How The American Dream Turned Into Greed & Inequality

Tyler Durden's picture

Authored by Alberto Gallo via WEForum.org,

The American Dream is broken. Paul Ryan, speaker of the House of Representatives, recently stated that "in our country, the condition of your birth does not determine the outcome of your life."

Yet the idea that every American has an equal opportunity to move up in life is false.

Social mobility has declined over the past decades, median wages have stagnated and today's young generation is the first in modern history expected to be poorer than their parents. The lottery of life - the postcode where you were born - can account for up to two thirds of the wealth an individual generates.

The growing gap between the rich and the poor, the old and the young, has been largely ignored by policymakers and investors until the recent rise of anti-establishment votes, including those for Brexit in the UK and for President Trump in the US. This is a mistake.

Inequality is much more than a side-effect of free market capitalism. It is a symptom of policy negligence, where for decades, credit and monetary stimulus shortcuts too easily substituted for structural reform, investment and economic strategy. Capitalism has been incredibly successful at boosting wealth, but it has failed at redistributing it. Today, without a push to redistribute wealth and opportunity, our model of capitalism and democracy may face self-destruction.

The widening of inequality has deep historical roots. Keynes' interventionist policies worked well during the post-war recovery, as fiscal stimulus for the reconstruction boosted demand for US goods from Europe and Japan.

But soon the stimulus faded. The U.S. found itself with declining growth and rising inflation at a time when it was mired in the Cold War and Vietnam conflicts.

The baby boomer generation demanded higher living standards. The response was the Nixon shock in 1971: a set of policies which moved away from the gold standard, initiating the era of fiat money and free credit.

Credit was the answer to declining growth and rising inequality: if you couldn't afford university, a new house or a new car, Uncle Sam would lend you the key to the American Dream in the form of that extra loan you needed. Over the following decades, state subsidies to private credit became popular, spreading to the U.K. and Europe.

It was the start of debt-based democracies. Private debt outgrew GDP four times in the US and Europe over the following decades up to the 2008 financial crisis, accompanied by the deregulation of financial markets and of banks. The rest is history: nine long years after the crisis, our economies are still healing from excess debt, and regulators are still working on strengthening our financial system. Inequality, however, has deepened even further. Has capitalism failed?

The deus ex-machina of capitalism was competition; a distorted interpretation of Adam Smith’s invisible hand. Competition among individuals and companies created efficient markets, increasing production and GDP. Government intervention became unnecessary: any wealth generated in the economic process would automatically trickle down from the haves to the have-nots. Greed, the unshackled pursuit of individual wealth, turned from vice to virtue.

Today, we know the neoliberal policies initiated by Reagan and Thatcher have been successful at generating growth: the United States and the UK have outpaced others. But we also know that the same neoliberal policies have failed at redistributing resources and opportunity. If individual economic success is deemed the highest possible achievement, poverty becomes justified by someone’s lack of effort or ability. But with rising social and corporate inequality, productivity has stagnated, lowering potential growth rates for the whole economy. The result has been a self-reinforcing cycle of lower productivity, lower interest rates, higher debt levels and even higher inequality.

If trickle-down and neoliberalism have failed the good news is there are some policy fixes. One of them is taxation, combined with investment in productive infrastructure and education. The bad news is policy is going exactly in the opposite direction, especially in the US and the UK.

The Trump Administration’s tax breaks may boost markets, but will likely increase public debt even further, calling for more cuts to education and healthcare.

Defenders of neoliberal policies like Mr Ryan argue that equality of opportunity is fair, while equality of outcome – which Milton Friedman called socialism – is unfair and not meritocratic. The reality is that both wealth and income inequality are closely linked. Richer parents can afford to send their children to better schools: nearly half of the variation in wages of sons in the United States can be explained by looking at the wages of their fathers a generation before. That compares to less than 20% in relatively egalitarian and tuition-free countries like Finland, Norway and Denmark. The story is similar in the UK, where over half of judges, MPs and CEOs of UK companies attended expensive private schools, while around one third of children live below the poverty line – 67% of those from working families. Better education means better opportunities and more wealth later in life: the cycle reinforces itself from generation to generation.

