America's decade of dread

By Harold Meyerson
WashPost
Wednesday, December 16, 2009

This decade began and ended in dread. It began with Wall Street -- the World Trade Center -- targeted for mass murder. It ends with Main Street fearful and reeling from economic reverses that Wall Street helped create.

It was the decade of distraction. While the U.S. economy bubbled and then crumbled, the president for eight of the decade's 10 years embroiled us in a grudge match with Saddam Hussein and then persisted in throwing lives and money into the chaotic conflict that (as many predicted would happen) ensued. The decline of the American middle class was nowhere on his radar screen.

The stocks bubble of the late 1990s was succeeded by a bubble in housing; these were the engines of our economic growth. America's production of goods no longer received the level of investment that had made it the engine of our economic growth from the mid-19th century through the 1970s. The change began at the outset of the Reagan years, when the percentage of corporate profits retained for new investment dropped sharply. A report from the International Labor Organization published last week shows where the money went: to shareholder dividends, disproportionately benefiting the wealthy. In the prosperity years of 1946 to 1979, dividends constituted 23 percent of profits. From 1980 to 2008, they constituted 46 percent.

Finance boomed. The gap in annual wages between workers at financial companies and workers at non-financial companies, the ILO reports, grew from $11,000 in 1989 to $40,000 in 2007. The financial sector defended this shift by arguing that it had created many innovative financial products -- the very financial products that managed to turn downturn into Great Recession. In an interview in Monday's Wall Street Journal, former Fed chief Paul Volcker said that he has "found very little evidence that vast amounts of innovation in financial markets in recent years have had a visible effect on the productivity of the economy." He went on to say: "All I know is that the economy was rising very nicely in the 1950s and 1960s without all of these innovations."

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