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

best incompetent and at worst corruptly self-seeking” ) 6 III. F inance and I nequality and Henry Manne would establish a program to “educate” judges about the virtues of free markets and neoliberalism. The MPS became increasingly influential during the 1970s as tensions accelerated and stagflation (stagnant growth and rising inflation) took hold. By the end of the 1970s, neoclassical economic models had shifted in a similar direction, embracing the free market. Milton Friedman proposed direct control of the money supply (monetarism) to reduce inflationary pressures. Newly appointed Federal Reserve chair Paul Volcker hiked short-term interest rates to peak levels of 20%, prompting a severe double-dip recession accompanied by record-level (10%) unemployment. Rising unemployment further undermined the authority of organized labor, which further strengthened capital. Even before Reagan was elected as president, the balance of power had shifted toward capital, as the Carter administration deregulated several industries (e.g., trucking, airlines, telecommunications, and finance). However, implementation of these policies would become far more aggressive and confrontational under Reagan. In a highly visible move, Reagan fired the striking air traffic controllers and disbanded their public sector union. He appointed people to the National Labor Relations Board who supported management in ongoing disputes with organized labor. He appointed people to government agencies whose views were antithetical to the missions of these agencies, as regulations were either eliminated or else ignored. Reagan engineered tax cuts for corporations and wealthy individuals in 1981. Indicative of the dramatic rightward turn in economic policies as well as the loss of organized labors’ influence, the real value of the minimum wage declined by 30% throughout the eight years he was president. 6 Crouch (2010), p. 63 “Only a crisis – actual or perceived – produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes the politically inevitable.” Two dimensions to this transition, that are largely ignored, were particularly noteworthy. • The first trend was the shift of income away from labor (and wages) and toward capital (profits). Multiple factors have suppressed wages over the past forty years though the shift from government and organized labor as countervailing factors to owners of capital to the neoliberal program of deregulation, privatization, and globalization was a key driver of the income and wealth disparity. • The second trend was the shift toward financialized (finance-led) growth. Operating under constraints from 1945 to the 1970s, finance had served as a servant to productive capital. The decision to remove Depression-era constraints, both voluntarily and in response to arbitrage and innovation by financial firms, brought about the turn to financialization, as investment in productive activity has increasingly given way to asset-based speculation. As these transformations unfolded, an ideological infrastructure evolved. The concept of “efficient markets” and “shareholder value maximization” became affiliated with the notion that financial institutions and markets were capable of self- regulation. The deregulation accelerated throughout the 1980s and 1990s under both political parties. And as the Depression-era constraints were removed, credit growth accelerated relative to incomes in a series of debt-driven boom-bust cycles (see chart below). 7 7 The political party of the administration in power made little difference; in fact, the Clinton administration was by far the strongest advocate of unfettered finance. Steps taken during the 1990s set the stage for the global financial crisis in 2008. Volume XXI Issue IV Version I 4 ( E ) Global Journal of Human Social Science - Year 2021 © 2021 Global Journals Transforming Financialization and Inequality in a Post-Covid World The rightward shift in policy produced a transformation in economic activity away from the mix of government and markets (managed capitalism) toward the “free market,” especially finance. The free market had been actively marketed by Milton Friedman and others throughout the 1970s. Margaret Thatcher, an admirer of Friedrich Hayek, would boldly state that “There is no alternative,” noting that “There is no such thing as society. There are men, women and families.” The push was on to reverse the social safety net and leave individuals to their own wiles in determining their own future, an unfortunate concept of individual liberty. Reflecting years later on the transition, Milton Friedman stated: