The US economy today mystifies nearly everyone: left, right and center. It is full of jarring contrasts and contradictions. Its interdependence with the rest of the world economy adds more mysteries. Yet, one fact looms larger every day. Wealth and income are ever more unequally distributed both within the US and in the world. Political and cultural inequalities follow suit. Not only are the haves facing angrier have-nots, but even that in-between group, the “think-they-haves,” are doubting. To change today’s world requires understanding its worsening economic inequalities.

We begin with production and wealth. They grew fast in the US over the last 25 years, as capitalism’s boosters (from Bush on down) constantly celebrate. Yet polls show most people in the US to be unhappy—and wisely so—about the economy now and fearful about tomorrow. Real wages and salaries (i.e., adjusted for the prices people pay) in the US stopped their historic 150-year rise in the 1970s and have fallen since. Meanwhile, those same workers’ productivity rose; they produced ever more but got no more for doing so. Their extra output instead raised business profits.

Soaring profits fueled a stock market boom that widened the gap between the profit-dependent few and the many relying on wages and salaries. With falling real wages, the “middle” class commenced its descent amid feelings of uncertainty and anxiety. Sears faded and Walmart surged. Fast food feeds the many, while the few enjoy “gracious” dining. For rich and poor, education and healthcare become as unequal as their wealth and incomes.

Working more

Large sectors of the US had gotten used to rising standards of living during their 150 years of wage increases. The public relations industry and advertising taught that what you can afford measures your success. When wages stopped rising, people in the US searched for other ways to keep raising their standards of living. And that changed everything.

To offset falling wages for their work, people worked more. The average US worker worked 20 percent more hours per year today compared to 1980. In Western Europe across those years, annual hours worked fell by 20 percent. Nonetheless, more hours at falling wages proved insufficient. So people in the US borrowed to pay for rising consumption, more than any working population in human history ever borrowed. Now, they feel exhausted physically and psychologically stressed by their debts. They have less time for their families and relationships just when both suffer mounting pressures. Divorce rates rise alongside indices of painful alienation (drug and alcohol dependence, interpersonal abuse, crises of obesity, and so forth). A generalized loneliness provides opportunities for promoters of fundamentalist religion, commercialized sports, foreign wars, and every other marketable distraction.

Selling more goods to squeezed US consumers also required lower prices. Corporations competed to boost profits by finding the cheapest worksites and exploit the cheapest laborers. Among contenders offering their countries and workers, China won. Corporations moved production there and exported the lower-priced products back to the US. China industrialized, US corporations profited, and Walmart soared by distributing products made in China.

Big business, small government

Booming profits emboldened and enabled US business to reshape government policies. Tax cuts since 1980 went chiefly to businesses and the rich. Business opposition hobbled the government’s economic regulations. Government lacked the resources to increase payrolls as it had before. Job-seekers (especially women, young people just starting, and immigrants) turned instead to private employers, bidding down wages and so increasing profits there. US unions, already weak, faced more government assaults.

As US workers struggled with these new economic pressures and realities after the 1970s, they turned inward. Businesses used their profits to control politics as labor hunkered down in the economic storm.

Business’s first priority was to cut the “welfare state,” those governmental programs serving basic needs (unemployment insurance, social security, health and safety regulations, environmental protections, and so on). Roosevelt started most of these programs to offset the capitalist Depression after 1929. Later administrations added others. Most businesses resented paying taxes for those programs and favored ending them or replacing them with private enterprises. The Republican Party did what business wanted quickly while the Democratic Party proceeded more slowly.

The current Bush regime intensified all these trends: decimate the welfare state, cut taxes, deregulate business, and attack unions. When it undertook costly foreign wars while cutting taxes, it had to borrow vast sums. Thus government borrowing added to already exploding household borrowing. Since the US savings rate had fallen to near zero, the massive borrowing required loans that had to come from foreign lenders. Thus, today’s global economic system must gather savings from everywhere and use them for loans to the state and to households in the US. Foreign loans have been crucial to finance the Iraq and Afghanistan invasions while taxes were cut. They were likewise crucial to support US consumption while workers’ wages fell. And only that loan-based US consumption could keep factories in China (and elsewhere) producing and employing the millions otherwise without livelihoods.

Loans are the business of banks, insurance companies, brokerages, etc. To complete our analysis we must fit finance in. US banks combined into global mega-banks over the last 25 years partly to serve their corporate clients’ globalized business. Mega-banks also profited from arranging the loans that sustained this world economy. By establishing branches or buying local banks everywhere, they gathered the world’s deposits and loaned them especially to US borrowers. They helped China, Japan, and the oil producers to use their export profits for more such loans to the US. Today, two-thirds of the rest of the world’s savings are loaned to the US (and thus not used for projects desperately needed in the rest of the world). The huge profits from this global finance generate those Wall Street salaries and bonuses that make headlines.

Naming the system

No inevitabilities here: another world economy was and remains possible. Workers, corporations, and governments could have defined their interests differently and pursued other strategies. The dreams of reformers—that corporations could be permanently taxed and regulated to prevent gross economic and social inequalities—proved wrong. So long as profits are received and dispensed by boards of directors chosen by and responsible to the dominant (few) shareholders, those people can undo reforms. That’s why millions have now been deprived of the pensions, health plans, and subsidized public higher education that reforms once provided.

Millions of others lost countless government supports and protections once won by reformers. An old truth has returned yet again: to secure a better world, working people (not boards of directors or shareholders) must receive and dispense the profits their work yields. Capitalism is the problem; reforming it is not the solution.