NEW YORK — If you're a middle-class American baby boomer or Gen Xer, you might have spent much of the past decade wondering what went wrong. If you're a boomer, there's a good chance you're still working well after you thought you'd retire.
And if you're part of Generation X, you're probably less wealthy than your parents were at the same age. Meanwhile, all across the U.S., pension funds are underfunded and will almost certainly have to default on some of their obligations to retirees.
It wasn't supposed to turn out this way. Back in the 1980s and 1990s, middle-class Americans looked forward to a future of wealth and leisure. If you were a small-business owner, or an engineer, or a lawyer at a small firm, you might not have expected to be rolling in it, but you probably didn't think things would go so badly awry.
Who's responsible? Who took your prosperity? Donald Trump's trade adviser Peter Navarro might tell you it was China, while his political aide Steve Bannon might tell you it was immigrants. Free-market think-tank types might tell you it was government regulation, while conservative lawmakers might tell you it was single moms on welfare or lazy people on food stamps. But these answers are mostly or completely wrong.
One partially correct answer is that your prosperity was taken by the very people who promised to ensure and enhance it. The decades from 1980 through 2008 were the age of neoliberalism — the ideology of the free market. Financial deregulation, tax cuts and a lax attitude toward consumer protection and antitrust were supposed to free the entrepreneurial potential of the American middle class. And to some degree it did — those decades saw plenty of wealth creation, and the U.S. economy performed a bit better than most rich nations in Europe and East Asia.
But along with real productivity, the neoliberal age saw plenty of grift and middle-class wealth extraction. In the book, "Phishing for Phools: The Economics of Manipulation and Deception," Nobel prize-winning economists George Akerlof and Robert Shiller said that all free-market economies are accompanied by some amount of consumer error, simply because sellers are always exploring every possible method of parting people from their money.
Writer Alex Pareene, in a recent article in Fusion, colorfully describes how vendors of all sorts cashed in on enthusiasm for conservative politicians:
The conservative era "was a fantastic deal for … companies selling newly patented drugs designed to treat the various conditions of old age, authors of dubious investing newsletters, sellers of survival seeds, hawkers of poorly written conservative books, and a whole array of similar con artists and ethically compromised corporations and financial institutions."
The prosperity wasn't stolen — it was never there to begin with.
But Pareene's focus on conservative political appeal is much too narrow. The white middle-class that tended to support leaders like Ronald Reagan, Newt Gingrich and George W. Bush, lost huge percentages of their life's savings because of excessive fees paid to actively managed mutual funds, financial advisers, stockbrokers, pension fund managers and the like. They also paid 6% real estate commissions even as people in most countries paid much less. They rejected the Clintons' health-care plan in 1993, and ended up paying double what people in other countries pay for comparable treatment. They forked over more and more money in college tuition. They paid higher prices to companies that went on to monopolize markets after spending millions convincing the government to allow their mega-mergers. The spectacular rise of U.S. wealth inequality shows that trillions of dollars in middle-class assets were shifted up the socio-economic ladder into the hands of a relatively small and fantastically rich upper tier. QuickTake Income Inequality
Each of these little free-market failures was another slice off of the ham that was the wealth of the American middle class. The people who thought they were going to be the guests of honor at the feast ended up being the main course.
But this is only part of the answer. Much of middle-class Americans' prosperity wasn't stolen — it was never there to begin with. Hidden fees and overpriced services took away real wealth, but unrealistic expectations created fantasies of future wealth whose evaporation is probably an even bigger source of disappointment.
Why did U.S. households save less and less during the neoliberal era?
Many hypotheses have been offered, but one simple explanation is that people expected their houses and pensions to do their saving for them. Much of the wealth of the U.S. middle class is tied up in real estate and retirement accounts; when it looked as if housing and stock prices were heading up forever, people naturally developed rosy expectations about the future.
Those illusions ended in 2000 for stocks and in 2008 for houses. Both markets have recovered and are at or close to all-time highs, but the sunny projections of the 1990s and early 2000s won't return anytime soon. If those trend extrapolations had held true, asset prices would be far higher now than they are.
That's why there won't be a quick fix for middle-class boomers and Gen Xers. You can't get back what you never really had. Although the economy and technology will continue to progress, and the government may manage to give the middle class some relief, for the many who had expected much better, that will seem like a booby prize. The markets seemed to promise the moon, and it turned out to be just a reflection in a pond. It pains me greatly to say it, but some members of the older generation probably will be disappointed for the rest of their lives.
