How Financial Capitalism is Destroying the U.S.
20:07 24.06.2024 (Updated: 12:04 27.06.2024)
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The contrast between rich and poor tends to increase in the US: the top 10% of Americans have nearly 70% of the wealth, while the bottom 50% are left with just 3% of the nation’s wealth. The only way to accumulate wealth in the country is through speculation – mostly in real estate and stocks.
"Fugazi, fugayzi. It's a woozie. It's fairy dust. It’s not real." That is from a scene in the movie Wolf of Wall Street where a veteran stockbroker explains the strategy for recommending stocks to customers. That is also how the US economy works now. Somewhere along the way, the US forgot its own industrial past, and allowed the parasitic financial class to deindustrialize the country, destroy the free market, and create what can only be described as casino capitalism. Fueled by money-printing, unsustainable debt, massive fiscal and trade deficits, speculation and financial engineering, the American Empire superficially looks wealthy, but is actually teetering on the edge.
Three watershed moments
Paradoxically, the three global events that propelled American primacy would also be responsible for its eventual downfall. First, it was WW2 that replaced the European empires with the American, which immediately set out to dominate the world. However, this hubris led to humiliating failures in the Korean and Vietnam Wars. More importantly, the US was bankrupt in merely one generation after WW2. Thus, in 1971, the US went off the gold standard and defaulted on its financial obligations.
The second event that saved the US was the Saudi petrodollar deal, which rescued the US dollar from demise and re-established the greenback as the world’s reserve currency. On the other side, this was akin to giving a teenager a platinum credit card with no limit.
Excited by the possibility of immense and constantly growing demand for the dollar, America’s politicians went on a borrowing binge. The US debt-to-GDP ratio doubled between 1980 and 1992 – from 30% to 60%. Wall Street also loved free money and deregulation, which led to a spectacular boom in the 1980s and a crash in 1987.
The 1980s also laid the foundation for outsourcing, deindustrialization of US economy, stock buybacks, hostile takeovers, vulture capitalism obsessed with profits for shareholders, and exotic tools such as derivatives.
The third event that was the last nail on the coffin was ironically the fall of the Soviet Union. This led to the birth of the unipolar moment, which in turn sparked uncontrolled hubris among globalists, banksters, corporate overlords, neocons and the military industrial complex. The irrational exuberance inside the American echo chamber led to prodigious outsourcing of manufacturing, the dot-com bubble, disastrous multitrillion-dollar wars in the Middle East, and a real-estate bubble that ended in a global financial crisis spawned by banks and Wall Street shysters.
What are the consequences of financialization?
Income and Wealth Inequality
First, Americans stopped worrying about fiscal discipline and embraced debt wholeheartedly. The US government has a debt of $35 trillion and, for the first time, the interest payment alone has exceeded the spending on military. American families and corporations have racked up another $32 trillion of debt. However, the biggest debtor in the history of mankind shamelessly claims that it’s the wealthiest.
Meanwhile, 2 in 3 Americans are living paycheck to paycheck, since the real wages – adjusted for inflation – of the average American has remained stagnant for four decades. Look at the wage increases for different groups of American between 1979 and 2019:
Top 0.1% – wages grew 375%
Top 1% – wages grew 160%
Middle Class – wages grew 14%
Bottom 10% – wages grew 3%
From 1945 through the 70s, a typical American family could own a home, a car, and all the essentials with one wage earner, the husband. Now, in most families, both the husband and the wife must work to make the ends meet.
The wealth inequality in the US is staggering. As the chart below shows, the top 10% of Americans have nearly 70% of the wealth, while the bottom 50% are left with just 3% of the nation’s wealth. If you include debts such as car and student loans, credit card obligation, the net wealth of many Americans will be negative.
Wealth Inequality in the US
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This neo-feudalism is sold to the masses as freedom and democracy.
Poverty and inequality are mostly taboo topics in the US, where the society is taught to blame the poor. Thus, even though homelessness and drug addiction are at record levels, there is no debate about the fundamental economic system.
Casino Capitalism
Las Vegas is a very popular destination, it is a Sin City that clouds people’s judgments. Although vast majority of people end up losing money, they gamble hopefully, because the few winners are always loud. And Vegas offers plenty of cheap drinks to drown the sorrow of losers.
Well, the US economy is modeled after Vegas.
