Our current money system is designed to shift wealth from the people who produce goods and services on Main Street to the bankers and financiers who have the privilege of creating new money for our nation. The system is designed to privatize profit and socialize risks and costs. The system is in hyperdrive.
Think again of the 20th century curve of money growth: we had mid-century decades when wealth could shift to the elite and we could still have a solid middle class. But on this exponential growth curve, we are at the end heading straight up. The middle class is rapidly dwindling as more people are pushed into poverty. We have extremes of wealth not seen since the Gilded Age before the Great Depression that began with the market crash of 1929.
In the recovery from the most recent bust, from 2009 through 2015, the richest one percent captured 99 percent of the growth in national income.142 With a monopoly on wealth and income, they gobble up, own and control most of the private wealth in our nation. Here are some of the ways our money system shifts wealth from most of us to a tiny few, giving them the power to rule.
Money creation privilege
Bankers create our money and take the seignorage. Then, every single dollar moving around in our economy carries an interest burden that will go to the money-creator bank owners from the rest of us.
Close to creation
Our system steadily devalues our money, so the closer you are to the creation of money – the issuance of loans – the greater advantage you have. The bankers and their closest friends can use the fullest value of money when it is new. By the time the money moves around to the rest of us, its purchasing power is diminished.
Opportunity for the wealthy
When most people have lost their shirts in the bust part of the cycle, they must sell assets at rock-bottom prices. The people who have great wealth, and/or the ability to borrow, snap up these assets. For example, the market for real-estate owned by a lender (typically after a foreclosure), boomed in 2011 after the 2007–2008 meltdown. According to Wall Street analyst, Graham Fisher & Co., investors made 27 percent of home purchases, a number right in line with the housing bubble years of 2004 and 2005.143 When investors buy up houses they never intend to live in, they push up the price for ordinary people looking for a new home.
In a significant shift from the pre-2007 bubble, many of the real estate investors today are hedge funds. Blackstone Group, a well- connected hedge fund, bought $7.5 billion in real estate rental properties from 2011–2013. That’s $7,500,000,000 – enormous buying power. While it involved other investors, it had a $3.5 billion line of credit it used to make a substantial portion of these buys – more than 40,000 homes across the country. By 2017, it had spent $9.6 billion on rental homes. Blackstone could step in and make cash offers, elbowing working families out of the market and buy up whole neighborhoods. Since 2016, Blackstone is America’s largest landlord of rental properties.144
This significant shift of home ownership will have a dramatic impact on communities. When a single entity owns most of the homes in a neighborhood, they have a degree of control over the community that harks back to feudal kings and their castle lands – or to owing your soul to the company store.
This power over individuals and whole communities leads to power over government. A few superrich become the policy makers in government and perpetuate their wealth grab. For example, President Trump chose billionaire Stephen A. Schwarzman, Chairman, CEO and co-founder of Blackstone Group to chair his Strategic and Policy Forum. Schwarzman picked the financial leaders who would determine the Trump administration’s economic policy.
Not surprisingly, he chose a stable of billionaire Big Bank and Big Business corporate interests. Former Goldman Sachs executive, Gary Cohn became the Director of the National Economic Council. No one represented labor, the environment or the common wealth. Predictable hard times are coming for most of us, when we have no seat at the decision-making table.145
Update: within six months, Trump’s advisory councils quit because of his comments about the “nice people” carrying Nazi banners and using Nazi slogans at a rally that killed a woman in Charlottesville, Virginia.146 In March 2018 Gary Cohn quit when Trump announced trade tariffs without consulting with his economic team.147
Exploitation powers the transfer
Policy after policy demonstrates America considers its land and people resources for wealthy business owners to exploit for profit. We do not demand business meet a high standard: provide a living wage, operate cleanly and sustainably and make a profit.
