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How Capitalism Failed (and Took America With It)

 

WHAT THEY’RE SAYING--Go ahead and take a look at the chart above. What does it tell you? It tells me I’m looking at a society having the economic equivalent of a heart attack. From which there might well be no recovery. Let me explain.

The chart above is the “labour share of GDP.” What? It simply means how much of the economy goes to people who..work for a living. Who earns incomes from wages and salaries and tips and so forth.

(Now. I bet you thought that was something like 99% of the economy. Point number zero: it’s not. It’s around 55% — and falling fast. Wait, what? Just 55% of the economy is made of…working people’s incomes and salaries? What about the rest? The rest, my friends, is “capital income”: dividends, interest, and so on. That makes up about half the economy — and always has. Are you beginning to already see a problem here? Let’s try to unpack all that.)

The whole point of a modern economy — the first and fundamental point — is for labour’s income share to rise. That is, people who work for a living should see more and more of the gains an economy produces. Why? Because they are the ones who really create those gains. The rest is mostly rent-seeking, money skimmed off the top. If an economy’s mostly “capital income” for example, dividends and interest —think about it — who’s really creating anything new, doing anything of real worth? Nobody is the answer. Nobody’s ever earning a penny more for regular, average jobs, like nursing, teaching, plumbing, carpentry, or even not so regular ones, like astrobiology and nanotechnology. As a result, because capital income is taking about half the economy…a society can never afford things like public healthcare, education, childcare, elderly care, and so on, develop a social contract of expansive public goods. Bang! Nobody’s life ever gets better, except maybe a tiny number of people at the very, very top. Doesn’t that sound a little…well..medieval to you? It should. I’ll come back to that.

When an economy looks like America’s, the fact is that wealth is just being siphoned off forever from everyone else to the rich — and living standards stagnate for all. And yet that’s more or less the point America’s at. Hence, inless labour income rises, the result is usually social instability and unrest and revolution. But not all revolutions, as we will see, are progressive ones — some can be viciously regressive, too.

Think about history for a moment, to really understand this point. A millennia ago, nobody really “worked” for a living in the modern sense. There were peasants, and there were “nobles”. The “nobles” let the peasants keep some paltry share of what they produced — harvests, timber, grain — in exchange for…not killing them. That was called “chivalry”, the idea that I can do violence to you, but I’m very noble and romantic because…I don’t. Labour’s share of income in such an economy was…about 50%. That’s usually about how much nobles took: half the harvest, timber, grain, etcetera.

Fast forward a millennium to now. What progress has this group called “the people” really made? Well, they’ve won rights and constitutions and democracies and so forth. But all of those exist, really, for one reason. So that they win an increasing share of a nation’s income — and so it can’t just be taken from them by “nobles” extorting them. We should want average people to enjoy most, if not all, of an economy’s gains — precisely because they…well, work for it. (There’s no real point to an economy being made of capital income — when most of it is, it’s more properly called “tribute” to “kings” and “nobles”, people who don’t work for a living, but only do some kind of violence, exploitation, or harm.)

And yet in America…despite all the “innovation” and the trillion dollar companies and whatnot…the labour share of income has only increased from the medieval era’s 50% to…55%. LOL — what the? Five percent of a gain? If we subtract benefits, and just count wages and income, America’s labour share of the economy is…less than 50%, which is at or below…medieval levels. LOL. What on earth?

Contrast that with Europe. In France, for example, labour’s share of income is about 80%. That’s because the French fight for it. They’ve been on strike — the whole country has — for a month, for example, against “pension reform” — but the American media will never tell you that. You might get ideas — and nobody wants that.

America resembles something much more like Les Miserables than a modern society. America’s and France’s labour shares of the economy couldn’t be more different. That’s because America’s closer to a medieval society than it is to a modern social democracy, while France, despite its problems, is the epitome of the latter — with the vast majority of the economy going to working people, average people, for doing simple, regular jobs, like teaching, carpentry, plumbing, nursing.

America collapsed into its own dark age because labour income has fallen dramatically for the last seventy yearsThere has never been a point in modernity where America’s labour income has risen over a long term horizon. What the? Labour’s share of the American economy has fallen since the 1950s? Why is that?

That’s a Soviet outcome. And yet the reason, ironically, is capitalism.What the chart above really shows us is the failure of capitalism, as a socioeconomic system, in the hardest possible terms. Capitalism’s a raging success — for capitalists. It’s increased their share of income, capital income — to an absurd, almost medieval point. But the price has been that labour’s share of income — everyone else, working people, the average person — has fallen since the 1950s. Hence, the surreal dystopia that American life has become now — something like 75% of people can’t afford to pay the bills.

Capitalism’s entire point and purpose is to increase capital income, not labour income — and yet too many Americans fail to understand this elementary point. Your boss doesn’t ever want to give you a raise out of the kindness of his heart, hence you have to beg and scrape — and nobody’s been successful, in net terms: American average incomes have been stagnant since the 1970s. That’s precisely because capitalism is busy filling its pockets and gorging itself. The rich became super rich then mega rich then ultra rich. Once being a millionaire was rich — today, Bezos, Gates, and Buffett are worth trillions combined. (Read the rest.)

-cw