Skewed Wealth Distribution and the Roots of the Economic Crisis

poverty in americaSkewed Distribution of Wealth

Recently, Robert Shiller, a professor of economics at Yale University, penned a New York Times article warning that the fear of a double dip recession might actually bring on the dreaded event.  “Ultimately,” Professor Shiller warned, “the risk resides largely in social psychology.”

As someone who is not a professional economist I do not know whether Professor Shiller’s views are typical of his field.  What I do know is that while “social psychology” may have had some small role as a causal factor in the Crash of ’08, it was the actual structure of the American and world economies which brought on the crisis.  And if in fact we enter a second round of this Crash, it will not stem from what Dr. Shiller calls a “weakness and vulnerability of confidence,” but will result from the same structural elements of our economy as those that brought on the “first dip.”

American society’s fantastically skewed distribution of wealth stands as one of the main structural fault lines underpinning the Crash.  America’s richest one percent of the population own over forty percent of America’s wealth—exclusive of home ownership—in this, the most opulent society history has ever known.  On the other hand, the bottom sixty percent of Americans own approximately one percent of all of America’s wealth.

That is, if we picture an auditorium with one hundred people and one hundred seats, the single richest person would be able to spread out smartly over nearly forty-three seats.  The poorest sixty people in the auditorium would have to make due squeezing into a single seat.

This mal-distribution of wealth does not bode well for a society based on the buying and selling of goods.  Our super-rich plutocrats, after all, do not need more than five or ten automobiles or five or ten homes each.  This top one percent—3 million people—certainly cannot purchase all the goods that the poorest 180 million Americans would be capable of purchasing had our society a more equal distribution of wealth.

poverty abroadAnd so debt has had to sustain our market economy:  the more skewed the distribution of wealth has grown over time, the more frantically has the economy been forced to create a growing array of consumer debt mechanisms—subprime mortgages, payday loans, more and more intricately structured credit card debt—in order simply to maintain its functioning.

When a critical mass of poor and working class Americans could no longer pay their fabulously expensive subprime mortgages and usurious credit card bills, this house of cards collapsed.  A number of the financial institutions built on this consumer debt foundered and the remainder required unprecedented injections of federal funds to remain afloat.  The housing market and new residential construction, the market for consumer goods—automobiles, appliances, electronics—all crumbled, taking down with them the jobs of retirement savings of millions of Americans.

The Crash, in short, was not an episode of mass hysteria or panic; it represented a structural crisis in part rooted in the grossly unequal distribution of wealth in this society.  When millions of Americans could no longer buy goods, industry had to stomp on the brakes.

And what is true in the United States of the unequal distribution of wealth, and of the consequences of that unequal distribution, is true again on a world scale.  Nearly half the world’s population lives on $2 per day or less.  This super-poor mass of humanity, from whose soil is ripped vast amounts of mineral and agricultural wealth, and out of whose labor the world’s manufactured goods increasingly come, are almost wholly excluded from participating in the world’s market economy.

These people, too, must depend upon debt, public debt in this case.  More importantly, the survival of our world’s economic system, as it is currently configured, depends upon these people being both poor and indebted.  But it is both the poverty and the debt which lead inexorably to the Crash.

david barberIt appears to me that Professor Shiller’s antidote to a second dip economic crisis lies in our all feeling better about the world economic system.  Even before the Crash of 2008, however, that system self-evidently had failed the great majority of people on this planet.  I would suggest that the real preventative to an extension or deepening of this crisis, and the only answer to the ongoing crisis which has been confronting poor people for a very long time, lies in a more equitable national and international distribution of wealth.

David Barber

David Barber is an assistant professor of American history at the University of Tennessee at Martin. He is the author of A Hard Rain Fell: SDS and Why it Failed (University Press of Mississippi, 2008).

Reposted with permission from the History News Network.

Published by the LA Progressive on June 3, 2010
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Comments

  1. Yes, wealth is very badly distributed. Mr. Barber mentions Debt. I feel that the amount of debt, both individual and national, is a prime cause of this inequality. But, what traps so many poor and middle class people into borrowing too much? There is a lot of advertising and visibility to loan agencies. There is almost no voice saying that independence and paying off loans is good.