We have a system of exploitation, not a system of respect for the value of life. Some of us must take jobs paying slow-death wages – not enough to eat well, care for our children and live modestly stress- free. Some of us must take jobs in poorly regulated and hazardous industries and face early-death work conditions. When a few of us have more because the rest of us have so little that healthy survival is not an option, what does this say about us? Individually and environmentally exploitation is pushing the limits of our ability to survive.
Low and early-death wages
We think slavery is immoral and ban it by law. But if it’s not formal slavery, it is OK to keep people enslaved – working multiple jobs to make enough to barely get by. Is it moral to work people full time at a wage that will not put a roof over their head and food on the table for their families?
In 2012, one in five Americans worked at poverty level wages – at or below the federally mandated minimum wage of $7.25/hour. There is no state in the Union where these workers can find an affordable place to live (2-bedrooms costing no more than one third of their income). In Hawaii, our most expensive housing state, a family breadwinner would have to work 175 hours/week at minimum wage to afford basic housing. That’s not possible; there are only 168 hours in a week – 24/7! In America nearly one in four working families spend more than half of their income on housing. They short other basics like health care and food. The stress of multiple jobs and juggling bills is a killer.148
Poor people depend on work and often must take what they can get. We have 160 million Americans in the labor force. Roughly 20 million of them are not working. About 14 million of those not working are disabled and can’t work. That’s pushing 10 percent of our workforce! That’s a sign something is seriously wrong.149 150
Out of 160 million working Americans, 5 percent – eight million – are working more than one job. Some may do it to get ahead, but many do it to survive. Is that morally right?151
The poor have little power to negotiate or pick and choose among safe well-paying jobs and early-death-dangerous, slow-death-wage jobs. Many businesses take advantage of this and their early-death- wage employees draw Medicaid and food stamps, shifting some of the cost of living for these hard-working people onto taxpayers. It makes more sense to demand every business pay living wages. Yes, prices might go up a bit to pay living wages, but then the consumer chooses whether the product is worth the true price. The real cost is on the good or service, instead of on the taxpayer or the worker’s life. And people earning a living wage can afford to support business as consumers instead of as exploited early-death-wage labor. European countries set high standards and maintain strong economies. We can, too.
The union movement of the mid-20th century pushed back on the exploitation of labor. It gave wage earners a voice and some balancing power in negotiating with the owners of businesses and with government, and they were successful. Unions gave us the 40-hour work week, sick days and vacations, an end to child labor, and safer work conditions. Today union workers average 20 percent higher pay than non-union after controlling for individual, job, and labor market characteristics. Yes, in some cases unions have gone off the rails into crime, corruption and overprotection of lousy employees. But, those are correctible issues. European unions don’t seem to have these problems.
In the 1980s, roughly one in five workers belonged to a union, supporting a comfortable middle class. As the steep curve of money creation headed upward in the latter part of the century, a well-paid middle class had to shrink to enable the extraction of wealth by the few and the system’s need for more impoverished borrowers. Today, union membership is about one in 10, and on the decline – as are average wages.152
Successful propaganda supports the false claim that unions are bad for the economy; in truth they are only bad for short-sighted owners. Unions are good for the general welfare, providing some negotiating balance for the money power privileges. Problem-solving and decision-making improve when all interests are represented and can challenge groupthink ideology – leading to higher profits and greater prosperity for all.
Unions also keep more money circulating on Main Street and out of the deep pockets of Wall Street.
Since 1976 in Germany, which is the world’s fourth largest economy (a remarkable feat for such a small country), the law requires that union-elected representatives constitute half of the boards of companies with over 2,000 employees and one third of the board of companies with from 500–2,000 employees. The German economy does well under these requirements that respect labor.153
In 2011, the Consumer Financial Protection Bureau was established as “the nation’s first federal agency with the sole mission to protect American consumers in the financial marketplace.”154
Fulfilling the mission was an uphill battle when the Republicans in Congress were blocking adequate funding for the Consumer Protection Bureau under the Obama administration. However, as of January 1, 2017 the agency had handled over one million complaints, and secured $11.8 billion in relief for over 29 million consumers.155 Then came President Trump. Congress and the administration are under Republican control. They have made it a top priority to do away with the Bureau entirely. In the meantime, they’ve changed the mission to “The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by regularly identifying and addressing outdated, unnecessary, or unduly burdensome regulations…” 156 That is a radical ass-backward transformation of the mission! To the GOP this Bureau represents that pesky interference in the freedom of the money power to make as much money as they can.
