Unbridled Wealth Causes Abject Poverty

A short history of greed.

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The Neoliberal ideology of low taxes and low wages and the inequality it creates is not new. It stretches back to at least 18^th Century and Laissez -faire economics. When French industrialists were asked about the optimal policy for the French government to help business and the term ‘laissez-faire’ is said to have been their response – translating as – ‘leave us alone / Let do and pass).

In 1851, the British philosopher Herbert Spenser coined the phrase "survival of the fittest." His concept of social evolution, popularly known as "Social Darwinism," was based on the idea that competition was "the law of life" .

"Society advances," Spencer wrote, "where its fittest members are allowed to assert their fitness with the least hindrance.” He believed that the government should have only two purposes. One was to defend the nation against foreign invasion. The other was to protect citizens and their property from criminals. Any other government action was "over-legislation."

In the late 1800s, many Americans enthusiastically embraced Spencer's "Social Darwinism" to justify laissez-faire, or unrestricted, capitalism in what became known as The Gilded Age which derived it’s name from Mark Twain and Charles Dudley Warner’s 1873 novel, "The Gilded Age: A Tale of Today," which satirized the era’s greed and corruption.

It was a period was characterized by unprecedented industrial expansion. The discovery of abundant natural resources, coupled with advances in technology allowed a few individuals such as Andrew Carnegie, John D. Rockefeller, and J.P.Morgan – sometimes referred to as the "robber barons" - to amass immense fortunes and control a significant portion of the nation’s wealth, while the majority of Americans lived in poverty.

If any of this is starting to sound a bit familiar to you – the idea that a wealthy elite should be allowed to pay little or no tax and to hell with everyone else and that our current Coalition Government is of that ilk - you’re already a head of me!

The huge gap between the extremely rich and the struggling working poor eventually gave rise Labour unions advocating for workers' rights through strikes and protests. The Sherman Antitrust Act of 1890 aimed to curb the power of monopolies, while the push for civil service reform sought to reduce corruption in government.

Then in May of 1893 the collapse of several Wall Street brokerage houses caused a financial panic 600 American banks and 16,000 businesses had failed by the end of that year. National unemployment reached an estimated 20 percent in the first year of the crisis, and thousands of farmers lost their land.

It was only at this point that the idea that the government should be actively involved in the economy, and not just left to big business to do whatever it likes, was born giving rise to a new era of political and economic reforms.

Now you would think, wouldn’t you, that the American people would have learned the lesson that unbridled wealth creation isn’t a great idea if you want a fair society. But no, and here’s where New Zealand begins to get connected to this saga.

Let me fast forward to The Great Depression, which began in 1929 and persisted throughout the 1930s . It originated in the United States before quickly spreading globally, wreaking havoc on economies and societies around the world including our own.

The immediate trigger of was the stock market crash in October 1929. Known as "Black Tuesday," it wiped out billions of dollars in wealth and shook investor confidence. The reason? Unsustainable levels by speculative investments, fueled by easy credit and the widespread belief that stock prices would continue to rise indefinitely.

Following the crash, a wave of banking failures swept across the United States. Many banks had invested heavily in the stock market or had issued risky loans. As panic set in, depositors rushed to withdraw their savings, leading to a collapse of financial institutions. This banking crisis severely restricted credit availability, further stifling economic activity..

The Great Depression that followed catalyzed sweeping reforms, particularly under the leadership of U.S. President Franklin D. Roosevelt and his New Deal programs. These reforms aimed to stabilize the economy, provide relief to suffering citizens, and prevent future economic crises.

In New Zealand The First Labour Government (1935 -49) led by Michael Joseph Savage (1935–40) and Peter Fraser(1940–49)created the Social Welfare State using Keynesian economic management ( named after the economist John Maynard Keynes)and high levels of state intervention.

If you want to see the massive list of social reforms they instigated check out the list on this Wikipedia post https://en.wikipedia.org/wiki/First_Labour_Government_of_New_Zealand

In the post war era social democracy thrived and children from poor homes, like me thrived with the creation of such things as free public health and education.

But then, as my lucky generation became adults, the idea that we shouldn’t pay so much tax and we should get to keep our individual wealth again became popular.

Following the reinvented Laissez- faire economic policy, now known as Neoliberalism and promoted by President Ronald Regan and British Prime Minister Margaret Thatcher, the “rights” of the individual became paramount and we witnessed the fall of the egalitarian society in New Zealand when Roger Douglas, Finance Minister in the 4^th Labour Government ( and later founding member of the ACT party) brought in deregulation and the selling off government owned utilities to private interests.

The result – a rising and now massive gap between the rich and the poor in our country.

What’s my point?

If this rapid review of some economic history is anything to go by, I suspect it is going to take a massive world economic crisis before we again realise that there is healthy competition where people strive to do better, and unhealthy competition, of Spenser’s “survival of the fittest” variety, where a few individuals get rich at the expense of the many.

At the height of the Covid epidemic I admit I did think “maybe this is the crisis moment when we realise that our own well-being depends on the well-being of others and give rise to a new era of social cooperation.” But no. Somehow the rich found a way to get richer over that period and today they enjoy the accumulation of untaxed wealth at an unprecedented level.

Is a day of reckoning coming? History suggests it might, and many will suffer if we don’t take steps now to make the rich pay their fair share.

“In 2017-18, the Wealthiest 1%, representing approximately 38,000 adults, had $274 billion in net worth, 20% of the total.

In contrast, the Poorest 50%, representing 1.4 million adults, had just $23.7 billion, 1.7% of the total.”

(Source: Max Rashbrooke, Geoff Rashbrooke and Albert Chin :Wealth inequality in New Zealand An analysis of the 2014-15 and 2017-18 net worth modules in the Household Economic Survey).

If we prefer evolution to revolution then need to not only control neoliberalism we need to reverse much of it, by insisting that government again gets actively involved in the marketplace.

And a good place to start would be regaining control of the mortgage market.

But I’ll leave that for another day.

PS. The cartoon at the top of this post is by the American cartoonist Clay Bennett)

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