But today this cycle may be now at breaking point. If "let-them-eat-credit" policies allowed the 99% to borrow and increase their well-being over the past decades, interest rates have now reached rock-bottom and private debt levels are at their highest. There are signs that monetary policy may have reached its limits – creating asset bubbles and keeping zombie companies alive – and that it may no longer be able to support this ever-growing debt mountain.

The risk is that rising inequality, lower social mobility and the disenfranchisement of younger generations could result into even more polarised and short-sighted politics, creating a populist trap. The US and the UK could already be stuck: many of the policies on the table in both countries are far from sustainable, and damaging for the people they were to protect. Brexit or an exit from NAFTA are both striking examples.

Continental Europe and Scandinavia – even though far from perfect – have so far escaped from the worst of the populist threat of the Front National, Alternative for Germany, True Finns or the Danish People's Party, perhaps thanks to their stronger safety net and welfare policies. However, these parties continue to gain ground, as recent elections in Germany and Austria show.

There are two ways we think the world may exit this loop of rising inequality, political polarisation and short-sighted politics. One is to make the poor richer through education and investment. The other is to make the rich poorer.

Last year, the IMF ditched neoliberalism and recommended measures to redistribute wealth and opportunity. This policy mix could reduce inequality, boost political stability and improve long-term growth. In its five-year plan, China's leadership recently announced a renewed focus on reducing inequality. The US and UK, too, should acknowledge they have a structural, not a cyclical problem, that cannot be solved with one more round of monetary stimulus. Redistribution should be coupled with a reform of the financial system, still too centered on risk-taking and debt incentives; as well as changes to the tax system, which still places too much burden on income and too little on assets.

The alternative to redistribution is instability and crisis. Inequality provides fertile ground for populist parties to harvest support. The US, for instance, has recently been downgraded from full democracy to a flawed democracy. Over time, populist policies can destabilize democracies, turning them towards nationalism, militarism and anti-capitalism. The outcome of populist regimes in history ranges from higher taxes to nationalizations and violations of private property, to commercial and military conflicts.

Neoliberal theory and its policy offshoots have failed. Promoting individual happiness as our utmost ethos is self-defeating, as deeply divided societies turn unstable and unhappy. We need a new American dream based on equality and sustainable growth. The cost of sharing opportunity and wealth may be high for today's elites, but the alternative is far worse.

 

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shitshitshit's picture

based on a predatory economy that finds its victims harder and tougher is not a good sign.

payback it seems, is about to come...

BLOTTO's picture

We are living the dream, its not ours.

Escrava Isaura's picture

Harry Vederchi below: Leftists are people who believe in a superstition: That freedom breeds inequality. The lack of freedom (ie public spending) increases inequalities, not the opposite. QUIT YOUR SUPERSTITION OR YOU'LL GET US ALL KILLED. Moron.

Where does one learn such stupidity?

Capitalism breeds inequality because, in its core, capitalism is to maximize profit at someone’s expense. Freedom has nothing to do with. It’s irrelevant, because freedom is a right. Capitalism is a social order. A ‘top down’ social order that can be changed.

You said leftists are people that believe in superstition; so tell us:

Is religion a superstition?

If not, or if so, does your religion believe inequality is acceptable?

 

WorkingFool's picture

Wrong. Capitalism does not force anyone into a transaction. The use of force, coercion is any variation of leftist ideology - plus mass murder.

khnum's picture

As George Carlin said its called the American dream because you've got to be asleep to believe it,its not just America though will median house prices $1000 000(us 760,000) in Australias two major cities the dream is dying here also the top two billionaires here are worth more than the bottom 20 per cent.

Blue Steel 309's picture

The joo variable is completely missing from the charts.

swamp's picture

You and the article are nonsense

The concept if EQUALITY NEVER BUT NEVER NEVER NEVER

applied non legally to income.

