Category: Economy
Trump’s Tax Cuts, Budget, Deficits…Trump’s Recession 2019?
| February 16, 2018 | 9:20 am | Analysis, Donald Trump, Economy, Jack Rasmus | No comments

Trump’s Tax Cuts, Budget, Deficits…Trump’s Recession 2019?

Trump’s Tax Cuts, Budget, Deficits…Trump’s Recession 2019?

By
Jack Rasmus
Copyright 2018

“Lies and misrepresentation of facts have become the hallmark of American politics in recent years more than ever before. Not just lies of commission by Trump and his crew, but lies of omission by the mainstream media as well.

In Trump’s recent package of tax cuts for corporations, investors and millionaires, the lie is that the total cuts amount to $1.5 trillion—when the actual amount is more than $5 trillion and likely even higher. And in his most recent announcement of budget deficits the amounts admitted are barely half of the actual deficits—and consequent rise in US national debt—that will occur. Even his $1.5 trillion so-called infrastructure spending plan, that Trump promised during his 2016 election campaign, and then throughout 2017, amounts to only $200 billion. The lies and exaggerations are astounding.

The mainstream media, much of it aligned against Trump, has proven no accurate in revealing the Trump lies and misrepresentations: They echo Trumps $1.5 trillion total tax cut number and provide no real analysis of the true total of the cuts; they low-ball the true impact of Trump’s budget on US annual budget deficits and the national debt; and they fail to expose the actual corporate subsidy nature of Trump’s ‘smoke and mirrors’ infrastructure plan.

Trump’s multi-trillion dollar tax cuts for business, investors and the wealthiest 1%, plus his annual trillion dollar deficits as far as the eye can see, plus his phony real estate industry handouts that parade as infrastructure spending together will lead the US economy into recession, most likely in early 2019. Here’s the scenario:

The massive deficits will require the central bank, the Federal Reserve, to raise short term interest rates. What’s called the benchmark federal funds interest rate will rise above 2% (currently 1.5%). The longer term 10 year US Treasury bond rate will rise to 3.5% or more. Those rates have already been rising—and their rise already provoking stock and bond market corrections in recent weeks which should be viewed as ‘dress rehearsals’ of more serious financial asset market retreats and contractions yet to come.

As this writer has argued repeatedly in recent publications, both the US real economy and financial markets (stocks, junk bonds, derivatives, etc.) are ‘fragile’ and increasingly susceptible to a significant downturn. In 2007-08 central bank interest rates rose to 5% and that precipitated a crash in subprime mortgage bonds and derivatives that set off the contraction in the economy. With the US economy not fundamentally having recovered from 2008-09 still to this day, and with household and corporate debt well above levels of 2008, it will take less of a rise in interest rates to provoke another similar reaction.

The US real economy is already weak. GDP numbers don’t reflect this accurately. Important sectors like autos and housing are softening or even stalling already. Consumption will falter. Consumers have loaded up on household debt. At $13.8 trillion, levels are equal or greater than 2007. They have also been depleting their savings to finance consumption in 2017-18. And despite all the recent media hoopla, there’s been no real wage gains occurring for 80% of the workforce in the US. Moreover, renewed inflation now occurring will reduce households’ disposable income and buying power even more this year. Rising taxes for tens of millions of households in 2018-19 will also negatively impact consumption spending. Don’t expect consumption to rise in 2018 as interest rates, taxes, and prices do. Just the opposite. Consumption makes up 70% of the US economy and it is now nearly exhausted. It will stagnate at best, and even retreat steadily beginning in the second half 2018.

Like the real economy, the US financial markets are fragile as well. They are in bubble territory and investors are getting increasingly edgy and looking for excuses to sell—i.e. take their super capital gains of recent years and run to the sidelines. A rise in rates much above the 2% and 3.5% noted will provoke a significant credit contraction (or even freeze). Money capital (liquidity) will dry up for non-bank companies, investment and production will be scaled back, layoffs will rise rapidly, and consumption will collapse—together bringing the economy down. It’s a classic scenario the forces behind which have been steadily building. And it won’t take too much more to provoke the next recession—likely in early 2019. The Federal Reserve’s plans to hike rates four more times this year will almost certainly set the scenario in motion.

