Those with it make damn sure they keep it

OPINION: When you think about it, the 80th anniversary on Thursday of the Great Crash of 1929 deserved more fanfare.

For at least the past year we have been regaled with gloomy economic statistics – "the worst" this or "the lowest" that since the Great Depression. Perhaps the current propensity for detecting hopeful signs of recovery precluded any willingness to dwell on the past and its possible lessons.

The official economic consensus seems to have become one of cautious optimism, based on the perception of "green shoots" in the economic undergrowth (invisible to the naked eye, perhaps, but detectable to the augurs of finance).

Unfortunately, many of the experts and institutions predicting better times ahead are the same ones who failed to see the 2008 crisis coming in the first place. In truth, most orthodox bank economists and establishment soothsayers have been about as accurate as an All Black lineout throw when it comes to the financial future, so why we should listen to them now is a mystery.

Expat London School of Economics professor Robert Wade took a swipe at this in the Bruce Jesson lecture last week, trotting out the well-worn but always apt line that "astrology was invented to make economic forecasting look good".

This is probably unfair to astrology, just as my previous analogy was unfair to All Black lineouts. Wade's presentation was cold comfort to those predicting a genuine recovery from recession.

More careful in his own prophesying, he suggested only that we have entered a period of "turbulence" that could last anything up to decades. Even if the optimists are half right, the very real prospect of a "jobless recovery" and New Zealand's stubbornly high dollar underscore how much we're at the mercy of forces beyond our control.

In the US, the monstrous public bailouts of Wall St have already been converted into profits and bonuses, the newly minted cash being pumped into another sharemarket bubble seemingly detached from flat-lining consumer activity. The underlying message of Wade's speech was that if you want to peer into the future, look first at the past.

Among a raft of obscene statistics he quoted, perhaps the most striking was the proportion of the total wealth controlled by the richest one percent of Americans – at roughly 22 percent, almost exactly where it had been just prior to the crash of 1929.

(Other analysts put today's figure even higher.) The earnings of those working in high finance compared to all other professions have increased beyond any rational measure of their actual contribution to the real economy. In effect, there has been a complete disengagement of the top tier from the rest of society.

As Wade pointed out, these are just the logical consequences of the "financialisation" of the economy since 1980. The relentless deregulation of capital markets and investment banking has led to the absurdity of the financial sector accounting for around 30 percent of total corporate profits in the US.

In effect, Wall St has pulled off a "quiet coup" of congress, the Treasury and the Federal Reserve, which is why the bankers have been bailed out but there has been no profound reform of the system.

There may be many differences between now and then, but what we appear to share with the pre-crash world of 1929 is a speculative financial culture run amok and an outrageously unequal distribution of wealth.

Wade stressed that the relationship between disparities of wealth and economic crisis is an area that deserves much greater study, but it does seem clear there is a strong correlation between income inequality and all manner of social problems.

As Richard Wilkinson and Kate Pickett showed this year in their remarkable book The Spirit Level, the size of the wealth gap rather than levels of absolute poverty is the key predictor of how successful or dysfunctional a country is, as measured by its health, education, life expectancy and crime statistics.

The reasons for this aren't straightforward, but may be to do with the stresses caused by living in extremely hierarchical materialist cultures – status anxiety, in other words.

Asked where any government should start when addressing the problem, Wilkinson said, "It has to limit pay at the top end. It's the rich who got us into this mess and the rich who should get us out of it."

Given Wade's observation that the super-rich elites are unlikely to voluntarily relinquish political control any time soon, the lessons of 1929 and the decades that followed appear all the more depressing.

- © Fairfax NZ News