PC nonsense

Rich Monk's picture

Once the Federal Reserve  (Zionist Jewish organized crime syndicate) was created America began it's slow decline.

ipso_facto's picture

'One is to make the poor richer through education and investment.'

The United States already spends 200% more than any other country per capita on government 'education'.

Harry Vederchi's picture

It's socialism, stupid.

Leftists are people who believe in a superstition: That freedom breeds inequality. They never ever question it. Would they that they'd come to the logical conclusion that : No, quite the opposite.

The lack of freedom (ie public spending) increases inequalities, not the opposite.

Here's the vicious circle: Leftists destroy freedom to pursue equlity; hence inequalitites soar; hence leftists demande destroy even more freedom; and so on until utter civilisational collapse.

QUIT YOUR SUPERSTITION OR YOU'LL GET US ALL KILLED.

Moron.

 

Paul Kersey's picture

Deep State does not work for the socialists. Deep State does not work for the capitalists. Deep State works for the klepto-corporatists. Socialism is where the government owns the means of production. Klepto-corporatism is where a very small number of plutocrats have stolen and privatized the means of production. In America, the wealthiest three people, Gates, Buffett and Bezos, own as much as the poorest 160 million of their fellow Americans. That ain't socialism.

WorkingFool's picture

This reasoning is so fucking wrong. Government, controlled by elites has regulated the American Dream. When an individual has to ask permission to innovate, to think for God sakes! - and is denied the opportunity to advance by his own effort that is the cause of inequality.

Here’s a proposal - the responsibility of the government is to protect the rights of the individual. Why don’t we get back to that - the greatest idea in human history.

Fuck all this collectivist bullshit.

Peak Finance's picture

Some perspective

by 1971, they already stole everything that was not nailed-down, hence the ending of the gold standard and the beginning of the USD as fiat

20 years after that, that Ponzi was starting to show it's age, so, they start to pump the debt

Now, 20 years and 20 Trillion in debt later, they stole everything that's not nailed down and EVERYTHING to be produced in the next 10 years!! 

Only one option left, PRINT TO THE MOON and hope for the best. 

It's all over 'cept for the tears. 

Batman11's picture

Back to basics - capitalism.

Disposable income = wages – (taxes + the cost of living)

The wage earners are interested in maximising disposable income.

The wage payers want to minimise wages to maximise profit.

The rentier’s gains come from increasing the cost of living.

Government takes taxes.

Minimising wages, maximises profit.

To pay internationally competitive wages in a free trade world, you need a cost of living and taxes that are comparable to your competitors.

The repeal of the Corn Laws ushered in the era of Laissez-Faire.

The businessmen wanted lower corn prices, to lower the cost of living for lower, internationally competitive wages.

Business has to pay housing costs in wages and could have done without the real estate boom.

The cost of living = housing costs + healthcare costs + student loan costs + food + other costs of living

The US is in a bad way.

Batman11's picture

When Bill Clinton passed NAFTA millions of US jobs went to Mexico.

What happened?

Labour is cheaper in Mexico and you can make more profit there, when there are no tariffs and you have the free movement of capital it is better to move jobs out of the US to Mexico.

Why is labour cheaper in Mexico?

Wages have to cover the cost of living and the cost of living is much lower in Mexico.

Batman11's picture

Where did it all go wrong?

They used dodgy 1920s neoclassical economics and put some complex maths on top and told everyone it was new and scientific economics. The world was fooled.

It was right wing economics because it was rigged to hide private debt and rentier activity.

To hide rentier activity they had to move the focus off the cost of living, leaving the West to formulate a model of global free trade that forgot about the cost of living.

Hiding private debt and removing 1930s regulations immediately led to a re-run of 1929 in a different asset class, real estate instead of stocks:

https://cdn.opendemocracy.net/neweconomics/wp-content/uploads/sites/5/2017/04/Screen-Shot-2017-04-21-at-13.52.41.png

The UK stopped looking at private debt and inflated the value of its housing stock with mortgage lending:

https://cdn.opendemocracy.net/neweconomics/wp-content/uploads/sites/5/2017/04/Screen-Shot-2017-04-21-at-13.53.09.png

An impoverished future and a nation unable to compete in a globalised free trade world.

A huge own goal for the UK.

Paul Kersey's picture

"Paul Ryan, speaker of the House of Representatives, recently stated that "in our country, the condition of your birth does not determine the outcome of your life."

But it doesn't hurt to be a Walton, DuPont, Koch or Mars family member. However, most Americans are only destined to inherit personal and Government debt.

moonmac's picture

I have an idea. When this next crash finally hits let’s not bail out millionaires and billionaires again. The savings alone will equal a million huge tax increases on the rich. Our economy was in the process of rebalancing until all the Socialist started screaming we had to do something about rich people's assets crashing!

buzzsaw99's picture

don't get your hopes up

Akzed's picture

If only we would adhere to the letter of the Constitution, 90% of our problems in this country would go away. Had we done so in the past without exception, this country would be an unimaginable paradise.

sistersoldier's picture

I like that - makes perfect sense.

rf80412's picture

"Congress shall make no law restricting the free exercise of capital."

This country would have no problems because everyone other than the rich and the people whom the lifestyles of the rich directly depend upon would have starved to death or been exterminated as vermin.

nevertheless's picture

First we would need a Supreme Court that honored it...

Paul Kersey's picture

If we'd adhered to the letter of the original Constitution, blacks would still be slaves and more than half the American citizens wouldn't be allowed to vote. In fact, in many of our states, white males,who weren't land owners, wouldn't be allowed to vote.

"The United States Constitution did not originally define who was eligible to vote, allowing each state to determine who was eligible. In the early history of the U.S., most states allowed only white male adult property owners to vote. Freed slaves could vote in four states. Women were largely prohibited from voting, as were men without property."

Mimir's picture

"largely ignored by policymakers and investors until the recent rise of anti-establishment vote"

 

It is certainly not the "anti-establishment vote" that has done any contribution at all to address the problem of inequality and sustainable growth. You just have to look at what Trump has done to see that he will not address these problems which rightly are the core problem of our societies.

 

In Europe these problems are mainly addressed by the left wing political parties (Corbyn's Labour Party for example or Melenchon's extreme left party in France), and not by the "anti-establishment" right and extreme rightwing political parties.

 

 

Brexit is not at all an answer to these problems neither or the votes given to anti-establishment parties across Europe, which are mainly nationalist parties based on anti foreigner slogans, apart from maybe the Italian Five-Star- Movement.

nevertheless's picture

Sadly, in America, people don't know what to think any more. The media has sucesfully made Trump and Clinton represent the right and the left, niether do.

 

Clinton is certainly not a liberal, no fucking way, she is a globalist zionist marxist, and Trump, he is just as bad. He is certainly not "anti'establishment", unless following Obama's policies is "anti-establishment". 

 

The powers that be carefully constructed Trump's narrative, all to allow him to do what Obama wasn't. 

 

Most Americans are somewhere in the middle, not left or right, it is only the media using divisive issues pitting us against each other. 

 

Deep Snorkeler's picture

I See a Great America

in my acid flashbacks.

America, an empire in systemic decay:

1. a growing semi-literate population

2. facing environmental pushback

3. 67 years of senseless warfare

4. irresponsible arrogance; a paranoid, amoral,

obsolete view of the world

5. squandering $billions in mindless corruption

and unproductive endeavors

New_Meat's picture

Obama proved the old immigrant saying: "This is America, anyone can become President."

nevertheless's picture

The fat turd Chump said he would crack down on mass immigration, and when DACA came before his desk, that Zionist piece of shit kicked it to CONGRESS?!

 

The American people spoke, but Chump is just a puppet of the Zionist ruling class. 

 

Obama, Clinton, Trump, a difference without a difference. 

