Third World America - Arianna Huffington [8]
MIDDLE-CLASS JOBS AND “THAT GIANT SUCKING SOUND”
Since the recession began in late 2007, we’ve lost more than 8.4 million jobs.32 Over 2 million of those were manufacturing jobs, the kind of jobs that have traditionally delivered American families into the middle class—and kept them there.33 We lost 1.2 million manufacturing jobs in 2009 alone.34 And while job numbers go up and down, the loss of these blue-collar jobs has been going on for decades.
In 1950, manufacturing accounted for more than 30 percent of nonfarm employment.35 As of last year, it’s down to 10 percent. Indeed, one-third of all our manufacturing jobs have disappeared since 2000.36 This devastating downward trend has contributed greatly to the erosion of the middle class.
There have been a number of recessions over the past few decades, and our economy has rebounded after each one. But each time it has bounced back in a way that made it harder for those in the middle class to stay there—and even harder for those aspiring to become middle class to get there.
The way that the useful section of our economy is being replaced by the useless section of our economy is rarely talked about in Washington. But the numbers don’t lie: The share of our economy devoted to making things of value is shrinking, while the share devoted to valuing made-up things (credit-swap derivatives, anyone?) is expanding. It’s the financialization of our economy.
According to Thomas Philippon, professor at New York University’s Stern School of Business, the financial industry made up 2.5 percent of America’s GDP in 1947.37 By 1970, it had grown to 4 percent. By 2006, just before the meltdown, it was 8.3 percent.
The trend is even starker when you look at the financial sector’s share of U.S. business profits. As MIT professor Simon Johnson recounted in the Atlantic, between 1973 and 1985, the financial industry’s share of domestic corporate profits topped out at 16 percent.38 In the 1990s, it spanned between 21 percent and 30 percent. Just before the financial crisis hit, it stood at 41 percent.
That’s right—over 40 percent of the profits of the entire U.S. corporate sector went to the financial industry.39 James Kwak, coauthor of the Baseline Scenario, a leading blog on economics and public policy, explains why this is a problem: “Remember that financial services are an intermediate product—that is, we don’t eat them, or live in them, or put them on in the morning.40 They are supposed to enable a more efficient allocation of capital, so that the nonfinancial economy is more productive. But what we saw since the 1980s was the unmooring of the financial sector from the rest of the economy.”
In other words—it’s supposed to serve our economy, not become our economy.
The expansion of the financial industry has come at a significant cost to the rest of us. And those who have paid the highest price are the members—and former members—of America’s middle class. According to New York Times41 columnist Paul Krugman, “A growing body of analysis suggests that an oversized financial industry is hurting the broader economy. Shrinking that oversized industry won’t make Wall Street happy, but what’s bad for Wall Street would be good for America.”
It’s no wonder that Wall Street breathed a deep sigh of relief when the Senate passed the Restoring American Financial Stability Act in May 2010. It was considered mission accomplished for financial reform.
Unfortunately, it was more of a Bush 43 mission accomplished than an Apollo 13 mission accomplished. That’s because the bill passed by the Senate, like Bush’s ship-deck ceremony, was more notable for what it left undone.
First, it didn’t do enough to rein in Wall Street. It didn’t end too-big-to-fail banks, didn’t create a Glass-Steagall-style firewall between commercial and investment banking, kept taxpayers on the hook for future bailouts, and left open dangerous