By Angela Vullo
April 17, 2019–The U.S. Declaration of Independence states that Americans are committed to achieving “life, liberty, and the pursuit of happiness.” Somewhere along the line that commitment has been lost. As the horrific increase in deaths of despair dramatizes, a large segment of Americans today are, frankly, miserable.
I assert that this unhappiness grew in tandem with the economic shift since the 1970s into the post-industrial economy, but more specifically, over the last 20 years since the repeal of Glass Steagall. The takedown of the measures that were taken by President Franklin Roosevelt in 1933, to ensure the American people protection from the predations of the Wall Street banks, has been combined with a takedown of the productive economy. Until that process is in the process of being reversed, there is little reason to expect happiness to increase.
The repeal of Glass Steagall and the 2008 crash
The Glass-Steagall Act was passed by Congress in June of 1933 during the first 100 Days of the Franklin D. Roosevelt administration. It addressed one of the main causes of the financial crash of 1929 and the ensuing Great Depression by separating commercial banking from investment banking, and preventing commercial banks from using the deposits of average citizens and companies to backstop the financial speculation and gambling of investment houses. It forced big banks like National City, JP Morgan, and others to spin off their investment banking units.
This separation worked for 66 years to prevent another system-wide financial crash and economic depression. Glass-Steagall was repealed in 1999, and several months later, the Congress also passed the Commodities Futures Modernization Act, which deregulated speculative investment operations and derivatives trading. This led to the biggest financial bubble since 1929. Déjà vu all over again.
This system crashed in 2008 as the gigantic financial bubbles imploded, and led to the Great Recession of 2008. The repeal of Glass Steagall was a major cause of the financial crash and ensuing economic crisis. The results of that crash were the worst economic unraveling since the Great Depression. Some of the basic consequences are listed below.
While the impact of the 2008 blowout on average and poor Americans was in many cases devastating, the reverse was the case for the Wall Street banks which went bust. Federal Reserve Board Chairman Ben Bernanke, testifying before the Financial Crisis Inquiry Commission, said that in October 2008, 12 out of 13 of the top banks in the nation were INSOLVENT. They received $16 trillion in near-zero interest loans from the Federal Reserve from 2007 through 2010 and $800 billion in Troubled Asset Relief Program money (TARP), as well as other loan guarantees. At the same time, as of October 2016, the government had disbursed a mere $22.6 billion in Troubled Asset Relief Program (TARP) money to distressed home owners!
Some of the basic statistics on the fall-out from the Great Recession are as follows:
* Over eight million Americans lost their jobs.
* Four million homes were foreclosed each year, from 2008-1011.
* 2.5 million businesses went bankrupt.
Poverty: The further effects of 2008
The result of this collapse was a dramatic increase in poverty and hopelessness, which has not yet been overcome.
According to an April 2016 report by the Brookings Institution, “between 2000 and 2009, the number of extremely poor neighborhoods, where 40% or more of the population lives below the federal poverty line, grew 39.5%. The share of people in poverty living in extremely poor neighborhoods increased by 36%. Between 2009 and 2014, the number of extremely poor neighborhoods grew by 47.6% and the poor population living in concentrated poverty grew by 55.4%.
“Between 2000 and 2010 2,151 neighborhoods were added to the number that qualified as extremely poor. Between 2010 and 2014 more than 4,181 neighborhoods were added to the list of extremely poor.
“The impact on poor black and Hispanic citizens is even worse. Between 2000 and 2010 the share of poor residents living in distressed neighborhoods increased by 3.9% or blacks and 4.7% for Hispanics, while the percent of whites residing in similar neighborhoods grew by 1.4%. The increase in concentrated poverty was not limited to the inner city. Among the 100 largest metropolitan areas, the number of people living below the poverty threshold grew twice as fast in suburbs as in cities.
“As of 2017, 43.5% of the U.S. population was either poor or low income (143 million people)
“In 2014, the metro areas with the largest concentrated poverty rates were:
McAllen, TX, 52%; Fresno, Ca., 44%; Toledo, Oh, 35%, Syracuse, NY 32%; Detroit, 32%. The largest metro areas of black poverty were: Syracuse, 58%; Youngstown, Oh, 57%; Toledo, 55%; Fresno, 50%; Detroit, 49%. The largest Hispanic poor were: Syracuse, 58%; McAllen, 53%; Rochester, NY 48%; Fresno, 49%, Buffalo, 47%.”
While these figures have come down somewhat, the overall U.S. poverty rate as of 2017 is still calculated to be nearly 12%, and almost 16% for families with children. At the same time approximately 13 percent of families are counted as food-insecure, a whopping 41.2 million people. While this is down from a height of 49 million people (according to the USDA) in 2012, that is not a very impressive accomplishment.
Equally important is the fact that the social and psychological impact of the 2008 events are still with us. This is reflected, among other places, in the low labor participation rate, the epidemic of suicides and drug addiction, and the increase in the death rate for certain sections of the population.
Averages Hide Dramatic Income Inequality
An article published by the Economic Policy Institute in July 2018 entitled “The New Gilded Age” shows why simply looking at average figures hides the ugly realities of life for tens of millions of Americans. It reads:
“Income inequality has risen in every state since the 1970s and, in most states, it has grown in the post-Great Recession era. From 2009 to 2015, the incomes of the top 1 percent grew faster than the incomes of the bottom 99 percent in 43 states and the District of Columbia. The top 1 percent captured half or more of all income growth in nine states. In 2015, a family in the top 1 percent nationally received, on average, 26.3 times as much income as a family in the bottom 99 percent.