Trump’s $5 Trillion Business-Investor Tax Cuts

Trump & Congress—with the mainstream media in train—say the Tax Cut Act just passed amounts to $1.5 trillion. But that’s not the true total value of the business tax cuts. That’s what they claim is the deficit impact of the tax cuts. (But even that deficit impact is grossly underestimated, as will be shown shortly).

Here’s the true value of the business-investor tax cuts:

1. $1.5 trillion cut due solely to reducing the corporate nominal tax rate from 35% to 21%.

2. Another $.3 trillion for the new 20% tax deduction for non-corporate businesses (lowering their effective tax rate from 37% to 29.6%).

3. $.3 trillion more for ending the business mandate for the Affordable Care Act

4. Still another, at minimum, $.5 trillion for a combined accelerated business depreciation writeoffs (a form of tax cuts for writing off all equipment added by business in the year purchased instead of amortized over several years); plus repeal of the Alternative Minimum Tax for Corporations: and a roughly halving of the AMT for individuals. But that’s not all.

5. The wealthiest 1% households, virtually all investor class, get their nominal individual income tax rate reduced from 39.6% to 37%. Moreover, the 39.6% did not kick in until an income level of $426,000 was reached. Now the threshold for the even lower 37% does not start until $600,000 income is reached. All that amounts to at least another $.5 trillion in tax cuts.

That’s a total of $3 trillion so far in tax cuts in the Trump Plan. But the further, really big tax cuts come for US Multinational Corporations. Their ‘take’ will be another $2 trillion in tax reduction over the next decade.

The Multinationals have hoarded between $2-$2.7 trillion in cash offshore in order to avoid paying taxes on their earnings. But that $2 trillion is a gross underestimation. First of all, it’s a figure for only the 500 largest US multinationals. What about the hundreds of thousands of other US corporations that also have foreign subsidiaries in which they park their cash to avoid taxes? And what about the unreported cash and assets they’re hoarding in offshore tax havens in the Cayman Islands, Bermuda, Vanuatu and elsewhere? That too is not part of the $2.-$2.7 trillion. Another reason to doubt the $2 trillion is accurate is that they already had $2 trillion stuffed away offshore back in 2011-12. According to the business periodical, Financial Times, the largest US corporations by January 2012 “are collectively sitting on an estimated $2,000bn of cash”. Does anyone believe they stopped diverting profits and cash offshore after 2011-12 for the past five years?

If one conservatively estimates there’s $4 trillion in cash stuffed offshore to avoid taxes (accumulating since 1997 when Bill Clinton conveniently allowed them to begin doing so), the new Trump tax act allows them to pay a tax of only 10% on average if they ‘repatriate’ (bring back) that cash. If they paid the prior 35% tax rate, it would cost them $1.4 trillion in 2018-19, the first year of the Trump tax. But estimates of this provision in the Trump bill show they plan to pay only $339 billion. So they will be saving approximately $1.061 trillion in the first year alone. Thereafter for the next nine years they pay only 8% to 15.5%, instead of the 35%. That amounts to at minimum another $1 trillion in tax savings for multinational US corporations under the Trump tax.

6. In short, US multinational corporations will get a tax reduction of at least $2 trillion

The Trump tax cuts for businesses and investors thus total $5 trillion over the next decade!

So how do Trump, Congress, and the media get to only $1.5 trillion? Here’s how they do it:

They raise taxes on the middle class by $2 trillion in the Trump tax plan. That leaves the $5 trillion in business-investor cuts, minus the $2 trillion in middle class tax hikes, for a net $3 trillion in cuts. But they admit to only $1.5 trillion in net tax cuts. So where’s the difference of the other $1.5 trillion? That difference is assumed to be ‘made up’ (offset) by the US economy growing at a GDP rate of 3-3.5% (or more) for the next ten years—i.e. more than 3% for every year for ten more years without exception!

That 3-4% annual overestimated economic (GDP) growth for the US economy is based on ridiculous assumptions: that slowing long term trends in US productivity and labor force growth will someone immediately reverse and accelerate; that the US will now grow at double the annual rate it did the previous decade; and that there’ll be no recession for another decade when the historical record shows the typical growth period following recession is 7-9 years and the US economy is already in its 8th year since the last recession. (If there’s a recession, then the annual GDP growth for nine years will have to average close to 5% a year—a figure never before ever attained!).

