Ben Bernanke is chairman of the US Federal Reserve Bank. As such, he heads up the most important central bank in the world. It is his job to review continually the state of US capitalism and then decide what action to take.
In doing that, under the aims laid down by the US Congress (the political arbiter for the US capitalist class), he must try and reconcile the objectives of good economic growth with keeping inflation down. In essence, he must make the two wings of capitalism happy: the manufacturing and business sectors want good profits and growth; the finance sector wants low inflation so that their income from interest rates is preserved.
At the Federal Reserve Bank, he has the economic weapons of: deciding the basic interest rate for borrowing and lending, the sole right to print money (dollars); and the power to insist how much the commercial banks must deposit with the central bank, thus controlling the quantity of money in the economy.
These are powerful tools in affecting the anarchic and unplanned expansion and contraction of capitalist growth. Since the early 1990s, the US economy has grown at about 3% a year with inflation lower than that.
There has only been a mild recession in 2001. It's true economic growth has been relatively slow compared to the Golden Age of 1960s, but since 2001, profit growth has rocketed and the share of national income going to profits compared to wages has never been higher.
So it's no surprise to tell you that Ben Bernanke and his predecessor, Alan Greenspan, are treated like gods by the capitalist class in the US and in most of the rest of developed capitalist world. Because of that, Mr Bernanke's every word is drooled over by the capitalist press, the finance houses and the big capitalist corporations. And what Ben Bernanke has to say about the prospects for capitalism and even why and how the capitalist system works so successfully is closely followed.
In February, in his wisdom, good old Ben decided to pontificate about the question of inequality of wealth and income in capitalist society.
Global capitalism seems to be rolling along nicely at the moment – if you measure it by the size of profits being made by the big corporations and banks. Of course, it does not seem so great if you view it from the perspective of the unemployed, the poor, the hard-working mass of families in the 'rich' OECD countries; and even less so for the billions on less than $2 a day; living in horrific housing and sanitation and facing the risks of major environmental and climate hazards.
Fruits of capitalist
But good old Ben is aware that, although capitalism is pounding out good profits at the moment, there is growing criticism that the majority do not get the fruits of capitalist success. Indeed, the majority who depend solely on selling their labour time to survive are actually experiencing declining living standards. In this column and elsewhere, it has been well documented the average American household has seen no increase in living standards in the last 20 years. And moreover, inequality of income (what you get in the pay packet every week or month) and wealth (what you own) is increasing in the US and in most advanced capitalist economies.
The grotesque news that the directors of the most powerful investment bank in the world, Goldman Sachs, were paid in bonuses alone tens of millions and the whole staff of 170,000 got over $9bn last year, while the cleaners in the bank's offices in London had to go on strike to get the minimum wage, is just one example of the extent of this inequality. We could go on… but let's hear Ben first.
In a speech to the Greater Omaha Chamber of Commerce on 6 February, Ben Bernanke explained that American capitalism stood for equality! But wait… this was not equality of income and wealth. No, this was equality of opportunity: "a bedrock American principle is the idea that all individuals should have the opportunity to succeed on the basis of their own effort, skill and ingenuity", thus spake Ben.
However, he went to make it completely clear that enlightened capitalism did not actually stand for equality: "although we Americans strive to provide equality of economic opportunity, we do not guarantee equality of economic outcomes, nor should we."
Ben went onto admit that inequalities of 'outcomes' (as he calls it) had increased under capitalism. "Rising inequality is not a recent development, but has been evident for at least three decades, if not longer."(!) He pointed out that the average American worker's income has risen 11.5% in real terms since 1979, but the poorest wage earner had only seen a 4% total real rise in 27 years! Yet, the top 10% of income earners got a 34% jump. Whereas the top 10% had incomes 3.7 times greater than the bottom 10% in 1979, now that ratio had reached 4.7 times.
When Ben looked at households, the situation was even worse: the top 20% of households took home 42% of all household income in 1979; now they take 50%. The bottom 20% of households took just 7% back in 1979; but now they get even less – just 5%! The top 1% of households in America has 14% of all income, up from 8% in 1979.
