Paul Krugman explained the complaints in a Rolling Stone article back in November 2006. He was right then, and things have only gotten worse since.
The reason most Americans think the economy is fair to poor is simple: For most Americans, it really is fair to poor. Wages have failed to keep up with rising prices. Even in 2005, a year in which the economy grew quite fast, the income of most non-elderly families lagged behind inflation. The number of Americans in poverty has risen even in the face of an official economic recovery, as has the number of Americans without health insurance. Most Americans are little, if any, better off than they were last year and definitely worse off than they were in 2000.But that isn't the whole story. Jacob S. Hacker has written an excellent book called The Great Risk Shift. Not only are America's most wealthy individuals hogging all the profits from our very productive economy, they are shifting all the risk of failure onto individual workers.
But how is this possible? The economic pie is getting bigger -- how can it be true that most Americans are getting smaller slices? The answer, of course, is that a few people are getting much, much bigger slices. Although wages have stagnated since Bush took office, corporate profits have doubled. The gap between the nation's CEOs and average workers is now ten times greater than it was a generation ago. And while Bush's tax cuts shaved only a few hundred dollars off the tax bills of most Americans, they saved the richest one percent more than $44,000 on average. In fact, once all of Bush's tax cuts take effect, it is estimated that those with incomes of more than $200,000 a year -- the richest five percent of the population -- will pocket almost half of the money. Those who make less than $75,000 a year -- eighty percent of America -- will receive barely a quarter of the cuts. In the Bush era, economic inequality is on the rise.
Rising inequality isn't new. The gap between rich and poor started growing before Ronald Reagan took office, and it continued to widen through the Clinton years. But what is happening under Bush is something entirely unprecedented: For the first time in our history, so much growth is being siphoned off to a small, wealthy minority that most Americans are failing to gain ground even during a time of economic growth -- and they know it.
Behind this shift, he [Hacker] contends, is the Personal Responsibility Crusade, eagerly embraced by corporate leaders andWhat the wealthy can't shift to individual workers they shift to the government as demonstrated by the Federal bailout of Bear Stearns.
Republican politicians who speak of a nirvana of economic empowerment, an "ownership society" in which Americans are free to choose. But as Hacker reveals, the result has been quite different: a harsh new world of economic insecurity, in which far too many Americans are free to lose.
The book documents how two great pillars of economic security--the family and the workplace--guarantee far less financial stability than they once did. The final leg of economic support--the public and private benefits that workers and families get when economic disaster strikes--has dangerously
eroded as political leaders and corporations increasingly cut back protections of our health care, our income security, and our retirement pensions.
The description of the merger between Bear Stearns and J.P. Morgan over looks the fact that J.P. Morgan is paying about $2.2 billion for the stock, but that the federal reserve is "loaning" J.P. Morgan $29 billion to cover the worst $30 billion of mortgage-backed securities and other complex investments Bear Stearns has. The loan is a non-recourse loan, meaning that if the securities go bad, there is no requirement that J. P. Morgan pay it back. The Fed has no recourse other than to force the sale of the investments. In short, that means that because of Bear Stearns failed investments the U.S. public is now on the hook for up to $29 billion of those bad investments. The risk taken by Bear Stearns has been shifted to the U.S. taxpayers.
Who profits? J.P. Morgan. They win every time a purchased investment succeeds, and the risk of failure has been shifted to the shafted taxpayers. That's "Free Enterprise" at work. But it works primarily for large banks (which make financial decisions about who owns what, but do not produce real goods and services), the very wealthy (similar to banks - their job is to protect and augment their own power and wealth, not to actually produce usable good and services for others), and the corporate officers of large corporations which, for the most part, control their divisions by extracting money from the older successful divisions and use that to try to create (or more likely acquire) newer divisions.
While there is some value in what the corporate offices do, for the most part the actual creative work of creating and developing new businesses (entrepreneurship) occurs far below and out of the sight of the level of top corporate management. Top corporate management is mostly about avoiding or shifting off risk. And who do they shift it to? Workers, government, or speculators. Only the last of these is really economically valuable to society, and it's a lot less valuable than creating new and improved products and services is. Bankers and top corporate management in large corporations are not doing entrepreneur work. At best they facilitate some entrepreneurs, but for the most part they shift risk off to those who do not know what is happening to them, while keeping the rewards from successful entrepreneurs.
The Republican party is the party of risk shifters and wealth protectors. The Democratic Party is (or should be) the party of wealth producers and entrepreneurs. and when I say entrepreneurs, remember that banking and financial entrepreneurship is entirely about creating new ways of shifting risk and ownership of the rewards of risk while taking a cut off the process of shifting, not about actually producing new goods and services that have social utility.
So does the current economy suck? Yeah, for most of us it does. Whatever we create is sucked off and handed to the wealthy who did nothing except create financial instruments or inherit wealth from some ancestor who may actually have created real value (Cindy McCain, Richard Mellon Scaife, or Eric Prince for examples.)
It's time that America returned to the ideals of the post WW II America in which society revolved around making the middle class successful instead of the very wealthy. A major side effect of that effort would be to return the American economy to being a productive economy rather than a financial economy. We'll also have a lot less of a boom-and-bust economy.
Only the mostly non-productive very wealthy will complain, and they won't really be hurt.