Depression 2.0

Ann Pettifor, Executive Director of Advocacy International and analyst of the global financial system, writes:

Commentators like to beat up on ordinary Americans. They're accused of borrowing mindlessly, of greed and materialism. Yet high levels of debt and consumption were not the result of millions of individual decisions by consumers. They were the result of a deliberate economic 'regime change' in the 1970s -- that transformed the US economy, and cut American incomes as a share of GDP.

The Great Depression 2.0 is just beginning to unfold. Bankers are bailed out while making a grab for bonuses. Ordinary Americans by contrast, are already being bankrupted, made jobless, homeless and hungry -- in huge numbers. But until recently it was these Americans that were heroically driving the global economy forward.

They did this by borrowing and spending. But they were not 'naturally' inclined to borrow. They were driven to it. By stagnating incomes, and by the deliberate policies of government, regulators and bankers.

While wages and salaries shrank as a share of the economy -- to the lowest level since the government began recording data in 1947 -- banks showered Americans with credit cards. 'Easy money' was spread around like confetti. And government urged Americans to spend. George Bush famously said "Shopping is patriotic" in late September, 2001.

Then Bush-Cheney doubled the deficit, bankers gambled and Americans borrowed and shopped. Consumers maxed out on their credit cards and mortgages and worked harder and longer -- squeezed by the demand for higher productivity. By so doing, they played a gallant role in driving forward the engine of US economic growth.

From 1945 to the 1970s Americans produced and manufactured food, goods and services -- in the post-war period called 'the golden age'. They were dull but prosperous times. Sundays were Sundays. 24/7 was a distant reality. People had jobs. Companies made profits. Bank managers talked to their customers. And there were no financial crises -- at all -- between 1945 and the 1970s.

But this 'golden age' was to be overturned. The revolution was launched by a highly ideological group of economists -- mainly of the Chicago School.
Decision-makers in government and at the Fed, seduced by their economic theories -- decided that it would be better and more profitable if Americans stopped producing and making things. They argued that there was no harm in the United States relocating 4.5 million jobs abroad -- mainly to China -- between 2001 and 2009. US workers could switch to service jobs such as hairdressing, retail and real estate -- with long working hours.

The revolution was started by Chicago's first convert -- Richard Nixon in 1971. It was carried forward by the Reagan and Clinton administrations. Soon it became more profitable to grow money from money than to grow maize, textiles or steel.

Building up debts and deficits became acceptable. During the Bush-Cheney years the national debt doubled from $5.7 trillion to $10.7 trillion. 'Reagan proved ...deficits don't matter' said Dick Cheney in 2001.

Making money from money became the aim of economic policy. Chicago economists argued that private bankers could be trusted to create and distribute credit. That the US economy could safely be held aloft by a credit-fueled shopping spree. Shopping became the major economic activity. Today the finance sector grabs more than 30% of domestic corporate profits -- double its share 25 years ago. And fully 75% of US GDP is down to personal consumption expenditures -- up from around 60% in the 1960s.

Today millions are jobless, homeless and hungry. Their discontent threatens social upheaval and radical change. Another economic transformation will no doubt take root. But will the architects of America's financial collapse be identified and held to account for the suffering inflicted on millions of heroic and innocent American consumers?