-by Virginia Anders-Ellmore
February 26, 2013- CLOSING THE INCOME GAP – Yes we have been here before.
Capitalism is an economic system that values the accumulation of wealth. In free-market economics, governmental regulation should be as little as possible. The combination of capitalism and the laissez faire, free-market economy has brought the United States to a major imbalance of wealth distribution.
Today, CEOs make more than 400 times the salaries of the average worker.
The bankers and corporate owners have worked hard to change laws and regulations that allow them to keep their wealth at levels not seen since the 1920s.
In the 1930s, the United States suffered a similar financial crisis. One percent of the population owned most of the nation's wealth. Laissez faire economic philosophy had reduced government regulation, allowed for risk-taking and created financial bubbles. In 1929, the markets dropped, which kicked off the Great Depression. That crisis was even worse than today's, mainly because unemployment was at 24 percent and there weren't any government programs in place that helped people get back on their feet.
A New Theory
Recovery from the Great Depression came from President Franklin Delano Roosevelt's turning away from laissez faire economics and embracing Keynesian economic theory. When the private sector failed, the government funded programs that kept the economy growing. With Francis Perkins, the first female Secretary of Labor, programs like Social Security and unemployment insurance were created.
The National Industrial Recovery Act gave communities money to hire people to work and create useful community buildings, like post offices. For each person hired by the program, another person was hired by private business because getting people back to work created demand for goods and services again. It was the NIRA that first encouraged workers to collectively bargain for wages and work conditions, followed by the National Labor Relations Act in 1935.
U.S. citizens were protected from financial disaster with the creation of the Glass-Steagall Act in 1933, which separated commercial and investment banks. A year later, the Securities and Exchange Commission was created to watch the stock market and protected investors.
President FDR was from the 1% and supportive of capitalism, but he was forced to look at different economic theories due to the growing number of unions and socialist and communist political groups. People started to believe in their government and to think that the government should provide opportunity for all, instead of just for the wealthy and corporations.