The only way to accumulate wealth in America is through speculation – mostly in real estate and stocks. And just like in Vegas, for every winner, there are many more losers. The stock market crashes periodically, but there is no choice but to participate in it, since American wages do not allow people to save steadily. And, just like Vegas, the "house always wins".
In the stock market, insiders engage in pump-and-dump. Consider Tesla stock: starting in March 2020, it went up 8-fold within a year, making millionaires and the billionaires a lot wealthier. However, the stock has lost half its value in the last year. Guess who was the sucker? The average investor, who buys high and sells low, since he hears all the hype close to the peak.
But a sucker is born every minute. The latest hype is Nvidia, which has a market cap of mind-boggling $3.3 trillion – India’s GDP in 2022. Nvidia’s profit is only $30 billion. In a logical world, this valuation means that it would take more than 100 years to recoup the investment. So, why would anyone buy Nvidia shares? In the hope that the stock price would keep going up.
Such absurdity is celebrated in the US mainstream culture.
There is also plenty of financial engineering. Stock buybacks used to be illegal until the 1980s. But now, US corporations spend almost $1 trillion a year buying back their own shares, artificially boosting the stock price. Many corporations even borrow money to use for the buyback programs. Thus, when the US boasts that its stock market is worth $50 trillion, it’s nothing but "fugazi".
Corporate CEOs and the large shareholders such as Blackrock do not care about investing in production, research, technology or the employees. Instead, the priorities are stock prices and dividends. This is why the US is losing to China, which now leads in 37 out of 44 critical technologies.
The other option in the American casino is the real estate, which also goes through boom-and-bust cycles. When the market collapses, giant private equity firms like Blackstone swoop in and buy homes at a great discount. By 2030, corporate landlords will be owning 40% of the rental homes in the US.
As the World Economic Forum said, "You will own nothing and be happy". Although, they are wrong about the second part – Americans are very depressed and rank #1 in global statistics for consumption of antidepressants and other psychotropic medications. The illegal market in the US is more than $150 billion a year. The suicide rate in the US has also skyrocketed to the highest level since the Great Depression.
Sociologists have a special term for what’s happening in the US: Deaths of Despair. In terms of life expectancy, communist China has now surpassed capitalist USA.
Financialize Everything
Financialization is the cancer that is eating away at the US economy. Interestingly, the great economists in America have not really analyzed this fatal phenomenon. I have thought a lot about it and have come up with four different ways that the economy gets financialized.
1.
Eliminating industries that are less profitable2.
Transforming normal economic sectors into speculative ones3.
Transforming normal economic sectors into extractive ones4.
Creating destructive industriesLet’s dive in.
Eliminating industries that are less profitable:
This is the foundation of outsourcing and deindustrialization that really took off in the 1980s as American corporations became extremely greedy and forgot their duties to the country. “Greed is good” became the mantra. The first target was manufacturing, which is very capital- and labor-intensive. Why build massive factories and deal with the headache of managing workers? Moreover, why pay high wages and provide all sorts of benefits to blue-collar workers when people in developing nations could do the same work for fraction of the cost?
Many Americans would be astonished to learn that a century ago, the US’ share of global steel production was 40%. It is now about 4%, while China accounts for 54%. Similar American decline can be observed in every category of manufacturing, thanks to the warped ideology of financialization.
The same calamitous philosophy is also applied towards infrastructure, which has very low profit margins. What is the return on investment (ROI) on bridges, railways, subways etc. compared to stock market manipulation? Insignificant. That is why the US infrastructure has been crumbling for years. In New York City, the cradle of Wall Street, the metro system looks like a fourth-world country with decades-old trains, decaying subway stations with trash and rats, and homeless people sleeping in the trains.
Merto Stations In Moscow and New York
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Starting in the 1980s, US corporations started shipping jobs abroad, especially to Asia, which had plenty of diligent and cheap workers. Initially, US firms employed sweatshops to make the likes of Nike shoes, Gap shirts and Gucci bags. However, Asian countries were quick learners – especially China – and were able to climb up the value chain and manufacture more complex goods. Then, as the wages rose, those countries also became more efficient and productive, thus maintaining high profits for Western firms.
This exploitation scheme was working well until 2010 when China became the world’s largest manufacturing nation, displacing the US, which had held that title for the previous century! Then a decade later, China’s manufacturing value added was 75% larger than that of the US. More importantly, China was making its own intermediary goods and hi-tech products.
