A new report on inequality in the United States reveals that the richest one percent of the nation’s income earners saw their income increase by 11.6 percent during 2009 and 2010, which accounted for 93 percent of the national growth in income for that time period. While those two years are considered to represent the early stages of an economic recovery following the recession of 2008, the fact that the bottom 99 percent of income earners only saw their incomes increase by 0.2 percent makes evident that the recession is still ongoing for many Americans. These numbers also highlight the structural inequality that is inherent in capitalism.
The report, titled “Striking it Richer: The Evolution of Top Incomes in the United States,” provides a summary of the percentage of the national income earned by the wealthiest one percent of the population over much of the past century. In 1928, at the tail end of the Liberal Era—when the economy was largely unregulated and government social programs were virtually non-existent—the top one percent of income earners pocketed 24 percent of the national income.
But following the Crash of 1929, which resulted in the Great Depression, the share of income pocketed by the top one percent began a steady decline as the Fordist Compact improved the earnings of the bottom 99 percent and the Keynesian policy framework under the New Deal redistributed wealth across all income brackets. By the mid-1970s, the share of the national income pocketed by the top one percent had declined to eight percent as inequality was reduced significantly.
But in the 1980s, the Reagan administration began dismantling the Fordist Compact and the Keynesian policy framework through the widespread implementation of neoliberalism. This created the conditions that allowed the top one percent of income earners to recuperate their lost wealth and by 2007 they were once again pocketing 24 percent of the national income. In short, after 30 years of neoliberalism, inequality in the United States had returned to levels not experienced since 1928. As the author of the report, economist Emmanuel Saez, points out:
A number of factors may help explain this increase in inequality, not only underlying technological changes but also the retreat of institutions developed during the New Deal and World War II—such as progressive tax policies, powerful unions, corporate provision of health and retirement benefits, and changing social norms regarding pay inequality.
The Crash of 1929 occurred one year after the share of the national income pocketed by the top one percent peaked at 24 percent. Likewise, the Crash of 2008 occurred a year after the income of the top one percent had again topped out at 24 percent. The significant difference is the official response to each of the crashes. The government’s response to the Crash of 1929 and the Great Depression was the implementation of the Keynesian policy framework, which redistributed the national wealth and established a social safety net. In sharp contrast, the government’s response to the Crash of 2008 and the Great Recession has been an intensification of the neoliberal doctrine.
So rather than the current economic crisis resulting in policies that ensure a redistribution of the national wealth as occurred during the Great Depression, the official response has been to present the disease as the cure. Therefore, it is not surprising that the top one percent are pocketing 93 percent of the recent growth in the national income and quickly recuperating the wealth they lost in the Crash of 2008 while most Americans continue to endure the Great Recession. In short, the official response has ensured a continuation of the growth in inequality evident throughout the neoliberal era.
The report concludes by stating, “We need to decide as a society whether this increase in income inequality is efficient and acceptable and, if not, what mix of institutional and tax reforms should be developed to counter it.” Basically, the report is suggesting a potential return to a more regulated Keynesian-style model. But despite clear gains with regard to income inequality and quality of life for many Americans during the Keynesian era, this model ultimately failed for reasons that cannot be ignored.
Firstly, while reductions in inequality were achieved within the United States and many other nations in the global North during the Keynesian era, wealth was still far from equally distributed. Furthermore, the wealth that was redistributed domestically in the United States and other industrial countries remained predicated in large part on a neo-colonial capitalist system. And any nation or peoples in the global south that dared to challenge this system quickly incurred the wrath of the United States, as was evidenced in Iran, Guatemala, Cuba, Indonesia, Chile, Nicaragua, El Salvador and many other countries.
Secondly, the Keynesian model was still a market-based system, albeit more regulated than the neoliberal model. As such, Keynesianism was destined to fail because the regulatory regime and redistribution of wealth it promoted contradicted the internal logic of capital. After all, capital constitutes the engine that drives the capitalist system and it can come in many forms (i.e. money, land, buildings, machinery, goods produced, etc.). Ultimately, the internal logic of capital compels it to achieve self-expansion through the generation of profit and rents, which constitutes capital accumulation.
In essence, capitalists use their money as capital to generate profits, which translate into more capital, thereby achieving capital accumulation. As Karl Marx noted, “The economic character of capitalist becomes firmly fixed to a man only if his money constantly functions as capital.” And as Joel Kovel explains, “When we say ‘capital does this’ or that, we mean that certain human actions are carried out according to the logic of capital.”
In this context, the Keynesian policy framework and its resulting regulatory regime and redistribution of wealth constituted a restriction on the capacity of capitalists to maximize profits in order to further accumulate capital. Capitalist elites—known in today’s parlance as the top one percent—were only willing to tolerate the Keynesian policy framework in the context of the shadow cast by the Great Depression and the appeal of the more radical Soviet “socialist” alternative because the market remained the principal arbiter of economic activity and profit generation was robust during much of that period.
However, as soon as the rate of economic growth slowed in the United States and throughout the global North, resulting in capital experiencing a crisis of accumulation, it became necessary for capitalist elites to dismantle the Keynesian policy framework in order to resume expansion, this time under neoliberal globalization. In fact, the internal logic of capital compelled them to do so.
Capital viewed the higher wages achieved by workers in the United States and other wealthy nations of the global North under the Fordist compact and the social programs implemented under the Keynesian policy framework as barriers to overcome in order to maximize profits. Therefore, the Keynesian policy framework’s redistributive project ultimately proved unsustainable because it contradicted the internal logic of capital and was implemented under liberal democratic regimes that prioritized the interests of capitalist elites, or the top one percent.
The ultimate failure of the Keynesian policy framework made evident the futility of attempting to regulate capitalism as a means to more equally distribute wealth and to achieve social justice. Therefore, as István Mészáros notes in reference to the current economic crisis, “One of the understandable, but ultimately self-defeating, illusions we have to guard against is any form of neo-Keynesianism, including so-called left-Keynesianism. The calls for its revival today are understandable because they correspond to the line of least resistance to which the personifications of capital can temporarily agree under the circumstances of a major crisis.”
In conclusion, “Striking it Richer” highlights the structural inequality that is inherent in the capitalist system while the failure of the Keynesian model’s redistributive project illustrates the futility of implementing reforms that contradict the logic of capital. Therefore, in order to challenge the privilege enjoyed by the top one percent and achieve a more just and sustainable society, it is crucial that we avoid simply trying to reform capitalism and instead target the fundamental structures of the system—private property and a market-based economy—that facilitate capital accumulation as well as inequality and many other social injustices.