It’s all Trump ‘smoke and mirrors’, lies and gross misrepresentations. But no matter, for its really all about accelerating the subsidization of corporations and capital incomes for the wealthiest 1% by means of fiscal policy now that the central bank’s 9 years of subsidization of capital incomes by monetary policy (i.e. near zero rates, QE, etc.) is coming to an end.

Trillion $Dollar US Deficits for Years to Come

The US budget deficit consequences of the Trump tax cuts are therefore massive. Instead of averaging $150 billion a year on average (the $1.5 trillion) the effect will be three to four times that, or around $300 to $400 billion a year!

On top of that there’s Trump’s latest US budget, which projects another $300 billion for the next two years alone. With the majority of that total $150 billion a year caused by escalation of the Defense-War budget as the US builds up its tactical nuclear, naval and air forces in anticipation of more aggressive US moves in Asia. Last year’s budget deficit was $660 billion. The Congressional Budget Office estimates deficits of $918 billion by 2019. Independent estimates by Chase bank put it at $1.2 trillion. And that’s just the early years and assuming there’s no recession, which will balloon deficits by hundreds of billions more in reduced tax revenues due to a contracting US economy.

Independent projections are for US deficits to add $7.1 trillion over the next decade. But that’s an underestimate that assumes not only no recession, but also that defense-war spending will not rise beyond current projection increases, and that government costs for covering price gouging by the healthcare and prescription drug industries (for Medicaid, Medicare, CHIP, government employees) will somehow not also continue to accelerate. The likely true hit to US deficits—and therefore the US national debt—will well exceed $12 trillion! The US could easily see consecutive annual budget deficits of $1.5 trillion. That will mean a US debt total rising from current $20 trillion to $32 trillion (or more) over the coming decade.

From Tax Cuts, Deficits & Debt to the Next Recession

How does this potentially translate into recession? Here’s a very likely scenario:

The US central bank, the Fed, has already begun raising interest rates. That has already begun slowing key industries like auto and housing. It will soon impact consumers in general, who are near-maxed out with credit card, auto, student loan, and mortgage debt, and facing further accelerating inflation in rents, healthcare costs, transport, state and local taxation, and prices for imported goods.

The massive deficits will require the central bank to raise interest rates perhaps even faster and higher than before. Slowing foreigners’ purchases of US government bonds to pay for the accelerating debt, may require the Fed to raise rates still further. It’s 2007-08 all over again!

Rising Fed interest rates and inflation will also continue to depress bond prices. That has already begun, and to spill over to stock prices as the major contraction in stock prices in February 2018 has revealed. Both bond and stock prices are headed for further decline.

Should stock market prices correct a second time this year, this time by 20% or more, the contagion effects across markets will result in a general credit crunch for non-financial corporations and businesses. US corporate debt has risen even more than US household or government debt since 2009. The corporate junk bond markets will experience a crisis, as US Zombie companies (i.e. those in deep debt, an estimated 12% to 37% of all US corporations, depending on the source) cannot get new financing and begin to go bankrupt.

These stock and bond market effects, and emerging Zombie company defaults, will result in a general investment pullback by non-financial corporations. That will mean production cuts that result in layoffs and further wage stagnation and slowing consumption spending. The next recession will have begun.

The Central Bank (FED) Will Precipitate the Next Recession—As It Did in 2007

This scenario is all the more likely if the general argument that the US economy is both financial and non-financially weak and fragile is accurate. The weakness in the real economy and fragility in the financial markets mean that Fed interest rate hikes cannot exceed 2.0%, and longer term rates (10 year Treasury bonds) cannot exceed 3.5%, before the system ‘cracks’ once again and descends into recession. With the Fed rates at 1.5% and approaching 2% and the Treasury at 3% and approaching 3.5%, the US economy today is well on its way to approaching its limits.

Just as it was interest rates peaking in 2007 that precipitated (not caused) the crash in (subprime) mortgage bonds, that then spilled over through financial derivatives to the rest of the credit system—today the bond markets may once again be signaling the ‘beginning of the end’ of the current cycle. The new contagious derivatives may not be mortgage based bonds and CDO and CDS financial derivatives, as in 2008; the new financial contagion will be driven by the new financial derivatives—i.e. Exchange Traded Funds(ETFs), and related ETNs and ETPs—with their effects amplified by Quant hedge funds’ automated algorithm-based trading.