Now, when Boeing needs to build a plane, they need to rely on Russia or China for special titanium; when Raytheon makes missiles, it depends on thousands of Chinese suppliers; American pharmaceutical firms and hospitals need raw materials and medicines from China; and America’s largest corporations such as Walmart, Apple and Tesla will not survive without Chinese labor, goods and market. For example, half of Tesla cars globally are made in Shanghai and a third of Teslas are sold in China.
The US is in a terrible predicament. Since Trump’s election in 2016, Americans have found out how hard it is to fix the manufacturing gap. They have not been able to bring back the jobs; and they have not been to find any other country as skilled and efficient like China. Thus, US politicians and think tanks have been playing with creative phrases such as reshoring, friend-shoring, China plus one, and de-risking. However, all these have remained empty slogans for the most part. Last year, the US imported $430 billion of goods from China – almost the same as in 2016.
Transforming normal economic sectors into speculative ones
In a real economy, the society would focus on production of tangible and beneficial goods in abundance. There would be emphasis on manufacturing, infrastructure and development. However, in an economy consumed by financial capitalism, speculation reigns as the driving force.
For example, rather than building more homes, the financial overlords prefer to keep the supply of homes low. Scarcity means higher value. Then, the entire real estate can be turned into a game of betting. For example, someone can buy a home and sell it the next year to make $100,000 of profit. While get-rich-quick gimmicks are tempting, they result in a hollowed-out economy and a delusional society that create “nothingburgers.”
Transforming normal economic sectors into extractive ones
The third and more pernicious form of financial capitalism involves fostering extractive or predatory sectors.
Take, for example, higher education. Young Americans now owe a whopping $1.8 trillion is student debt. College education in the US costs 4x more today than 40 years ago — even after adjusted for inflation. Is education 4x better now? Are kids learning 4x more? Do college graduates earn 4x more? No, no, no.
Similarly, healthcare cost in the US has risen from 6% of GDP in 1970 to 18% of GDP now. But Americans are much fatter and much sicker today than fifty years ago. Numerous chronic diseases like diabetes, obesity, autism, allergies, immune disorders, and cancer have skyrocketed over the decades. Also, heart disease has been the #1 killer for a century but the great scientific minds cannot figure out a solution. As a Goldman Sachs analyst pondered in a biotech research report, “Is curing patients a sustainable business model?”
In predatory capitalism, providing affordable college education is a terrible idea; and preventive healthcare – especially using food, natural cures and holistic medicine – is an unforgivable financial sin.
Capitalism in
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Creating destructive industries
This is the most heinous consequence of financial capitalism, which creates disease, death and destruction for profit.
The military industrial complex is the prime example. Rather than focusing on peace, diplomacy and development, the “defense” contractors lobby politicians and bribe the media to promote perpetual wars.
The food industry and Big Pharma are two other notable criminals. The junk food industry is a colossal industry that makes billions of people sick; and Big Pharma sells numerous multibillion-dollar drugs based on exaggerated claims from rigged clinical trials.
In the 1960s, the sugar industry bribed researchers at Harvard University to blame saturated fat for heart disease; and companies like Coca Cola still fund scientists to "debunk" links between sugar and obesity. One of the scientists paid by the sugar industry went on to become the head of nutrition at the United States Department of Agriculture, where he helped write the dietary guidelines. The entire nutrition science is corrupted by Big Agri, Big Food and Big Pharma.
America’s mainstream corporate media has also forgotten journalism and truth. Instead, it embraces propaganda to protect its cronies in the government and other giant corporations; and the media spreads fake news and sensationalism to generate revenue from clicks.
Finally, even American politics has been financialized, resulting in every politician being on sale for various lobbying groups.
Conclusion
Driven by greed, hubris and an inflated sense of exceptionalism, the financial overlords of the United States of America forgot the fundamentals of economics, politics and statecraft.
Once upon a time, the political and business leaders of the US understood the importance of industries, production, infrastructure and, more importantly, the contract between the rulers and the masses. However, with financialization of the US economy, the oligarchs created a predatory capitalist system that has been devouring the American society for the past few decades. Unfortunately, there is no easy path for the US to revert back to an industrial economy now.
Rather than building a sustainable and resilient system, US elites have created an Empire that depends on the exploitation of the rest of the world. However, this parasitic model has reached its expiry date, as the Global South is architecting a new paradigm for a multipolar world order. The implosion of the American economic and political system will be not only painful but also dangerous to itself and the rest of humanity. Managing the collapse of the US empire will be a monumental challenge for Russia, China, India and others in BRICS+ over the next decade.
