The mire last time: Outside the New York Stock Exchange on "Black Thursday" in 1929
Since the influence of great wealth seems to rise with its size and momentum, a few examples will make the point. In 1982, the wealth of the thirty richest U.S. individuals and families ranged from $500 million up to $8.6 billion. By 1999, seventeen years later, the range was $7 billion to $85 billion, a tenfold increase. In 1980, the ten highest compensated U.S. executives had an average annual pay package of $3.4 million, but by 2001 that had skyrocketed to an average of $155 million — and this while the typical American household in the middle quintile barely stays ahead of inflation.
Economic history has seen other such surges, and the classic U.S. example involves the perverse proportionality of how the binge of the 1920s was followed by a three-year wringing-out after the 1929 Crash. Thus it's highly relevant — and a little scary — that experts are beginning to compare current circumstances with the precedents of that era.
The culprits of Enron and Tyco, WorldCom and Wall Street are now being described as the largest gang of upper-income banditti since the Ponzi, Insull, bank and bucket shop defendants of the early thirties. The recent peak-to-trough decline of nearly 75% in the tech-heavy Nasdaq also happens to represent the steepest decline in a major stock market index since the Dow Jones Industrial Average fell more than 80% between 1929 and 1932.
The unnerving analogies dont stop there. The twenties and the combined eighties and nineties blew up huge stock market bubbles around technology — automobiles, radio, aviation, electronic utilities and appliances in the 1920s, and more recently, the Internet, chips, software, bandwidth and biotech. The small top tier of Americans with the large stockholdings are always lopsided beneficiaries, which increases the concentration of wealth and income in the top one percent (especially the top one-tenth of one percent). By 1928-29, the top one percent share of total U.S. wealth (some 40-44%) and income (some 17-19%) maximized at levels that were only reached again, roughly, in the last years of the 1990s.
Almost by nature, this wealth aggrandizement breeds corruption in three forms — financial, political and philosophical. One caveat: The considerable parallels between contemporary excesses and those of seventy years ago don't warrant any firm conclusion about the next one, two or five years. History frequently repeats, but only in broad outline. Besides, it's often contended that the Great Depression wasn't overcome until the pre-World War II production and mobilization of 1938 and 1939. The terrorist attack of 9/11 may have already pushed the United States into another wartime stimulus situation, although the new U.S. vulnerability could also lead into a negative economic watershed. We just don't know.
The larger point, however, is that the hubris and destructiveness during these U.S. peaks of a money culture and stock market indexes has been palpable. This was true in the two eras discussed, and also in the similar late 19th century "Gilded Age" of Vanderbilt, Morgan, Carnegie and Astor and the emerging fortunes in railroads, steel and oil.
To be sure, great wealth in the United States has often been a net national asset during periods when it avoids grasping for political domination and when business emphasizes good jobs and better things for better living, in the words of an old TV commercial. But the worst face of great fortunes, corporations and finance comes near the end of a megaboom. By this point, a decade or two of wealth momentum, rising political influence and a business-flattering culture combine to create a widespread sense of anything goes. Corners exist to be cut, ethics to be ignored, politicians to be bought, definitions to be stretched, profits to be maximized and employees and communities to be ignored. In short, the last several years.
The companies in today's headlines are hardly alone in representing this arrogance, but they have come to symbolize the various styles of financial corruption. Political corruption also rises with stock markets and the concentrations of great wealth. As elections cost more and more, Congressmen and Senators become supplicants. The third corruption induced by money during the boom periods is philosophic — wealth bends ideology and culture to flatter lucre and to proclaim its entrepreneurial nobility. Markets are saluted as better stuff than parliaments, political contributions are hailed as the 21st century incarnation of free speech and democracy shudders.
Are we on the cusp of change? Conceivably. Since 2000 the count of U.S. billionaires and millionaires has declined. Wealth momentum and hubris are slowing and possibly reversing. Enron et al may be crystallizing the beginning of a new popular suspicion of corporations. Debate, at least, is finally being joined.
Kevin Phillips is the author of the just published "Wealth and Democracy: A Political History of the American Rich"