http://www.eoionline.org/blog/x-marks-the-spot-where-inequality-took-root-dig-here/
article
from that article
Something significant happened in the '70s to produce that shocking and very consequential discontinuity.
several things happened all at once: ever since the reforms that followed the great depression, the people that felt they had been hurt by those reforms (they are few in number, but they're very very rich) had been trying to undermine them and the gigantic success of the economic theory that worked extremely well for almost half a century. in the mid '70s, several things happened all at once:
- OPEC created an artificial shortage of oil1. this created an unusual type of recession, called a supply side recession, which is accompanied by high inflation, where normal, demand side recessions have deflation or deflationary pressure. The Fed was not able to do anything to restore the oil supply, so the problem persisted and president Nixon thrashed around with ineffective policies like price controls that just made everything worse.
- Milton Friedman won the Nobel in 1976, giving him a potent platform, despite the obvious, catastrophic failure of his ideas when implemented2 in Chile3, Argentina, Brazil, Iran. Reagan embraced them wholeheartedly and began implementing them here as fast as he could: killing unions and infrastructure projects, giving away government resources (especially forests) willy nilly4, allowing the minimum wage to fall behind inflation, etc. But they'd learned how important propaganda is and they used it well. Obama is the first president since then to admit some skepticism.
- One of those ideas was that shareholder value5 was the only thing that mattered, and that such issues as product quality, responsible behavior in the community, how they treat employees, etc., are accurately reflected in the stock price. This is one of a collection of ideas that are collectively called the Efficient Markets Hypothesis. It is wrong, catastrophically so, but the double whammy of the Nobel and the OPEC-caused recession seemed to give it credibility. It tended to encourage self serving or sometimes even fraudulent behavior to prop up the stock price, instead of better products and better corporate behavior. And it tended to make the sort of people who can afford to buy influence even richer, so they chose to buy influence that reinforced the idea.
- In 1978, the supreme court ruled6 that banks can charge up to whatever the interest limit is, in the state in which they are chartered no matter what the rules are where the business is being done. this immediately led to several states eliminating their usury laws and made the predatory lending business possible, as well as the only slightly less predatory credit card business.
- availability of effective air conditioning made it practical to employ industrial and office workers in the south, so many industries moved their worker base to "right to work" states, where it was legal for businesses to obstruct union organizers. This was a long trend but the '70s marks a big transition.
- containerized shipping made it practical to outsource manufacturing to far away places, where they have even fewer worker protections and lower wages than in the American South.
- Free Trade agreements exacerbated the ease of outsourcing.
- the people who were old enough to remember and understand the great depression first hand started dying off. Policies like Glass-Steagall, the Securities Act of 1933, and the Securities Exchange Act of 1934 were enormously effective and they were all weakened in the 70s through 90s.
during the 30s through 70s, we did such a good job with infrastructure that it took decades for the damage the EMH and the rest had caused to be obvious. The middle class had plenty of savings, the roads were built looking ahead to 30 years or so of growth and wear, and so forth. But now it's gone. if we actually do want to restore the things that were good about the 40s-90s, we need to unwind as much of this as we can.
There's probably not much we can do about shipping. But all of the rest are conscious choices we have made. The most catastrophic was the election of Reagan, but we can repudiate the changes he made to union rights, to public infrastructure support, to management of public resources.
We need to make regulations that force private corporations to be good citizens: minimum wage, union protections, environmental protection. Once one business in a market has begun cheating, they all need to, in order to compete. We need to break that cycle. Business groups might be able to do this but their track record is abysmal. Regulation, unfortunately, is the only way. If done right, it will hurt all by exactly the same amount, which means all will keep their present markets.
We need to reverse Marquette v First of Omaha somehow. Probably the only way is a national usury law. I'm thinking it should be flexible and adaptive. For example, the Prime Lending Rate plus 6. presently the prime is about 3.5%, so this would be a 9.5% cap on loan interest. During more normal times, the prime is closer to 7% so this would be 13% cap. If predatory lenders can't make a profit at that rate, that's a good thing: they won't be making ruinous loans. Credit card companies are doing good business at 13% today.
Note that Donald Trump is a supporter of many of the things that have made us less great. To the Donald, making America great again is about making Donald Trump rich at the expense of everybody else.
1 The reason OPEC did is because the US gave its whole-hearted support to Israel in the 1973 Yom Kippur war. OPEC is very dominated by Saudi Arabia. After a second shortage in the late '70s, the US administration changed its policy to kowtow to the Saudis at every opportunity. Reagan's point man on this policy was George HW Bush.
2 A lot of South America had been dominated by "the Chicago Boys", a group of economists who got their training under Friedman at the University of Chicago.
3 The 1973 coup in Chile was to remove (and murder) a popular and effective socialist (Allende) and replace him with a puppet that was friendly to Friedman's ideas (Pinochet) who deregulated much of Chile's business. As usually happens when this is tried, economy quickly collapsed. Well, they said, the only thing for it is even more freedom for business. when the people squawked about mass unemployment and poverty wages for the few jobs there were, where before the coup they'd had good jobs and a booming economy, the leaders of the rebellion were "disappeared". 7 years later, Pinochet was soundly defeated in an election, so Pinochet rewrote the constitution to let him keep power. Pinochet and his administration is gone now but Chile has not recovered from the damage he did. This was the most egregious example, but Brazil, Argentina, Greece, Iran and several others were subjected to similar "experiments" in capitalism which all failed miserably. Pretty much all of the trouble we've been having with Iran stem from our similar 1953 coup.
4 Lincoln had given massive tracts of land to the railroads and homesteaders. There was a strategy behind this, about expanding infrastructure and opportunity for millions of Americans, and the country got far more in return than it gave up. But what Reagan did was give away forests and mineral reserves to businesses who wanted despoil the land and take the profits for themselves, leaving the rest of us worse off than we were before.
5 Jack Welch, long time president of GE, was during his tenure a major supporter of this idea. Since he retired, he's realized the error of his ways and has taken to calling it "the dumbest idea in the world". http://www.forbes.com/sites/stevedenning/2011/11/28/maximizing-shareholder-value-the-dumbest-idea-in-the-world/#152d2c682224. I'm loath to use superlatives, especially when there are so many other incredibly dumb ideas to choose from, but it's possible he might be right.
6 https://en.wikipedia.org/wiki/Marquette_National_Bank_of_Minneapolis_v._First_of_Omaha_Service_Corp.
