For all of the discussion about the causes of the latest economic meltdown, it’s mystified me why inequality has been largely ignored.
The blame is almost always laid at the feet of proximate factors like negative savings rates, ponzi-like housing bubbles, exotic debt instruments, deregulation and a neo-liberal faith in the corrective nature of unbridled capitalism. But none of these explanations really get to the heart of why the crisis occurred. These explanations aren’t irrelevant, to be sure, but they seem to be intermediate factors at best, factors which themselves are the consequences of deeper and longer-term problems. Just like the assassination of Archduke Ferdinand was merely the spark that ignited a host of issues that built up before 1914, this current economic downturn has longer and more serious causal antecedents.
To me, the key issue is inequality. I don’t mean inequality in moral terms, which is often how it is cast. I mean inequality in terms of a functional problem for capitalism. In economies where consumer spending predominates (the USA, 67% of GDP; in Canada, 56%), the prime concern is getting money (back) into the hands of those who will immediately reintroduce it into our communities. Spending is the life-blood of our western economies. Without a doubt, saving and investment are important for long-term growth, but consumption is the key to economic circulation and moving savings to investment. Yet this has been a problem since the 1970’s, when real income and wealth, adjusted for inflation, started to stagnate or decline for all but the richest quintile of North American citizens.
In this context, policies and programs designed to encourage people to spend have had to encourage debt, because the money isn’t otherwise there. Debt, in other words, is the inevitable by-product of pro-consumption policies that ignore systemic inequality. This is where David Harvey comes in. His analysis is unabashedly Marxian, but, to the extent that his explanation strives to uncover the root issues, it’s clear that such an analysis can’t be ignored. Of course, I’m not really mystified why we are silent with regard to inequality. Once you admit that inequality is a central explanation, then a Marxian analysis is almost unavoidable. And capitalists and capitalist societies simply don’t want to open that debate. (Well, not always.)
The following is a succinct and visually arresting summary of David Harvey’s argument: