Linda McQuaig at The Star:
… a seismic shift could be underway. With the financial crisis exposing Wall Street’s greedy and reckless behaviour, the public may be becoming less deferential to the super-rich. Last weekend, CNN ran a special on Wall Street called Fall of the Fat Cats – a damning take on the nation’s financial elite that would have been inconceivable only a few months ago.
So far, the focus has been mostly on the misbehaviour of “fat cats,” and the need, therefore, for tighter market regulations. But a more profound question lurks beneath the surface: Is extreme inequality itself part of the problem?
Some analysts are now arguing that the extreme concentration of wealth may have contributed to the crisis, just as a similarly extreme concentration of wealth in the 1920s contributed to the crash of 1929 and the Great Depression.
James Livingston, a historian at Rutgers University, sees strong similarities between then and now.
Livingston points out that in the 1920s there was a massive shift in the distribution of income away from wages toward corporate profits. With consumer demand suppressed by the restraint on wages, corporations had little incentive to invest their hefty profits in expanding production. So they turned to financial speculation.
Since the 1980s, there’s been a similar income shift away from wages toward profits. Livingston argues that, with consumer demand suppressed, George W. Bush’s massive tax cuts for the rich “produced a new tidal wave of surplus capital with no place to go except real estate,” fuelling the housing bubble.
This suggests extreme inequality itself may lead to financial speculation. If so, meaningful solutions may have to go beyond re-regulation, and include a return to higher taxes on the rich.
Of course, the rich – and their think-tanks and media outlets – would insist such measures will stifle economic growth. But in the years between the Great Depression and the 1980s, financial markets were tightly regulated – and the rich were highly taxed. Yet – and this is crucial – those early post-war decades were times of great prosperity and growth.
Progressives have long argued for higher taxes on the wealthy – on grounds of fairness. But now, as the financial meltdown threatens to destroy the real economy, fairness may be secondary. Taxing the rich may boil down to a question of economic survival.
Read the whole thing here