In summary, Trump tax cuts and Trump’s budget will exacerbate US budget deficits and debt and cause the central bank to raise interest rates even faster and higher. Those rate hikes cannot be sustained. They will lead to another credit crisis—this time even sooner than they did in 2007 given the even weaker US economy and more fragile financial markets. The next recession may be sooner than many think.

Dr. Jack Rasmus

Dr. Rasmus is author of the recently published books, ‘Central Bankers at the End of Their Ropes: Monetary Policy and the Coming Depression’, Clarity Press, August 2017, and ‘Systemic Fragility in the Global Economy, Clarity, 2016. His forthcoming book later in 2018 is ‘Taxes, War & Austerity: Neoliberal Policy from Reagan to Trump’, Clarity Press. He blogs at jackrasmus.com and tweets at @drjackrasmus

Trump’s State of the Union Speech: Long on Theater, Short on Policy
| February 1, 2018 | 8:04 pm | Analysis, Donald Trump, Economy, Jack Rasmus | No comments

Trump’s State of the Union Speech: Long on Theater, Short on Policy

By
Jack Rasmus
copyright 2018

“Presidents’ State of the Union speeches used to report on accomplishments of the past year and proposals for new programs and policy changes for the next. Just as the country we once knew, those days are long gone.

In the 21st century the format is mostly theatrical: The president offers a short sentence about how wonderful America is, cuts his sentence short, and waits for applause. The Congress rises and claps longer than the spoken sentence that brought them to their feet. This goes on every 15 seconds. Sometimes less. Up and down, up and down. Turn off the volume, and it’s similar to canned laughter in a TV situation comedy—with the visual effect of bouncing butts replacing the canned laughter. Except it’s all more tragic than it is comedic.

A stranger viewing for the first time must conclude that something anatomically must be wrong with their backsides. Up-down, up-down. But when the incessant pattern of ‘short phrase, rise and clap too long, sit down’ threatens to become too repetitive, a new theatrical effect is introduced. Now it’s the president introducing staged character actors in the gallery above the floor, each introduction providing an appeal to the tv audience’s emotions. In the Trump speech tonight, there were no fewer than twelve such ‘gallery scenes’ to break up the mesmerizing stop-rise-clap-sit down nonsense.

First there was ‘Ashley the helicopter lady’, then ‘Dolberg the firefighter’, Congressman Scalise, whose only claim to fame was he got himself shot (definitely not on the level of the other ‘heroes’), followed. And how about the 12 year old ‘Preston the flag boy’, with whom Trump said he had a great conversation before the speech. (I’m sure it was of comparable intellect).
But clever by far was the next gallery event, the four parents whose kids were killed by MS13 gang members in Long Island, NY. All four were black, apparently to blunt the racist appeal by Trump injected into the scene, suggesting that all immigrants were gang members who came here as a result of ‘chained migration’ family policy. I guess MS13 gangsters never killed whites.
Not surprisingly, the next gallery scene was the ICE agent, a guy named Martinez who heroically smashed the MS13 gangsters. Of course, he too was Hispanic.

Both theatrical scenes dealing with ‘immigrant gangsters arriving by chained migration’ provided Trump a nice segway into describing his ‘4 pillars’ immigration bill, the only policy proposal he actually spelled out in his nearly hour and a half speech.

For a pathway to citizenship that would take 12 years for ‘Dreamer’ kids, Trump would have his $30 billion plus border wall, a new immigration policy based on ‘merit’ (welcome Norwegians), as well as an end to family ‘chained migration policy’ (which somehow would also protect the nuclear family, according to Trump). The message: white folks’ nuclear families good; immigrant folks’ (especially Latino) extended families bad, was the suggested logic. What it all added up to? If Democrats agreed to his pillars 2-4 right now, maybe there would be citizenship for Dreamers sometime by 2030! What a deal. But who knows, maybe the Democrats will take it, given that they retreated from their prior ‘line in the sand’ of pass DACA and dreamers or they’ll shut down the government.

