Economy Nomi Prins

We’re Suffering the Economic Equivalent of an Invasion From Mars

It’s not hard these days to imagine the chaos people would feel if their lives or livelihoods were threatened by an external, uncontrollable force like the Martians in H.G. Wells’ 1898 novel "The War of the Worlds."
What do Mars and Earth have in common? [Kevin Gill / CC BY 2.0]

By Nomi Prins / TomDispatch

Sometimes things only make sense when seen through a magnifying lens. As it happens, I’m thinking about reality, the very American and global reality clearly repeating itself as 2021 begins.

We all know, of course, that we’re living through a once-in-a-century-style pandemic; that millions of people have lost their jobs, a portion of which will never return; that the poorest among us, who can withstand such acute economic hardship the least, have been slammed the hardest; and that the global economy has been kneecapped, thanks to a battery of lockdowns, shutdowns, restrictions of various sorts, and health-related concerns. More sobering than all of this: more than 360,000 Americans (and counting) have already lost their lives as a result of Covid-19 with, according to public health experts, far more to come.

And yet, as if in some galaxy far, far away, there also turns out to be another, so much more upbeat side to this equation. As Covid-19 grew ever worse while 2020 ended, the stock market reached heights that hadn’t been seen before. Ever.  

Meanwhile, again in the thoroughly cheery news column, banks in 2021 will be able to resume their march toward billions of dollars in share buybacks, courtesy of the Federal Reserve opting to support such a bank-and-stock-market stimulus. The Fed’s green light for this activity on December 18th will allow mega-banks to return to those share buybacks (which constitute 70% of the capital payout that they provide shareholders). In June 2020, the Fed had banned the practice ostensibly to help them better navigate risks caused by the pandemic.

Those very financial institutions can now pour money into purchasing their own stocks again rather than, say, into loans to struggling small businesses endangered by pandemic-instigated economic disaster. As soon as Wall Street got the good news from the Fed as 2020 ended, JPMorgan Chase, the nation’s biggest bank, wasted no time in announcing its intent to buy a staggering $30 billion of its own shares in the new year. And as if by magic, those shares leapt 5% that very day. Other mega-banks followed suit, as did their share prices.

Now, for reasons you’ll soon understand, take a little trip back in history with me to the eve of Halloween, 1938, when Orson Welles and the Mercury Theatre dramatized his adaptation of H.G. Wells’ 1898 sci-fi-meets-dystopia-meets-imperialism novel, The War of the Worlds, on the radio. As Martians “invaded” New Jersey (it had been London in the novel) with mayhem in mind, panic evidently ensued among some radio listeners who thought they were hearing perfectly real reports about an alien invasion of Planet Earth. Later accounts suggest that the media blew that reaction out of proportion (“fake news,” 1938-style?), yet people who tuned in late and missed the set-up about the fictitious nature of the program did indeed panic.

And it’s not hard to understand why they might have done so at that moment.  There had already been surprises galore. The world, after all, had barely recovered from the aftermath of the 1929 stock market crash and the Great Depression that followed. It was also still reeling from the fiery Hindenburg disaster of 1937 in which a German airship blew up in New Jersey, as well as from the escalation of tensions and hostilities in both Asia and Europe that would lead to World War II.  Perhaps people already equated or conflated the Martian invasion on the radio with fantasies about a potential German invasion of this country. In some papers, after all, reports on the reaction to Welles’s performance were set right next to news of war clouds brewing in Europe and Asia. With or without Welles, people were on edge.

Whatever the case, fear has been both a great motivator and an anxiety provoker when it comes to the media, whether in 1938 or today. At the moment, the focus is on economic and health-related fears in all-too-ample supply. It is also on the disconnect that exists between the real economic world that most of us live in and turbo-boosted stock markets. These distorted markets are the result of wealth inequality that once would have been unimaginable in this country. In a way, economically speaking, you might say that today we’re suffering the equivalent of an invasion from Mars.

From the Financial Crisis to the Pandemic

It’s not hard these days to imagine the chaos people would feel if their lives or livelihoods were threatened by an external, uncontrollable force like those Martians. After all, we’re in a pandemic age in which the gaps between the rich, the poor, and the middle class are being reinforced in endlessly stunning ways, a world in which some people have the means to remain remarkably safe, secure, and alive, while others have no means at all.

Covid-19 is not, of course, from Mars or sent by aliens, but in terms of its impact, it’s as if it were. And the pandemic is, in the end, only exacerbating, sometimes in radical ways, problems that already were bad enough, particularly economic inequality. 

