Stagnant Wages and Speculation Triggered the Crisis … There's been a lot of debate about just what is at the root of the current economic crisis. Some people have called it a banking crisis. Some people have called it a regulatory crisis. Some people are trying to say it's a debt crisis. Well, there's another line of thought, which is: the underlying issue is that in fact it's a crisis of inequality. Now joining us to talk about all of that is Stephanie Seguino. She's a professor in the department of economics at the University of Vermont. She's worked with a number of international organizations, including the United Nations development program. She's a research scholar at the PERI institute at the University of Massachusetts Amherst. And that's where she joins us from today. – The Real News Network

Dominant Social Theme: Forget about macro monetary analysis and focus on the unfairness of it all.

Free-Market Analysis: This is a fun article/interview to analyze because unlike Greenbackerism it doesn't aspire to any kind of faux-sophistication about finance or maliciously distort the truth to mislead people. It studiously avoids reality, but that's not quite the same thing …

The ludicrousness of the hypothesis is simply "out there," flapping in the wind for all to see. If you don't know anything about money and are in your teens, skinny and inflamed with indignation about "capitalism," then this hypothesis is for you.

Sure, the problems of the world are based on "inequality" – that nasty state of affairs imposed by craven capitalists. All that needs to be done is for the people to rise up and create a Nirvana in which every man receives a just allotment … From each according to his ability, to each according to his needs. Here's some more:

JAY: So what is the evidence for this theory that inequality is actually at the root of both, I guess you could say, the crash in '08, but more importantly the ongoing crisis?

SEGUINO: Well, you know, it's hard to establish an evidentiary basis that there's–where there's a single smoking gun, but I can describe to you how we arrived at this analysis of why inequality is at the root of the crisis.

One of the things that we do know is that inequality has risen in the United States and in many other countries quite substantially since the 1970s. So the share of income that goes to wages has fallen in the U.S. and many other countries, and real wages have declined for workers in the United States. And one of the results of this is that people have inadequate income to buy the goods and services that they normally would with declining income.

And so the link to the crisis is that corporations who depend upon sales as a motivation to invest, to create new jobs, and so forth have not had as much pressure to do that. But they have been awash with profits as wages have fallen. And so what they have done, of course, is channeled those profits into the financial sector. And so they may be paying down debt or they might be buying financial instruments for themselves.

And so we find the financial sector both less regulated and awash with what I would call bubble dollars–dollars from the housing bubble. And so what financial firms have done–that is, to lend those dollars–and when they ran out of creditworthy borrowers, they began lending to precisely those households who have been struggling as a result of the downward pressure on their wages, the downward contributions to pension funds, rising medical costs, and rising health-care costs.

And so the inequality in a sense contributed to this financialization, to this flood of funds to the financial sector, who then sought to lend that money precisely back to those people who were struggling in the first place.

And so … you see how it works, dear reader? We might wish to call this the Keynesian Gambit. The analysis begins AFTER the bubble. The bubble itself, and its mechanism is never described. It is easy to blame anyone you want once a bubble has subsided and the damage has been done.

Once you begin with "bubble dollars," you can describe the process any way you want. In this interview, we can see the blame jump directly to corporations, the bugaboo of standard leftwing analyses.

Keynes did exactly the same thing, beginning his analysis in his numbing General Theory treatise AFTER a bust had already occurred. The closest he apparently ever came to defining the reason for ruinous busts was to blame "wage push" that caused price inflation – or perhaps "animal spirits" causing speculation that then needed to be reined in and redirected by wise government bureaucrats. Of course, we should also point out that in doing so he redefined inflation, turning it into a price-specific definition.

What is evident in this interview is a semantic trick, and it is one that occurs over and over when people want to blame the private sector for government actions. They begin post-bubble and studiously avoid the cause.