The next theater event was no less interesting than the immigration scenes in the Trump play that was the presidential State of the Union address last night. In typical Trumpian worship of the police and military, Trump (the draft dodger) introduced an Albuquerque policeman in the gallery who had talked a pregnant woman on drugs from committing suicide. Seems the woman was desperate about bringing a kid into the world she’d be unable to afford to raise. The solution by the policeman was to offer to adopt her baby if she didn’t kill herself. It worked. The kid and mother were saved, and the policeman adopted the child. The policeman’s wife accompanied him in the gallery—with an infant in her arms of course. Not sure whose it was but no matter. Now that was double theater, a scene within a scene. Shakespeare would have been proud.

That impressive bit of theater, perhaps the high point of all the ‘gallery effects’ of the evening, was the intro to Trump’s solution to the Opioid crisis in America, where 60,000 a year now die from overdoses. In his speech, Trump’s solution to the opioid crisis was ‘let’s get tougher on drug dealers’. He failed to mention, of course, that the drug dealers in question most responsible for launching the opioid crisis were the prescription drug companies themselves who pushed their products like Fetanyl and Percoset on doctors a decade ago, telling them the drugs weren’t addictive.

As for the even larger prescription drug problem in American—i.e. the runaway cost of drugs that is killing unknown thousands of Americans who can’t afford them because of price gouging—Trump merely said “prices will come down substantially…just watch!” That solution echoed his press conference of several weeks ago when he publicly addressed the opioid crisis…but offered no solution specifics how. Watching Trump solve the opioid crisis will be slower than watching grass grow…in winter!

Trump’s speech was not all theater. Much of it was factual—except the facts were mostly misrepresentations and outright lies.

Like unemployment is at a record low. But not when part time, temp, contract and gig work is added to full time. More than 13 million are still officially jobless. The rate is still close to 10%. And that doesn’t count the 5-10 million workers who have dropped out of the labor force altogether since 2008, leading to record lows in labor force participate rates and employment to population ratios. That rate and ratio hasn’t changed under Trump.

Another lie was that wages are finally starting to rise. Whose wages? If you want to count average wages and salaries of the 30 million managers, supervisors, and self-employed, maybe so. But according to US Labor department data, real average hourly earnings for all non-farm workers in the US in 2017 rose by a whopping 4 cents!

Trump cited again his Treasury Secretary, Mnuchin’s, ridiculous figure that the average family income household would realize $4,000 a year in tax cuts. But no economist I know believes that absurd claim.

Perhaps the biggest facts manipulation occurred with Trump’s references to his recent tax cuts. He cited a list of so-called middle class tax cuts, leaving out wealthy individual tax cuts measures. Typical was his claim of doubling the standard deduction, worth $800 billion in tax cuts for the working poor below $24k a year in income. But he failed to mention the additional $2.1 trillion hikes on the middle class. (Or the $2 trillion in corresponding cuts for wealthiest households.) Independent studies show the middle class may get some tax cuts initially, but those end by the seventh year, and then rise rapidly thereafter by year ten. In contrast, the corporate, business, and wealthy household cuts keep going—beyond the tenth year.

What Trump conveniently left out in his speech regarding taxes also qualifies as lie by omission. He noted the corporate tax rate was reduced from 35% to 21% and the non-corporate business income deductions were increased by 20%. That was $1.5 trillion and $310 billion, respectively. Or that the Obamacare mandate repeal saved businesses another $300 billion. And multinational corporations would reap the lion’s share of $1 trillion in tax cuts, at minimum. And all that still doesn’t account for accelerated depreciation under the Act. Or abolition of the corporate Alternative Minimum Tax. Or continuation of the infamous corporate loopholes, like carried interest, corporate offshore ‘inversions’, or gimmicks that corporate tax lawyers joke about—like the ‘dutch sandwich’ and ‘double Irish’.

Then there were the Trump jokes. I don’t mean anything actually funny. Nonsense statements like “beautiful clean coal” (the oxymoron statement of the year). Or that US companies offshore are “roaring coming back to where the action is”. And car companies are bringing jobs back (while laying off in thousands). “Americans (white) are dreamers too”. Or the phony infrastructure program that’s coming, where companies will be subsidized by the federal government in ‘public-private partnership’ deals. And his unexplained reference to ‘prison reform’ (really?). Perfunctory references to trade, job training, another non-starter.

