been championed turned out to be far slower than that of the decades after World War II. Most disturbing, what growth occurred went to a few people at the top. If GDP goes up because Jeff Bezos’s income goes up—but everyone else’s income stagnates—the economy is not really doing well. But that is close to the situation in which America finds itself today, and it’s the way things have been for four decades, a period over which the average income of the bottom 90 percent of Americans has hardly changed, while that of the top 1 percent has soared. (See Figure 2, where the bottom line is the average pretax income of the bottom 90 percent of the population, and the top line is that of the top 1 percent).
Some economists disdain even discussing inequality. The job of the economist, they say, is to increase the size of the pie. If that is done, all will benefit—as President Kennedy put it, a rising tide lifts all boats. I wish it were true. But it’s not. In fact, a rising tide, if it happens too quickly can—and often does—smash the smaller vessels.
Nor is an economy doing well if GDP goes up, but meanwhile the environment is deteriorating and resources are being depleted. A country living off the past and not investing in the future—or destroying its children’s environmental heritage—is one in which this generation is doing well at the expense of its descendants.
In each of these dimensions America has not been doing well, either relative to our past or to our competitors. To many Americans this may come as a surprise because it was simply assumed that America was bigger, better, stronger in every way than other countries. That’s what our politicians relentlessly tell us. But unless you’re committed to a Trumpian other-world, the data speaks consistently: we are not the top-performing country by a long shot, though some data may suggest that the extent to which America “misses the top marks may be larger than that suggested by other data.
Among the many explanations for this malaise in the economy, there is one that is fundamental: we didn’t grasp the lessons of the previous chapter concerning what was the true source of the wealth of a nation. Too many were seduced into thinking that what was profitable was necessarily what was good, not realizing that profits can be enhanced through exploitation rather than wealth creation. Real estate speculation, gambling in Las Vegas or Atlantic City, or exploitive for-profit schools can make a fortune for a few but can’t provide the basis of sustained well-being for society as a whole. Over the past four decades, we didn’t invest in infrastructure, in our people, or in technology. Even the country’s rate of investment has been low, so low that it hasn’t even been keeping up with national output.
Subsequent chapters will explore the various manifestations that this shift from wealth creation to exploitation took—in globalization, financialization, and monopolization. First, however, we should get a better sense of what’s gone wrong and why it is that Trump’s claims to “make America great again” seem to have such resonance.
Excerpt From: Joseph E. Stiglitz. “People, Power, and Profits.”