We have a law protecting people who own money that someone else manages for them. The Employee Retirement Income Security Act of 1974 (ERISA) defines a fiduciary as someone who acts financially in trust for someone else.157 This law established an ethical and legal requirement that a fiduciary act in the client’s best interest, disclosing conflict of interest and fees. The definition has been strictly applied and did not include general brokers or sales agents of financial instruments, or financial fund managers.
Americans have about $12.4 trillion in wealth in retirement accounts.158 Most rely on financial advice at some time. Brokers, financial advisors and sales people have not been required by law to behave ethically and put their clients’ interests first. So, some don’t. They have an incentive to prioritize sales of financial products that bring them higher fees – even when they are not the best fit for the client.
The Office of Management and Budget estimated excess fees cost investors about $17 billion annually, diminishing retirement accounts and fattening financial professionals’ wallets.159 Stanford professor and Nobel laureate William Sharpe calculated that investing in low-or-no-cost funds rather than actively managed funds would save people so much money that it would result in a 20 percent higher standard of living in retirement.160
But when financial planners and advisors are not required to put their clients’ interests first, they are free to sell clients investment portfolios that bring the salesmen the biggest fees.
The Obama Department of Labor expanded the definition of fiduciary to include financial advisors and sales people. After all, doctors and lawyers must put their patients’ and their clients’ interests first, why shouldn’t financial advisors? The ruling was to go into effect in January 2017, saving people billions.
President Trump issued an executive order to delay the implementation of the ruling, with the expressed intent of doing away with it. Trump’s argument is that of the financial industry: if financial advisers and brokers are held to high fiduciary standards they won’t make as much money. If they can’t make as much money they’ll have to raise their prices because exorbitant incomes are their due. Then poorer people won’t be able to get their advice – some of which will exploit the customers’ naivete and gullibility.161 Republicans claim we will all benefit from their increased income – just not the people who are cheated or given bad advice.
We have laws that allow Walmart employees to be the largest group of Medicaid recipients in state after state; more of their 2.2 million employees are on food stamps and Medicaid than any other company. By some estimates, each Walmart worker costs taxpayers from $3,015 to $5,815, in total $6.2 billion in 2014.162 In 2007, the wealth of the six heirs to the Walmart fortune was equal to the combined wealth of 30 percent of the American population. Just eight years later, in 2013, Rob, Jim, Alice and Christy Walton, and their nieces, Ann Walton Kroenke and Nancy Walton Laurie owned as much wealth as 42 percent of our population – 134 million of our citizens.163 This is a wealth transfer machine at work. And, if you are shopping at Walmart, you are a cog in the machine gutting your own earning power.
For book length litanies of how the wealthy exploit taxpayers, read Perfectly Legal: The covert campaign to rig our tax system to benefit the super rich – and cheat everyone else, (2003); or Free Lunch: How the wealthiest Americans enrich themselves at government expense (and stick you with the bill (2008); or The Fine Print: how big companies use ‘plain English’ to rob you blind (2012), all by David Cay Johnston, a champion for government of, by and for the people. These books are eye-openers and you will never see big box stores, big business and the Money Power in the same light.164
Wealth begets wealth
Have you ever played the game, Monopoly®? There is a tipping point when one person has a majority of property with hotels. Once you hit this point, the result is inevitable: the person with the majority of property wins. In an economy, the end result is equally inevitable.