Hidden between the lines were other serious references, however. Like his ominous threat to “remove government employees” who ‘fail the American people’ or ‘undermine American trust’, which sounded like a warning from Trump to the bureaucracy not to cross him or else. Or his slap at National Football League players for not saluting the flag. Or plans to expand Guantanamo and the US nuclear arsenal. Or reaffirmation of the definition of ‘enemy combatants’ (which may include US citizens). Trump re-established the fact of his threat to civil liberties.
On the foreign policy front it was mostly threats as well, new and old: To withhold UN funding. Renewed support for new sanctions against Cuba and Venezuela. But North Korea was left for last. Here the return to theater was among the most dramatic. The last ‘gallery scene’ involved a legless defector from North Korea, Seong Ho, brought all the way from So. Korea just for the speech. This was theater with props; applause was sustained as Mr. Ho raised and shook his crutches above his head after Trump’s introduction.

Trump then rode the emotional wave to conclusion with his closing theme that the American people themselves are what’s great about America. Too bad he doesn’t mean all Americans.

So far as Trump speeches go, it was a ‘safe speech’, a teleprompter speech. But typically Trump. Lots of false facts. Emphasis on dividing the country. Long on Theater and emotional appeals to ‘enemies within and without’. And short on policy specifics. But after all, apart from tax cuts and deregulation for corporations and the rich, and a failed Obamacare repeal, not much was achieved in 2017 for him to talk about. And so far as new ideas for 2018 are concerned, there’s ‘no there there’ as well. ”

Jack Rasmus is author of the just published book, ‘Central Bankers at the End of Their Ropes: Monetary Policy and the Coming Depression’, Clarity Press, August 2017

Trump & the Fed: US Shadow Bankers About to Deepen Control of US Economy
| January 26, 2018 | 8:01 pm | Analysis, Donald Trump, Economy | No comments

Trump & the Fed: US Shadow Bankers About to Deepen Control of US Economy

Trump & the Fed: US Shadow Bankers About to Deepen Control of US Economy

What’s sometime referred to as ‘shadow bankers’ have been running the economy and drafting US domestic economic policy since Trump took office. ‘Shadow’ banks include such financial institutions as investment banks, private equity firms, hedge funds, insurance companies, finance companies, asset management companies, etc. They are outside the traditional commercial banking system (e.g. Chase, Bank of America, Wells, etc.) and virtually unregulated. Shadow banks globally now also control more investible liquid assets than do the world’s commercial banks.

It was the shadow banks–investment banks like Lehman, Bear Stearns, insurance giant AIG, GE and GMAC credit and others that precipitated the 2008 financial crisis that then froze up the entire credit system and led to the 2008-09 collapse of the real, non-financial economy. None of the CEOs of the shadow bank system went to jail for their roles in the collapse. And now they are back–not only reaping record profits and asserting even greater influence over the US and global economy; but have penetrated the political institutions of control in the US and other advanced economies even more than they did pre-2008.

Shadow Bankers On the Inside

In the US, shadow bankers from Goldman Sachs, the giant investment bank, took over the drafting of US economic policy when Trump took office. (Trump himself, a commercial property speculator, is part of this shadow banker segment of the US capitalist elite). Running the US Treasury is ex-Goldman Sacher, Steve Mnuchin. On the ‘inside’ of the Trump administration is Gary Cohn, chair of Trump’s key advisory, Economic Council. Together the two, Mnuchin-Cohn, were the original drafters (which was done in secret) of the recent Trump Tax cuts that will yield a $5 trillion windfall for US businesses and wealthy investors, especially multinationals. (More on this in my forthcoming article, to be posted here subsequently).

Mnuchin is also leading the charge for the Trump deregulation offensive, especially financial deregulation. Mnuchin recently took the offensive as well with public statements indicating it was US policy that US dollar should remain at record low levels. Why? To ensure US multinational corporations’ offshore profits are maximized when they convert their profits in local currencies back to the dollar, before they repatriate those profits back to the US at the new lower Trump tax rates (12% instead of 35% repatriation tax rate) and, even more lucratively, when they pay no taxes on offshore profits virtually at all starting 2019. The Mnuchin announcement caused quite a stir among European and other capitalist central bank and Treasury heads in Europe, who were angered because the statement reflected a rejection of prior ‘understandings’.