“Examining the growth of income over the past century, we find growth was broadly shared from 1945 to 1973 and highly unequal from 1973 to 2007, with the latter pattern persisting in the recovery from the Great Recession since 2009:
- Faster income growth for the bottom 99 percent of families between 1945 and 1973 meant that the top 1 percent captured just 4.9 percent of all income growth over that period.
- The pattern in the distribution of income growth reversed itself from 1973 to 2007, with over half (58.7 percent) of all income growth concentrated in the hands of the top 1 percent of families.
- So far during the recovery from the Great Recession, the top 1 percent of families have captured 41.8 percent of all income growth. The distribution of income growth has improved since our last report, when we found that the top 1 percent had captured 85.1 percent of income growth between 2009 and 2013.
- From our 2016 report to this one, cumulative income growth during the recovery for the top 1 percent increased from 17.4 percent (looking at changes from 2009 to 2013) to 33.9 percent (2009 to 2015)—almost doubling. Among the bottom 99 percent, cumulative growth increased from 0.7 percent to 10.3 percent—growing to nearly 15 times what it was. The bigger relative improvement in growth for the bottom 99 percent (reflecting a strengthening economy) is why the top 1 percent captured a smaller share of income growth from 2009 to 2015 than from 2009 to 2013. Nevertheless, the average income of the top 1 percent still grew faster than the average income of the bottom 99 percent, thus the top-to-bottom ratio continued to increase.”
The Productivity Factor
At the same time that the income gap has widened, productivity has fallen. Beginning in the 1970s, the U.S. shifted its economy away from productive industry, to pursue a “post-industrial,” consumer society. The era of 1933 through the Kennedy era was often called the “Golden Age of Capitalism,” because the infrastructure building and technological innovation fostered by the New Deal and the WWII mobilization had increased Total Factor Productivity to over 3% per year. Today that productivity is calculated to hover at around .5%.
Thus, despite unemployment and jobless claims being statistically low, the low productivity rate is crippling the ability to improve conditions of life for the population, and driving them into despair about the future. If you take a closer look at the relationship between productivity during the Golden Age and the income inequality gap, you find that as productivity increased, the income gap closed. Therefore it would be wrong to look at the two separately.
Closing the income inequality gap cannot be done by merely restructuring the tax system or raising the minimum wage. Productivity must increase, and that can only be done by creating high-paying, union jobs in new technologies. That is what FDR achieved under the New Deal by using the model of Alexander Hamilton’s National Bank.
Why Americans are so miserable
On March 22, 2019, the Washington Post published an article entitled “Americans are getting more miserable, and there’s data to prove it.” The article read in part:
“On a scale of 1 to 3, where 1 represents “not too happy” and 3 means “very happy,” Americans on average give themselves a 2.18 — a hair above “pretty happy.” That’s a significant decline from the nation’s peak happiness, as measured by the survey, of the early 1990s.
“The change is driven by the number of people who say they’re not too happy: 13 percent in 2018 vs. 8 percent in 1990. That’s a more than 50 percent increase.
“Other recent research confirms this trend. The latest World Happiness Report, released this week, finds that a separate measure of overall life satisfaction took a 6 percent plunge in the United States between 2007 and 2018.
“Even as the United States economy improved after the end of the Great Recession in 2009,” that report noted, “happiness among adults did not rebound to the higher levels of the 1990s, continuing a slow decline ongoing since at least 2000.”
The Post article goes on to report on the speculation about the determinants of this unhappiness. It claims that “money aside, one of the largest drivers of happiness in the General Social Survey is health. As of 2018, the happiness gap between those who say their health is poor, and those who say it’s good or excellent, is about one-quarter of the entire scale in absolute terms.” And the decline in happiness among those who say their health is poor continues to grow.
The Post then relates this trend to the fact that “the United States in the midst of the longest ongoing decline in average life expectancy since World War I. This despite the fact that the nation is in the midst of one of the longest economic expansions in its history.
“The declining life expectancy and happiness numbers suggest that the fruits of that expansion are not being distributed equally among the Americans who are making it happen.”
Government should make people happy
Alexander Hamilton, the father of the American System of Economy, believed that the supreme law of every society is its own happiness. It is with this aim in mind that he created an economic system which would foster the productive powers of labor, which are based on the creative powers of the human mind. His system put us on the path to fulfilling the commitment of the Declaration.
It is time we take that message to the bank and learn from our mistakes of the last fifty years. With the current data and overall condition of the United States, it would be difficult not to conclude that two critical measures taken by Franklin Roosevelt, Glass-Steagall and the use of a National Bank, should both be implemented today.
Let’s look to the past to create the future like our forefathers did. Glass Steagall worked for 66 years, as the National Bank worked four times at critical points in U.S. history.
Our Constitution is obligated to enforce the principle of the Preamble in defending the General Welfare.
After all, if government can’t fulfill its commitment to the welfare and happiness of its own citizens, then what is it for?
Tags: Angela Vullo, Brookings, Declaration of Independence, Glass-Steagall, government, happiness, income inequality, poverty, Total Factor Productivity