Easyp's picture

Yes, but did he do any good?

csmith's picture

Productivity stagnated because our great collective leaders decided that debt was the way to the future. Once debt became ubiquitous, it could not be liquidated without collapse of the system. Weak productivity and unliquidated debt (supporting failed assets) are two sides of the same coin. The dead wood must be removed for growth to come.

nevertheless's picture

I was up in Portland Maine recently, it was like stepping back in time. Honestly, it was refreshing. Everyone was nice, you felt safe. 

 

Unlike in Jew York city, where you have to watch your back, and everyone is out for themselves, Portland was everything I miss about America. 

 

Sigmund Freud said America was an experiment that would not work. Multiculturalism does not work, never has, never will. 

 

But Zionists, who strictly protect Israel's security and borders, are very happy to push for America's borders to be wide open, for US, our culture is not worth saving...They push mass migration from all their tools of manipulation, media, entertainment, education, political...

 

 

Ron_Mexico's picture

After 1620, the descendants of those who came over on the Mayflower ultimately had it easier than most of those who followed.  So what? "twas ever thus.  And ever thus 'twill be.  Get over yourself.  Deal with it; get over it, and get on with it.  moveon.org.  In the immortal words of Neil Young:

"Wake up! It's a Monday morning
No time left to say goodbye
Can't breathe
and the lights are changing.
You can live your own life
Making it happen
Working on your own time
Laid back and laughin'
Oh no, oh no."

  - Last Dance, 1973

Clock Crasher's picture

This ends in hyper deflation. 

Gold and Silver will go to face value.

Stocks and Savings go to zero.

The Goverment is disolved.

The United Nations moves in and takes over. 

Mugabee is installed as Chief Chancelor and Merkel next in charge. 

All Americans will be converted to Islam and conquer Central and South America with aid from Canada. 

New World Order with the global unified religion of Satanism. 

/s

Lord Raglan's picture

The problem is Consumerism, not Capitalism.  Just like Aldous Huxley said in Brave New World.  It has become clear that we are victims of the brainwashing corporate advertisers, the brainwashing media and the brainwashing Hollywood and if you don't have money to squander on complete bullshit that you don't need, like a 200th pair of shoes, you are an f'n loser.  Dailystormer.hk had a good article about it over the weekend, talking about why 3 people in the US have more weath combined than half of America, namely, 160 million people. 

Elmerthudpucker's picture

Capitalism is exploitation and cannot work without exploitation.    It also cannot work and has never worked without debt.   Debt is slavery and wages.  You cannot have all CEO's so someone will always be getting exploited by those not producing.     Time for a new system, the only thing stopping that process are the assholes who are winning and don't want to change the game.

Singelguy's picture

That is crony capitalism, not true caputalism. Under true capitalism, everyone is free to create and produce products or services that they believe are in demand in the market place; free from regulation, where no bureaucrat tells you what you can produce, where you can produce it, how you can produce it, how much you can produce, and when you are done doing all that, the bureaucrat takes 50% of the profit (and slips half of it back to the biggest players in the industry). People are free to produce or they can choose to work for someone who produces. The choice is theirs. It is not slavery if it is by choice. True capitalism works by investment, not debt. Individuals invest the fruits of their labour into equity positions upon which they get paid dividends. It is not time for a new system, but time to return to the old system that worked very well.

The Wedge's picture

False in every way possible. Verifiable false. Demonstrably false. Marxism was thoroughly discredited over a hundred years ago but that didn't stop some assholes and now we have the 20th century as evidence of just how bad, beyond bad marx's theories were. You have been fed a steady diet of bullshit. Never before in the history of mankind has a system of societal organization lifted more out of poverty than the free market. And, and it has accelerated in the last twenty years. PERIOD! End of story. FACT! Despite it's faults, and there are many, it is leaps and bounds beyond anything ever devised by humans. And it's worth noting that should the day come, and it may, that people like you multiply and this idiotic notion of marxism spreads, then force by whatever means may be necessary.

ZeroBeek's picture

But now we have Our Beloved Trump

He promised us to end this all.