Instead of indulging in fantasies of getting it all back, U.S. leaders should focus on selling a more realistic vision of progress to younger generations. With the right policies, the U.S. government should be able to pull the country out of its sclerosis, curb many of the excesses of the neoliberal age and restore healthy growth in jobs and productivity. That will have to be good enough.
It is today a proven fraud, nailed by the French stock market watchdog: Air Next resorted to a full range of dubious practices to raise money for a blockchain-powered e-commerce app. But the simplest of errors exposed the scam and limited the damage to investors. A cautionary tale for the crypto economy.
PARIS — Air Next promised to use blockchain technology to revolutionize passenger transport. Should we have read something into its name? In fact, the company was talking a lot of hot air from the start. Air Next turned out to be a scam, with a fake website, false identities, fake criminal records, counterfeited bank certificates, aggressive marketing … real crooks. Thirty-five employees recruited over the summer ranked among its victims, not to mention the few investors who put money in the business.
Maud (not her real name) had always dreamed of working in a start-up. In July, she spotted an ad on Linkedin and was interviewed by videoconference — hardly unusual in the era of COVID and teleworking. She was hired very quickly and signed a permanent work contract. She resigned from her old job, happy to get started on a new adventure.
Others like Maud fell for the bait. At least ten senior managers, coming from major airlines, airports, large French and American corporations, a former police officer … all firmly believed in this project. Some quit their jobs to join; some French expats even made their way back to France.
Share capital of one billion
The story began last February, when Air Next registered with the Paris Commercial Court. The new company stated it was developing an application that would allow the purchase of airline tickets by using cryptocurrency, at unbeatable prices and with an automatic guarantee in case of cancellation or delay, via a "smart contract" system (a computer protocol that facilitates, verifies and oversees the handling of a contract).
The firm declared a share capital of one billion euros, with offices under construction at 50, Avenue des Champs Elysées, and a president, Philippe Vincent ... which was probably a usurped identity.
Last summer, Air Next started recruiting. The company also wanted to raise money to have the assets on hand to allow passenger compensation. It organized a fundraiser using an ICO, or "Initial Coin Offering", via the issuance of digital tokens, transacted in cryptocurrencies through the blockchain.
While nothing obliged him to do so, the company owner went as far as setting up a file with the AMF, France's stock market regulator which oversees this type of transaction. Seeking the market regulator stamp is optional, but when issued, it gives guarantees to those buying tokens.
The infamous typo that brought the Air Next scam down
Raising Initial Coin Offering
Then, on Sept. 30, the AMF issued an alert, by way of a press release, on the risks of fraud associated with the ICO, as it suspected some documents to be forgeries. A few hours before that, Air Next had just brought forward by several days the date of its tokens pre-sale.
For employees of the new company, it was a brutal wake-up call. They quickly understood that they had been duped, that they'd bet on the proverbial house of cards. On the investor side, the CEO didn't get beyond an initial fundraising of 150,000 euros. He was hoping to raise millions, but despite his failure, he didn't lose confidence. Challenged by one of his employees on Telegram, he admitted that "many documents provided were false", that "an error cost the life of this project."
What was the "error" he was referring to? A typo in the name of the would-be bank backing the startup. A very small one, at the bottom of the page of the false bank certificate, where the name "Edmond de Rothschild" is misspelled "Edemond".
Before the AMF's public alert, websites specializing in crypto-assets had already noted certain inconsistencies. The company had declared a share capital of 1 billion euros, which is an enormous amount. Air Next's CEO also boasted about having discovered bitcoin at a time when only a few geeks knew about cryptocurrency.
Employees and investors filed a complaint. Failing to find the general manager, Julien Leclerc — which might also be a fake name — they started looking for other culprits. They believe that if the Paris Commercial Court hadn't registered the company, no one would have been defrauded.
Beyond the handful of victims, this case is a plea for the implementation of more secure procedures, in an increasingly digital world, particularly following the pandemic. The much touted ICO market is itself a victim, and may find it hard to recover.
- Crypto Tipping Point: Is Digital Currency Too Big To Fail ... ›
- Bitcoin, Petro, Libra ... Why Cryptocurrency Isn't Really Currency ... ›
- Inside The Himalayan Hideaway Of Chinese Bitcoin Mines ... ›