Global Journal of Human Social Science, E: Economics, Volume 21 Issue 4

Transforming Financialization and Inequality in a Post-Covid World John M. Balder I. I ntroduction uring the past decade, income and wealth inequality reached peak levels not witnessed since the eve of the Great Depression in 1928. Much of the blame for this two-tier society is placed at the feet of technological change and globalization. However, two important contributors are often ignored: first, the financialization of the U.S. economy, which has heightened the role of speculative trading and capital gains, which primarily benefit the top 10% of U.S. households, and second, the suppression of wages. It is troubling that in a country as wealthy as the United States, even before the pandemic, nearly 40% of all U.S. households could not handle a one-time expense of $400 without either selling something or borrowing. The Biden administration has been doing an admirable job at elevating awareness of these issues; however, reversing them will require long-term structural changes that will require broad participation of civil society to enhance productive activity and the creation of value. Given the enormity of current challenges, policies that were adopted during the Great Depression provide a helpful historical reference point. One important feature of the New Deal was the focus on job creation, productivity growth, and wages. The macroeconomic policies put in place after the Second World War linked wage increases with productivity growth (see chart below). This ensured that workers were fairly compensated for their contributions. However, beginning in the 1970s, productivity growth (orange line) diverged sharply from increases in hourly compensation (blue line). Wages and salaries, as a share of income have plummeted over the past forty years (grey line). Source: Economic Policy Institute, FRED, Author Figure 1 1 Crouch (2010), p. vii. Other names used to describe this ideology include market fundamentalism, market liberalism, market triumphalism, or the Washington Consensus. The argument is advanced that unfettered markets are best capable of “satisfying human aspirations.” 1970s, Friederich Hayek, Milton Friedman and other D Volume XXI Issue IV Version I 1 ( E ) Global Journal of Human Social Science - Year 2021 © 2021 Global Journals What prompted this shift? The postwar compromise worked well so long as growth remained robust. However, as real growth slowed, inflation rose and corporate profits fell, supporters of neoliberalism (Friedrich Hayek and Milton Friedman) argued that a shift in ideology and policy was needed. The new ideology or political program (neoliberalism) meant that “markets are in particular to be preferred over states and politics, which are at best inefficient and at worst threats to freedom.” 1 Throughout the crisis-driven Author: Recently semi-retired having worked in government, the financial markets and academia. He currently is writing a book about free market ideology, financialization and inequality. e-mail: jbalder1@comcast.net