Remember that, long before Covid-19 hit, the financial crisis of 2008 was met by a multi-trillion-dollar Wall Street bailout. At the same time, the Federal Reserve cut interest rates to zero, while purchasing U.S. Treasury and mortgage bonds from the very banks that had sparked the disaster.  Its own assets then rose from $870 billion to $4.5 trillion between August 2007 and August 2015. On the other hand, the U.S. economy never quite reached a growth level of, on average, more than 2% annually in the years after that near collapse, even as the stock market regained all its losses and so much more. The Dow Jones Industrial Average, aided by an ultra-loose monetary policy, steadily rose from a financial-crisis low of 6,926 on March 5, 2009 to 27,090 by March 4, 2020, which was when Covid-19 briefly trashed its rally.

However, within a month of the market dip that followed widespread shutdowns, its climb was refortified by similar but larger maneuvers, as Federal Reserve policy was once again deployed to save the rich under the auspices of saving the economy. Rally 2.0 took the Dow to a new record of 30,606.48 as 2020 closed.

On the other side of reality, I’m sure you won’t be surprised to learn that, according to recent Federal Reserve reports, the U.S. wealth gap continued to widen dramatically as economic inequality increased yet again in 2020 thanks to the coronavirus pandemic. That’s because the health and economic devastation it inflicted affected low-wage service workers, low-income earners, and people of color so much more than the upper-middle class and elite upper class.

Meanwhile, as 2020 ended, the richest 10% of Americans owned more than 88% of the outstanding shares of companies and mutual funds in the U.S. The top 1% also controlled more than 88 times the wealth of the bottom 50% of Americans. Simply put, the less you had, the less you could afford to lose any of it. Indeed, the combined net worth of the top 1% of Americans was $34.2 trillion (about one-third of all U.S. household wealth), while the total for the bottom half was $2.1 trillion (or 1.9% of that wealth).

And yet, American billionaires scored monumentally during the pandemic, due particularly to their lofty position in the stock market. The planet’s 2,200 or so billionaires got wealthier by $1.9 trillion in 2020 alone and were worth about $11.4 trillion in mid-December 2020 (up from $9.5 trillion a year earlier). Twenty-first-century tycoons like Elon Musk and Jeff Bezos raked it in specifically because of all the money pouring into shares of their stock. Even bipartisan congressional stimulus measures meant for necessary relief turned into a chance to elevate fortunes at the highest echelons of society.

If you want to grasp inequality in the pandemic moment, consider this: while the market soared, more than 25.5 million Americans were the recipients of federal unemployment benefits. The S&P 500 stock market index added a total of $14 trillion in market value in 2020. In essentially another universe, the number of people who lost their jobs due to the pandemic and didn’t regain them was about 10 million. And that figure doesn’t even count people who can’t go to work because they have to take care of others, their workplace is restricted, or they’re home-schooling their kids.

The Martians and the Inequality Gap

In The War of the Worlds, H.G. Wells evokes a species — humanity — rendered helpless in the face of a force greater than itself and beyond its control. His depiction of the grim relationship between the Martians and the humans they were suppressing (meant to remind readers of the relationship between British imperialists and those they suppressed in distant lands) cast an eerie light on the power and wealth gap in Great Britain and around the world at the turn of the twentieth century.

The book was written in the Gilded Age, when rapid economic growth, particularly in the United States, bred a new class of “robber barons.” Like the twenty-first-century version of such beings, they, too, made money from their money, while the economic status of workers slipped ever lower. It was an early version of a zero-sum game in which the spoils of the system were increasingly beyond the reach of so many. Those at the top ferociously accumulated wealth, while the majority of the rest of the population barely got by or drowned.

A crisis of inequality had been sparked by the Industrial Revolution itself, which started in England and then crossed the Atlantic.  By the late nineteenth century, America’s “robber barons” were insanely wealthy. As economist Thomas Piketty wrote, there was a steeper increase in wealth inequality during the Gilded Age than ever before in American history. In 1810, the top 1% of Americans held 25% of the country’s total wealth; between 1870 and 1910 that share leapt to 45%.