RedDwarf's picture

"Inequality is much more than a side-effect of free market capitalism"

So we have free market capitalism?  When did we get rid of the Federal Reserve and go back to independent banks printing their own reserve notes?  When did the government go back to only using silver and gold as defined in the Constitution?  When did we scale back the federal government to a tiny fraction of it's current size and stop socializing losses for major corporations?  When did we tear down the giant federal regulatory apparatus and the military-industrial complex?  When did we get rid of social security and medicare and federal student loans?

". It is a symptom of policy negligence,"

Oh, I see.  You want the government to have MORE power, to be MORE interventionist.  You are actually making the claim that concentrating more power in governmental (your) hands will decrease inequality, when by definition it's the opposite.  This is literally Orwellian double-speak.

We know your tricks now Marxist scum.  You're not fooling anyone except the choir of useful idiots.

Trogdor's picture

Yeah - I wish for ONCE one of these Leftist idiots (I know, that's redundant) would get it right: Capitalism died in the mid 1800's - we have Fascism (or an Oligarchy) - or as Musolini put it, "Corporatism".

Who was it that said, "Give me power over a nation's currency and I care not who makes it's laws" ... something so obvious and simple, yet the Leftist Mental Midgets STILL can't get it through their tiny little heads that we DON'T HAVE A CAPITALIST SYSTEM. Fuuuuuu..... The only solution they can come up with is "more gubmint!" - well, the Federal Government DOUBLED under the Magic Negro - and just how did that work out for us?

Snout the First's picture

I agree there are a lot of things to rant about in what passes for America today, but "inequality" doesn't make my top ten. Isn't it inequality that provides the driving force to get out there, and bust your ass to better your position in life?

Drop-Hammer's picture

We can thank our (((hook-nosed friends))) for this-- and their goy libtard useful idiots.

Sudden Debt's picture

What is the American dream???

BEING A FAT LAZY FUCK WAITING AT THE DOOR FOR A HANDOUT AND WATCHING THE LOTTERY IN HOPES OF BECOMMING A BILLIONAIRE???

messystateofaffairs's picture

It was only a dream anyway, now that everybody's awake how about some opiods (going cheap) to extend the delusions into the waking hours.

messystateofaffairs's picture

Inequality is much more than a side-effect of free market capitalism. It is a symptom of policy negligence, where for decades, credit and monetary stimulus shortcuts too easily substituted for structural reform, investment and economic strategy. Capitalism has been incredibly successful at boosting wealth, but it has failed at redistributing it. Today, without a push to redistribute wealth and opportunity, our model of capitalism and democracy may face self-destruction

What free market capitalism? You mean the ponzi money club member regulated economy. Add a dose of demotivating redistribution of producers earning to top off this utterly idiotic paragraph.

any_mouse's picture

The Author should read the article on The Whiskey Rebellion.

The "American Dream" never existed, except, in your dreams, and in propaganda.

The Owners (Lenders) always get first cuts.

MagicMoney's picture

"The widening of inequality has deep historical roots. Keynes' interventionist policies worked well during the post-war recovery, as fiscal stimulus for the reconstruction boosted demand for US goods from Europe and Japan."

 

Actually, after WW2 US had more government than before which was the beginning of its decline. Following WWII you had a policy of welfare and warfare which pushed the US government thus the economy it rules over off the gold standard which lead directly to the path of a debt based economy. The US government depends on issuing debt to fund itself which ripples down to rest of the economy has more dependence on debt particularly as a reserve currency status holder You basically replace productive workers with government workers who do not produce value. 

Capitalist economy does not redistribute wealth. It creates value. That is where the true wealth lies. Simply spreading money around does not create wealth. It is the value created that matters the most. Redistribution of wealth is but a simple temporary band-aid that is common in Keynesian solutions that do not address the underlying issues. This is why socialist economies tend to fail. The citizens feel like they're wealthier initially but as consumption of ever-dwindling production, the problems become apparent. The US is not far apart from the socialist decay despite not being a socialist economy. The effects are the same just not the magnitude.

 

Apparently, this article fails to diagnose the problem. A simple examination of Bretton Woods history will yield you why we are here today.