American Fortunes and Misfortunes
at Turn of Century

excerpted from the book

Wealth and Democracy

a political history of the American rich

by Kevin Phillips

Broadway Books, 2002, paper

p125
Between September 1929 and July 1932, as we have seen, the value of all the securities traded on the New York Stock Exchange fell from $85 billion to just $15.6 billion. Between March 2000 and April 2001 the value of the securities traded on the NASDAQ dropped from $7 trillion to near $4 trillion. The value of all U.S. stocks collapsed from roughly $ 15 trillion early in 2000 to just over $10 trillion in April 2001. In late September 2001, the Economist of London, pondering the blow to the U.S. economy posed by that month's terrorist attack, noted that the 14.3 percent fall in the Dow-Jones Industrial Average in the five days to September 21st was its biggest one-week loss since 1933, and went on to add that "America's broadest share index has fallen by almost 40% from its 2000 peak. That sounds modest compared with the 85% plunge in the three years after 1929, but the stockmarket plays a bigger role in the economy today. The loss of equity wealth over the past 18 months is equal to 75% of GDP, a bigger proportionate loss than after the 1929 crash."

p141
... the unprecedented billions pouring into stocks and mutual funds [1982-2000], besides dwarfing any previous totals, marked a historic I shift-the overtaking by the hitherto speculative securities sector of more sedate and long-dominant banking institutions in total assets managed. In reaching $2.6 trillion in November 1995, mutual fund assets for the first time exceeded deposits in the U.S. commercial banking system. By 2000 their margin had widened to several hundred billion dollars, in retrospect a leading indicator of vulnerability. At the same time, sweeping deregulation was further blurring the lines between the banking and investment sectors. To flesh out the transformation, the percentage of U.S. individual wealth committed to stocks jumped during the 1990s from 12 percent to 26 percent. Individual financial wealth, a narrower category, went from being 20 percent in stocks to 50 percent. More than ever before, wealth itself was being securitized-traded on exchanges rather than lived in, minted, worn as jewelry, or ridden in leagues and miles.

As we have seen this did not give Mr. and Ms. J. Q. Public the new and weighty stake so often attributed to them. Indeed the nation's collective private wealth had become so heavily concentrated in the hands of the top 1 percent (40 percent) - or at best, the top 10 percent-that expansion of these holdings accounted for most of the increase. Talk about the shareholdings of the "average American" greatly misled because that average was pulled up by the huge top-tier ownership.

"For all the talk of mutual funds and 401 (k)s for the masses, the stock market has remained the privilege of a relatively elite group," observed the Wall Street Journal in 1999. "Nearly 90% of all shares were held by the wealthiest 10% of households. The bottom line: that top 10% held 73.2% of the country's net worth in 1997, up from 68.2% in 1983.

p147
Over two centuries corporations have become the underpinning of U.S. finance and wealth, also serving as an important, although rarely central, touchstone of American political controversy. as we will revisit in greater detail, four periods stood out in which corporations incited Americans through overconcentration of power and wealth, neglect of national interests, or outright corruption: the 1830s, when Andrew Jackson attacked specially chartered corporations and their ties to wealth; the Gilded Age, with its furor over monopolies and trusts; the New Deal years; and the late 1960s and 1970s, when corporations came under renewed attack for giantism and inattention to consumers, racial discrimination, and the environment. Between 1968 and 1977, the percentage of Americans crediting businesses with pursuing a fair balance between profits and the public interest dropped from 70 percent to 15 percent.

p149
... whereas back in 1950 and 1970 corporations had paid 26.5 percent and 17 percent of the total U.S. federal tax burden, that dropped to 12.5 percent in 1982 and 9.1 percent in 1990. In virtually any year, a considerable number of corporations weren't paying any federal income tax.

Besides some $60 billion a year in industry-specific tax breaks, the Cato Foundation, a Washington think tank hostile to corporate largesse, has estimated that at the turn of the century the federal government provided business some $75 billion a year in subsidies. Ralph Estes, professor of business administration at the American University, has hypothesized the broader annual social costs of corporations everything from corruption to injury, stress, lobbying, pollution, waste, and overcharges- that go unreimbursed and are thus borne by communities, employees, customers, and society at some $2.6 trillion in 1994. ... Estes' larger point is that nobody knows: in the present system, corporations are largely unaccountable.

p167
During the 1980s and the 1990s ... the two most widely watched U.S. indicators, the Fordham University Index of Social Health and the Genuine Progress Indicator (GPI) published by San Francisco-based Redefining Progress, showed a more or less steady decline from the high-water marks of the 1970s. The Index of Social Health, for example, included ongoing downtrends in measurements like child poverty, health care coverage, and youth homicide.

Upticks in both of these indicators came during business cyclical peaks in 1985-88 and 1995 to 1999. In the latter period, about one-third of the losses since the late 1970s were regained. However, as Chart 3.30 below shows, the overall trendline for both the eighties and the nineties remained down. The two measurements used somewhat different criteria, although most components in each drew scoffs from believers that the economy should be measured by economic transactions and dollars alone. It was striking, though, that both indexes had been rising along with the gross domestic product until they began diverging in the 1970s. Chapter 8 will pursue the most likely causation: that market- and wealth-focused financial booms have too narrow a base, benefit, and commitment.

Beyond these indexes, the finance-centered boom of the late twentieth century ignored other social criteria and goals. Despite general prosperity between 1997 and 2000, poverty and demand for food and housing assistance grew in many middle-class areas of affluent high-technology and financial centers like California and greater New York City. Besides steep apartment rents and home prices, blame was also put on declining employee benefits, low-income debt payment burdens, and the numbers of officially "employed" who could not make ends meet as part-time or temporary workers.

For the middle class there were other costs as the huge money flows to the rich increased the price tags of affluent forms of consumption enough-not just first-class airline seats, but the cost of health clubs, sports admissions, symphony tickets, museum admissions, good restaurants, private schools, banking services, and big-city automobile maintenance-that many in the eightieth and even ninetieth percentiles could no longer afford what their similarly situated parents in the 1950s and 1960s had often managed. As one observer out matters. wherever space and attention were limited, more was going to the rich, while the services still available to the middle class became automated, digitized, and sparser. From baseball games and golf courses to school admissions, flooding upper-bracket cash ratcheted up prices. "Extra spending at the top," said Cornell University economist Robert Frank, "raises the price of admission."

As the federal, state, and municipal budget surpluses of the late 1990s stalled and shrank in 2001, where the future compass needle would point was hardly discussed. However, the ups and downs of U.S. economic history offered no true parallels. Late-twentieth-century financialization had no meaningful precedent, while previous American boom decades, as noted, had not been marked by diverging social and economic indicators. To pursue such precedents, it is time for our story to shift from wealth to another set of circumstances, this time foreign, that beckon across the years. These are the late stages of the trajectories of the three previous leading world economic powers: sixteenth-century Spain, seventeenth and early-eighteenth century Holland, and nineteenth and early-twentieth-century Britain.

Comparison is best for the latter two, not surprisingly. Yet all three displayed parallel symptoms during the late stages given to increasing emphasis on finance and services overproduction. Polarization of wealth and income set in along with some measurements of social decay. The top percentiles became richer than ever while the lower portions of society lost ground. In many ways; Americans at the beginning of the twenty-first century might think themselves looking in a mirror.

Wealth and Democracy

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