  2. Thank you David Barber for putting this essay out there for people to like, dislike, respond to, ignore and/or find frustration with the ideas presented. The mal-distribution of wealth contains within it self the contradiction that will sooner or later bring about resolution of the problems — hopefully peacefully but if not peacefully then through social upheaval. People resent being kept hungry, cold, sick and breathing foul air and sooner or later they will decide the time has come to right the conditions. Pie in the sky by and by just will not be enough.

  3. In the comments it seems as though some folks, along with Shiller, like to blame the victims, i.e. poor folk are poor because they aren’t rich. Any one with even half a brain and half an education knows that there are not equal opportunities for all in society. IF EVERY SINGLE CITIZEN HAD A COLLEGE DEGREE, MASTERS DEGREE EVEN, AND IF EDUCATION MADE PEOPLE SUCCESSFUL EVERYONE WOULD BE A ZILLIONAIRE. NO, THE SOCIETY WOULD STAY STRATIFIED AND A SMALL GROUP WOULD USE THEIR POSITION TO CONTINUE THEIR DOMINATION. Our concept of democracy came out of the enlightment and the growth of liberal thought dominated by the emergent middle class (capitalist business classes that didn’t want to live under the domination of ruling monarchies) which has sought ever since to maintain its power against the vast majority of working people who are employed as wage earners.

    Shiller from the way he is presented is one of those social psychologists who would attempt to deny that reality exists independent of mind like the idiot feel good people on TV who soak people for their money by telling them, “Send me your money and I will help make you rich through positive thinking.” The only ones who make money off these schemes are the people selling the schemes.

  4. Dear writer and fellow prior commenters. Of course you are ALL right – and so too is Shiller. Yes, wealth is so maldistributed that many people live on the edge and so (thanks in part to both their ignorance and their lack of liquidity cushion) suddenly they cannot cope when pushed. Yes, mob psychology in a ‘positive’ (self-reinforcing) loop can unglue a seemingly stable system. Yes, education and the basic smarts and motivation to latch on to it, is a key to getting some of the jobs and wealth that exist, and yes most wealthy people pay taxes and maybe other aid for the sake of social peace, but yes these don’t solve everyone’s problems. Yes, ensuring a crash, banks cheated – or anyhow were tempted (due to lax regulation) into short-run profitable but long-run untenable decisions.

    The maldistribution of economic power is paralleled by our 18-th century style constitutions’ mandated maldistribution of public policy-making power. A tiny elite of politicians and their appointees get to make all public decisions. Everyone else can merely look on or pretend to unempowered forms of ‘participation’ – including mass votes in which typically no one’s vote has more than a zillion-th chance of making a difference.

    People are at least aware of their material wealth or poverty, and of the maldistribution of wealth. However most readers here (like other ordinary folk) pay no attention to their constitutionalized deprivation of political power (at almost all levels, federal, state, regional, local). Until that unawareness changes, count on continued government by a readily corrupted constitutionally mandated political oligarchy.

  5. Clara Aburto says:

    I don’t have time to read this entire article, but you have already managed to upset me! I thought the Wall Street crash happened because large banks had been fudging their numbers, i.e, lying to the regulators and their investors. They were then elible for government bailouts, that –oh you know the rest!

  6. Marshall says:

    It might have been a good idea to have studied Shiller’s work before you hit the send button.

    It might have been a good idea to study our educational system at a level lower than you teach. You have a better level of student at your level but at the middle and high school level, there are many schools where the sudtents are not even trying to do well. Those kind of students are not going to go far and earn enough to increase their level of living. So how is it the rich are holding the poor performing students down? The rich, in their large homes are paying taxes to support schools at the local level. It is the parents of many students who are not helping thier children advance and or have lost control of what their children are doing during and after school.

    We are trying hard to mirror the systems in Europe and if we do then we will follow them down the same path they are going now. I have lived in Asia and Europe and we are not suited to use the same social programs they use.

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