This is not good, Mr Bernanke told his audience in Omaha, Nebraska, the home of the Warren Buffett, the world's second richest man and the world's most successful investor. What is the reason for growing inequality, he tentatively asked?
Apparently, it was not particularly due to increased demand for higher skilled workers who must be paid more. As Ben told the Omaha gang, super-rich income earners like football stars, chief executives of big corporations and Goldman Sachs employees do not have higher skills than their predecessors in 1979. Their skills are much the same; it just seems 'society' is prepared to pay finance executives and baseball players even more.
Ben admitted the globalisation may have reduced jobs for unskilled workers or at least lowered their wage bargaining power, but he did not think it was the main reason for growing inequality of income. He plumps for education as the key.
The continually changing nature of anarchic capitalism that is now global means that if you want a well-paid job you have to be well-educated and able to switch from industry to industry and be mobile. Those who get educated well and early will get more income. So Ben's answer is this: we do not need to reduce the wealth and incomes of the rich by progressive taxation or public ownership (god forbid!); and we cannot reduce inequality through public spending to improve the lot of the poor and unemployed. No, "the challenge for policy is not eliminate inequality per se but rather to spread economic opportunity as widely as possible… through policies that focus on education, job training and skills".
So that's it. More resources on education and skills training. Two immediate questions spring to mind: first, if more education is the answer to reducing inequality (or at least establishing equality of opportunity), why is inequality of opportunity worse?
Government spending
Take the UK, under New Labour spending on education has increased as a share of annual income and government spending. This has happened for ten years amid much groaning and moaning by the capitalist class who complain that taxation to do it is too high and ruining them. Yet after ten years, the UK rates of inequality of income and wealth have increased. And so is inequality of opportunity. It is now much more difficult if you are the son or daughter in a working-class family to move up the social ladder than it was 25 years ago.
The second question is that where does the money for education spending come from? More spending on education must either come through the capitalist market sector (private schools and universities) that are out of the reach of most working families; or it must come through the state system (and that means more taxation). Are the working-class to be taxed more for their own minimum education or will the richest be taxed more? You know what the answer would be from the likes of Goldman Sachs, the Bush and Blair/Brown governments?
But most fundamental point against Ben Bernanke's thesis that 'equality of opportunity' is the right objective not 'equality of outcomes' is that without greater equality of wealth and income there can be no equality of opportunity.
The reason that the rich are getting richer is that they are rich. The poor get poorer because they are poor. Inequality of income and wealth is endemic to the capitalist system of production and capitalism works best (at least for a while) by increasing inequality. The measures of inequality will never decline unless capitalism is curbed. Of course, if you curb a system, it does not work well; so you have to change it.
Ben Bernanke's speech to Omaha's rich was entitled "The level and distribution of economic well-being". Marx considered the same topic over 150 years ago. His main message was that a fair and cooperative society (a socialist society) would ask every citizen to contribute according to their means and receive back according to their needs. It was not question of having equality of opportunity, but having the resources to live according your needs. If you had large family, had disabled or sick people in your household, the need to educate, the need to retire, the need for hospitalisation etc, the resources would be provided by society.
Those resources would come from everybody's contribution to production (each with various levels and types of skill). But these resources could not garnered and distributed and achieve "economic well-being" under a system of production specifically designed to ensure that the ownership of the means of production and distribution was in private hands (and by just a few people as well). In other words, the capitalist system cannot achieve equality of opportunity precisely because it needs inequality of wealth and income to function. Only a socialist society works to reduce inequality through public ownership of wealth and democratically planned distribution.
Recently, the UN commissioned a report on inequality in the whole world. The report (incidentally led by a fellow economics graduate in my year at university many decades ago), found that that "for the world as a whole, the share of wealth (property, investments and money) held by the top 10% was 85%!" And one-quarter of those super-rich were in the US alone. The poorest 50% of the world's 6.6bn population own just 1% of the world's riches. So much for equality of opportunity.