Today, the top 1% of Americans possess more wealth than the whole of the middle class, a phenomenon first true in 2010 and still the reality of our moment. By 2018, about 75% of the $113 trillion in aggregate U.S. household assets were financial ones; that is, tied up in stocks, ETF’s, 401Ks, IRAs, mutual funds, and similar investments. The majority of nonfinancial assets in that mix was in real estate

Even before the pandemic, only the richest 20% of American households had recovered fully (or, in the case of the truly wealthy, more than fully) from the financial crisis. That’s mostly because since that crisis, fewer households had participated in the stock market or owned real estate and so had no chance to capitalize on increases in the values of either.

Much of the appreciation in stock market and real-estate values has been directly or indirectly related to the Fed’s actions. By the end of December 2020, its balance sheet had increased by $3.164 trillion, reaching a total of $7.35 trillion, 63% more than its book at the height of the decade following the 2008 disaster.

Its ultra-loose policies made it cheaper to borrow money, but not as attractive to invest it in low-interest-rate, less risky securities like Treasury bonds. As a result, the Fed incentivized those with extra money to grow it through quicker, often riskier investments in the stock market or real estate. By 2020, there were bidding wars for suburban houses by urbanites seeking refuge from coronavirus-stricken cities with all-cash offers, something beyond the reach of most traditional buyers. 

Though Congress passed two much-needed Covid-related stimulus packages that extended unemployment benefits, while offering two one-off payments and a Paycheck Protection Program support for smaller businesses, the impact of those acts paled in comparison to the tax breaks and power of investment the stock market provided the well-off and corporate kingpins.

While markets leapt to record highs, poverty in the United States also rose last year from 9.3% in June to 11.7% in November 2020. That added nearly eight million Americans to the ranks of the poor, even as America’s 659 billionaires held double the wealth of the 165 million poorest Americans.

The Martians Are Here

The gap between incoming and outgoing federal funds rose, too. The U.S. deficit increased by $3.3 trillion during 2020. The size of the public debt issued by the Treasury Department reached $27.5 trillion.  Total federal revenue was $3.45 trillion, while the corporate tax part of that was just $221 billion, or a paltry 6.4%. What that means is that in an ever more unequal America, 93.6% of the money flowing into the government’s till comes from individuals, not corporations.

And though many larger and mid-size corporations filed for bankruptcy protection due to coronavirus related shutdowns, the brunt of absolute closures hit smaller local businesses — from restaurants to hair salons to health-and-wellness shops — much harder, only exacerbating economic disparity at the community level.

In other words, the real problem when it comes to inequality isn’t the total amount of taxes received versus money spent in a time of crisis, but the composition of federal revenue that’s wildly out of whack (something the pandemic has only made worse). Take the defense sector, for example. The U.S. government doled out $738 billion to the Pentagon for fiscal year 2020. The contracts to defense-related private companies in the last year for which data was available, fiscal year 2018, totaled roughly 62% of a full defense budget of $579 billion, or $358 billion. Now imagine this: that amount alone dwarfed the total of all corporate taxes flowing into the U.S. Treasury in 2019.

Inequality is about the disparity between people and countries with respect to income, wealth, or power. The more that corporations keep relative to their bottom line when compared with ordinary citizens, the more the stock market rises relative to the real economy. The more that individuals, rather than corporations, shoulder the burden of tax revenues, the greater the inherent inequality in society. The more that financial assets appreciate on money seeking to multiply itself in the quickest way possible (think of it as like a virus), the greater the distortion created. 

The Fed can focus on its inflation-versus-full-employment dual-mandate all it wants, while pushing policies that distort the value of the real economy compared to financial assets. But the reality is that the more those Fed-inflated assets grow relative to real ones, the greater the inequality gap. That’s plain math and it’s the ugly essence of the United States of America as 2021 begins.

The market doesn’t care about politics. It’s a creature that acts in accordance with the goals of its largest participants. The real economy, on the other hand, requires far more effort — planning, prioritizing, and executing programs and projects that can produce tangible profits. We’re a long way from a world that puts investment in the real economy ahead of those soaring financial markets. That gap, in fact, might as well be like the distance between Earth and Mars. In the midst of a pandemic, as billionaires only grow richer and the markets soar, can there be any question that we’re experiencing a Martian invasion?

Nomi Prins, a former Wall Street executive, is a TomDispatch regular. Her latest book is Collusion: How Central Bankers Rigged the World (Bold Type Books). She is currently working on her new book, Permanent Distortion (Public Affairs). She is also the author of All the Presidents’ Bankers: The Hidden Alliances That Drive American Power and five other books. Special thanks to Craig Wilson for his superb research on this piece.

15 comments

  1. Buying back of a company’s own shares should be completely banned. I understand this was the case in the past, and share buybacks have nothing to recommend them except the greed of the already rich. Unfortunately the USA does not have a government that represents “ordinary citizens,” and its Congress members, elected by lobbies, seem all to be much richer than most of their flock.

  2. One of my very favorite takeaways from this near squeak our nation has just suffered with regard to the specter of mutinous gobs of not so able-bodied seamen and women getting their grimy hands on the wheel of our ship of state is the image of a ruffled and righteously indignant member of the officer class going on about how hard the mutineers were making it for the officer class to get on with their doing of the “People’s Business” of putting the helm officially in the hands of the next captain who will oversee the doing of nothing really but the business of corporate interests.

    Another favorite is the sight of our elected representatives for once getting their marching orders from somewhere other than the smoke-filled backrooms in Corporate America where all the riotous door-storming should and would long ago have already taken place if not for how good our elected representatives are at following the marching orders drawn up for them behind doors of the closed variety.

    I also love the snapshot of one plunderer walking off with nothing other than the House Majority Leader’s podium in about as fun a commentary on inequality as I can think of in light of all the much much more extravagant plundering of the working class that has gone on for so long no matter who’s owned the House Majority Leader’s podium or the podium set aside for any other leader of our leaders for that matter.

    Maybe my favorite snapshot, though, is the one taken of the man sitting casually back with his feet on Nancy Pelosi’s desk after having perhaps soaked up the almost unimaginable amounts of self-satisfaction and lack of shame that must be imparted to the occupier of that seat for its current rightful owner to have spent decades in one front-row seat of power or another watching our social fabric be unraveled by inequality only when the unraveling seems to be nearing completion to start laser pointing a finger at the kind of ass you get at the helm when our elected representatives become our elected representatives by doing anything but the People’s Business.

    1. hear hear

      I have come to believe our dear leaders hate us after realizing the opioid epidemic was equivalent to drug dealing writ large aka the CIA selling crack to finance Iran-Contra.
      They do anything for money.
      They are the lunatic fringe.

  3. Great analogy, the martians have invaded. I have long claimed that Trumps hair is actually an alien entity, which has seized control of Trump and is wreaking havoc on eartlings.

    After recovering from lasts weeks inserection, I am more disturbed by the notion of the “return to normal” offered by the incoming Biden administration, and it’s deep ties to big “bidness”.

    Not being a financial expert by any means I have long been troubled by the notion of making money off of money. A logical conclusion is a few mega corporations controlling everything , including our government, and staggering debt peonage for the masses.

    In the short term if we don’t rebel on a massive scale, I don’ see much hope. As they say, everything is related to eveything else and everyone does better when everyone does better.

    I,m cautiously optimistic of the new peoples party, but a cursory examinatiin of their board shows an ode to identity politics and celebrity, the graveyard of great notions. Perhaps the gre atest rebellion is just to not take part in this collective insanity we call civilization.

  4. I clicked the comments section and get this instead. I am a monthly subscriber. I attempted to contact you a week ago when the same thing happened. How is it that – being a paid subscriber – that I am apparently shut out of simply viewing the comments section? Would you keep on subscribing if you were in my shoes?

  5. But Biden & Co,, Inc. is going to fix all of this, right?

    RIGHT???!!!

    I think if more people were aware of and understood even half of the above, events such as the recent kerfuffle in DC might be more commonplace. Good thing the major news and media outlets are there to assist with the narrative so the unwashed masses stay complacent.

    Or maybe the word is compliant?
    Both?

    At any rate, once one becomes aware, should they then choose to continue to operate in this system as though it is somehow acceptable business as usual, the word then becomes “complicit”.

    This is one of those challenging topics on which to educate oneself – not necessarily because it’s too difficult to comprehend, but because it then forces one into the consciousness of choosing to buy into the ugly but familiarly comfortable norm, or exploring alternatives that might be well outside of one’s comfort zone. I don’t presume to know what the answers are, but I feel they are out there among the grass roots, somewhere between independence and interdependence.

    1. If five dead and the Capitol looted and tear-gassed is a “kerfuffle” I’d hate to see what your average Saturday night looks like!

      1. It’s all relative. How much crime – violent or not – was committed across the nation on Jan. 6th by people who feel they have run out of other options? I imagine the Capitol numbers would pale in comparison.
        In this case, the comparison wasn’t being made to my average Saturday night but rather to what I believe is in store for this country as more and more people find themselves on the fringes of society, whether they understand the economic policies/political shenanigans/broken justice and education systems/etc. that landed them there or not. Increasingly desperate people will do increasingly desperate things.