While the poor must work very hard to achieve wealth, the wealthy do not have this struggle. French economist Thomas Piketty pointed out in his book, Capital in the 21st Century (2014), once the superrich have a big chunk of wealth, their share will get bigger even if they sit by and do absolutely nothing.165
In recognition of this, and with a commitment to being a nation where hard work ruled, rather than inherited wealth, the US tax rates on the highest levels of wealth were at or above 90 percent from after WWII to the mid-1960s. Our laws have since changed to reflect the values of the ultra-rich, who apparently want to accumulate as much money for themselves as possible and hang onto it beyond the grave, without regard for the nation’s welfare.
Well-oiled wealth transfer machine
Our money system and its bedmate economic policy act as a machine that converts the future labor and production of borrowers into new money that goes in outsize proportion to the financial sector. Thirty years ago, the financial sector took home about 10 percent of corporate profits. In 2018 nearly 30 percent of ALL profits generated by domestic business in the US go to this financial extraction machine and its gamers. As they continue to successfully remove regulations that might curb their freedom to exploit the nation, the percentage increases exponentially.166 167 How is our well-oiled wealth transfer machine working? Very well. The rich are getting richer and taking ownership of more of the nation’s wealth. In 2014 in the US:
- The wealthiest 10 percent own 75 percent of America and take 40 percent of all US income.
- The wealthiest one percent own 43 percent of America, and take 20 percent of all US income.
- The wealthiest 1/10th of one percent own 22 percent of America and take 8 percent of all US Income.
- The wealthiest one hundredth of one percent own 11.2 percent of America and take 5 percent of all US income.168 And, this was in 2014.
Again, the wealthiest 1/10th of one percent takes home 8 percent of all income. Roughly 8 percent of all the money moving around in our $19 trillion economy goes to this very wealthy few. At the same time, the system strips wealth from an increasing number of people. Think about this eight cents next time you spend one dollar. The income of the middle class has been dropping over the past few decades. Today the poorest half of us own less than the richest 400 individuals in the nation. This is an unhealthy disparity – and a lot of unnecessary suffering in poverty.
A global problem
What is true nationally, is true globally. The bottom half of the world’s people now own less than one percent of total wealth, and they struggle to hold onto even this minuscule portion. On the other hand, the wealthiest 10 percent have accumulated a staggering 87 percent of global assets. The top one percent own 48 percent of the world’s wealth. A couple years ago when I first wrote this paragraph, only 85 people in the whole wide world had a net wealth equal to the total wealth of the poorest half of the world’s population. As I check my footnotes in June 2018, it’s now only EIGHT people. It makes me cry; I feel deep sorrow in my chest.169 Think about the power and the bad decision-making that follows:
8 people own as much wealth as\ 3,800,000,000 1/2 the world’s population.
There is an end to this game. All ownership of all the assets and money shifts to a tiny elite. When no one else has any money to spend, the economy collapses. Game over. A look at the curve tells us we’re getting close to the end. So, we better be putting some thought into what we want to come next.
Our current system allows a few gamers to extract about 50 percent of all the productivity in the nation. You may say, “I want to live where there is a Big Game – where if I make it to playing Big with the Big Guys, I can make an extraordinary fortune!” A system that sets up this kind of game, like a Ponzi scheme, means a tiny minority is rigging the game and skimming off the cream. Only a few will learn to play well, and join the tiny minority at the top. And they will be earning their riches as gamers at the expense of everyone else. Do we want a world where this is considered moral?
And, let’s not confuse those who come up with a great idea, an innovation that sweeps the market and makes the innovator a fortune, with the people who sit in a position to borrow billions and buy out our common wealth from under us – and then with the market cornered, raise prices, and suck out another stream of wealth from Main Street. Few in the US begrudge the wealth of those who have worked hard to earn it. But it does not sit well to have people who work the marketplace with an unfair advantage. This is not an envy or hate of people who are wealthy. It is an honest desire to have an equitable playing field where those who are wealthy genuinely earned it – without special privileges.