Depression, not recession, looming in America

While it seems that the nation’s leaders are still hesitant to use words like “recession,” the grim reality is that they may need to adopt a new word altogether — depression.

Several weeks ago, New York Times columnist Paul Krugman described what he termed a growing “crisis of faith” in the economy as woes that began in the subprime housing sector have moved from one market to the next. As Krugman put it: “The ever-widening financial crisis has shaken investors’ faith in the whole system. People no longer trust assurances that fancy financial instruments will function the way they’re supposed to — after all, they know what happened to people who thought their subprime-backed securities were safe, AAA-rated investments.”

Many are also pointing to the massive cost of the war — which is approaching $3 trillion, according to a new book by Joseph Stiglitz and Linda Bilmes — as a major cause of this recession. But our problems predate this war. A real similarity between our current moment and the Great Depression is the massive growth in income disparity that has emerged as the dominant feature of the economic and social landscape. In March 2007, two leading economists reported that the top 1 percent of Americans, whose incomes exceed $350,000, received the largest share of the national income since 1928, the eve of the Depression. The income of the top 300,000 Americans nearly matched that of the bottom 150 million combined. Furthermore, the size of this gap has doubled since the 1980s.

Our own city provides a perfect case study of this problem. It’s not just the poor staying poor and the rich staying rich, but the wealthy rapidly accumulating greater and greater assets while the real wages of the working class stagnate and decline. In New Haven, we’ve seen lowered wages and increased foreclosures coexist with the most unprecedented endowment growth in our university’s history and a major increase in University properties at home (the Bayer site in West Haven) and abroad (labs in China, for instance).

Income disparity is no accident. Rather, it is a deliberate result of the increased power and wealth of multinational corporations over the last several decades — the result of deregulation, free trade and globalization, coupled with the vicious attack on organized labor and workers’ rights in our country today. These conditions have allowed corporations and private capital to run amok in our economy, producing outcomes like the subprime disaster that triggered our current economic crisis. They’ve also allowed the elite new and dangerous ways to accumulate capital — particularly through the rise of hedge funds and private equity investing, which are rapidly reshaping the American economy.

Corporate universities like Yale are implicated in this unprecedented accumulation of capital, too. The rapidly growing wealth of Yale and the 135 other universities with endowments of more than $500 million has occurred particularly because of these new kinds of investments. The 2007 National Association of College and University Business Officers’ annual endowment study found that university endowments have seen tremendous increases in the amount they allocate to hedge funds (278.6 percent) and private equity (475 percent) over the last 10 years. Yale’s investment strategies have been no different. But these forms of capital are largely unregulated, hidden from public oversight and the accountability to which publicly traded companies are subject.

What’s more, terrible labor practices, human-rights abuse and environmental destruction are typical of the companies in which these hedge funds and private equity firms invest.

At the same time, good jobs are increasingly scarce, wages are stagnant, health-care costs are rising and credit is more and more difficult to obtain. Increased income disparity — and the inability of workers to have a say in the conditions of their own employment — isn’t just affecting the poor. It’s also pulling the middle class down.

The New Deal was, at its core, a response to these same kinds of problems. It represented an understanding that, as long as such enormous income disparity persisted, the economy would be in ruin and working people would remain unable to provide for their basic needs. While the New Deal made major strides in reversing income inequality, the proliferation of right-wing public policies have returned us to a similar economic breaking point.

We need to stop being confused by those who tell us we can’t actually understand the changes in our economy from where we stand. We should instead start looking around and asking the question: How can we address income inequality in the spaces we inhabit? It is only by asking and acting upon that question that we will build the kind of movement needed to win the New Deal of our time — fair trade, universal health care, immigrant rights, affordable housing and workers’ rights — and envision more truly progressive futures.

Hugh Baran is a junior in Davenport College. His column runs on alternate Thursdays.

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