  6. With countries trading their currencies on a world market, they become comparable to company stocks. If a country has a weak economy or it makes decisions to be more independent of neo-liberalism, it’s currency will be abandoned. The currency value of a country becomes an economic weapon, one the US and its partners can use, because who would want to have their currency de-valued over night, like that which happened to Mexico or Argentina?

    US military and CIA intervention in countries like Libya or Venezuela, has as much to do with ensuring the US dollar is the world’s reserve currency, as it does with access to resources. The US leadership would be terrified to see its currency devalued, but that is likely the best path for resetting America as a world power: think of the efforts by China and Russia to establish alternative stock and commodity exchanges that don’t rely on the US dollar. Further, the dollar is vulnerable, because of all the money printing, in ways listed in the article, done for Wall Street by the Federal Reserve: money not used to strengthen the real economy and greater good.

    I share the anxiety of readers and journalists on this site. I think most readers would agree there’s a high confidence in future financial, political and environmental collapse, we’re just not sure when and how. An answer lies in organizing alternatives to the consumer cultures we live in now. I know the Herculean task that involves and the small chance of success: a future dystopia is more likely for children of people with good lives today.

    In the end, each of us has to decide how we build our lives, and how we try to shape our futures. I’m Canadian, of European ancestry, and virtually everyone I know lives a consumer lifestyle. They know something is wrong with our culture, but are too invested in trying to save for their retirement, pay for a home, raise children, etc, to organize and build something different. I think it’s fair to say that society chooses a different path, or the future will force us to.

    1. Its a delight to see comments almost as good as the article. But sad to see so few readers. -A concened hobbit from a vassal state.

  7. Dear Editor,
    Is it up to me to moderate and resubmit my comment, or does Scheerpost moderate it to publish it if it fits with the general run of the discussion ? Since the writer of the article itself talks about invaders from Mars without appearing to comprehend how different en engagement with them might be from the troubles she wishes to illustrate by using this analogy, my comment seemed apposite.
    Yours Sincerely,
    Roland

    1. I’m sorry, Roland, exploring the possibility of alien abductions is not in the scope of this website. Please post your experiences elsewhere. Thank you. This article was using the invasion as a metaphor.

  8. Dear Editor, Thank you for clarifying that the article was talking metaphorically. My comments seek to bring the analogies with stereotypes of E.t. to the forefront of our awareness so that the expectIons around ET activity may be examined directly, making us aware of the taboo. The monkeys are all typing the same story, that’s the difficulty for science. If there were a Nobel Prize for sociology, Dr David Jacobs would have won it. I have been so impressed with Chris Hedges’ description of reality that I have followed him wherever I find him, and want to buy the whole field, not that he wrote this particular article, but there is just that extra element of reality which is not addressed in his writing which can never be addressed unless people talk of it plainly instead of as a metaphor. What is the use of an irrelevant metaphor in describing reality? Metaphors are meant to clarify, not obscure. There is enough obscurity in the system through Jacques Vallée’s notion of the triple cover-up without adding metaphors which have no reality in people’s experience. Hence the criticism. Thank you for taking the trouble to explain, despite your assumption that no-one would be interested enough to write with my views who had not had their own experience. It clearly places me outside the common usage of journalistic currency, but one has to render to Caesar that which belongs to Ceasar when it comes to tribute, even if not all journalists are paying their dues in all parts of the empire of human experience.

  9. Being that we see so many articles on this site regarding how the unequal distribution of wealth is a prime factor in the sorry state of the current situation of the nation’s/world’s lower classes…

    … and how it’s generally “follow the money” to the root of society’s woes …

    … and how shady the powers that be are in manipulating economic policies to keep it that way …

    … and then the inevitable questions of “Well, what can actually be done? What does Revolution look like? Etc.” are often posed after a proper preaching to the choir occurs …

    I would LOVE to see someone like Ms. Prins do some in-depth writing here about Bitcoin – more specifically, how public adoption of a decentralized currency that is outside of the influence of the Fed could be one of the most basic forms such a revolution could take. Frankly, it surprises me that I don’t see much discussion of it at all on the non-mainstream journalism sites. This is as much societal/political journalistic fodder as it is economic.

    Even as it gets more attention, the general population has very little understanding of it. Those in the know, and also of the mind to effect true and radical change, would be of great benefit if they would turn some of their attention to making these discussions more commonplace.

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