Goldman Sachs and the shadow banker crowd’s economic influence extends beyond the US Treasury and Economic Council. The New York Federal Reserve’s district president, Dudley, is also a former Goldman Sachs employee. He announced he’ll be resigning this year. The New York Fed is the key district of the Fed responsible for US Treasury securities buying and selling and other trading with global central banks outside the US. Watch for another Goldman Sachser to replace him, or some other former high level senior exec from private equity or hedge fund industry.(For my analysis of the rising global shadow banking sector and its destabilizing role, check out my 2016 book, ‘Systemic Fragility in the Global Economy‘, Clarity Press, and specifically chapter 12, ‘Structural Change in Global Financial Markets’).

Shadow Bankers Will Run the Fed

Trump and fellow shadow bankers are about to further solidify their control of US economic policy at the Fed as well. The Fed’s chair will soon be Jerome Powell, who comes from the private equity sector of the shadow banking industry.. But several additional Fed governor positions have been vacant for some time, as is the vice-chair of the Fed. Watch for appointees from the shadow banks here as well after Powell takes the helm.
Fed governors are officially supposed to serve 14 year terms. (They, along with Fed district presidents constitute the important FOMC, Federal Open Market Committee, that make day to day decisions at the Fed on matters of short term interest rate changes and such). But the Fed governors in recent decades never remain the 14 years. In fact, recently they remain around 3-4 years, if that. They leave early to take senior positions in the banking and shadow banking world. It’s a ‘revolving door’ problem.

Bankers get appointed to Fed governor and Fed district president positions, make decisions beneficial to their former banker buddies, and then leave early to return to their banker roots, with highly remunerative positions once again (often ‘do-nothing’ sinecures). As former governors they also go on the speech circuit, speaking at banker and business conferences, for which they’re paid handsomely, in the tens of thousands of dollars for a 20 minute speech. (Former Fed chairpersons, like Ben Bernanke and soon Janet Yellen get even more generous handouts, paid in the several hundreds of thousands of dollars a speech. They also get nice book contracts as they leave, with prepayments in the millions of dollars upfront, with guaranteed book purchases by corporations, and the best promotional efforts by publishers).

Trump’s appointment, and recent approval by the US House and Senate, of Jerome Powell to head the Fed is only the beginning. The vice-chair and several open Fed governor positions will enable Trump and Mnuchin to stack the deck at the Fed with their appointees. That will solidify Trump’s, and the shadow banker community’s, control of the Fed and ensure its policy direction will reflect Trump’s economic objectives of boosting business incomes, especially multinational corporations.

Central Bank Independence–But from Whom?

Mainstream economists write incessantly about the need to ensure ‘central bank independence’ (for the Fed) from elected government representatives. But they miss the more fundamental fact that it is the bankers themselves (especially now shadow bankers) that ultimately control the Fed. While mainstream economists talk about independence from government representatives, they ignore the deeper control (often through those representatives) of the Fed, and all central banks, by the bankers themselves.

Are Mnuchin, Cohn, Dudley and others really government ‘representatives’? Or are they shadow bankers first and foremos, who have managed to capture key positions in the government apparatus? Do the ‘revolving door’ former Fed governors act independently? Or do they decide with a keen eye on a lucrative offer from the private banks after a few years in office during which they ‘prove’ their value to the bankers? Do the Fed chairs and vice-chairs make decisions solely in the public interest at all times? Or are they perhaps too aware of the opportunity to become quick multimillionaires themselves once they leave office, recompensed nicely in various ways once they leave? And why is it that at the 12 Fed districts, the district president selection committee of 9 district board directors are almost always ‘stacked’ by 5-6 former regional bankers or banker business friendly former CEOs?

In my just published book, ‘Central Bankers at the End of Their Ropes’, Clarity Press, August 2017, I examine this ‘myth of central bank independence’ in detail, and show how central banks, including the Fed, from their very origins have always been dependent (not independent) on the private banks rather than from elected government representatives. Central banks emerged from the private banks and have always been an appendage of sorts of that private banking system. This fact is supported today more than ever by the fact that Fed and central banks’ policy since 2000, and especially since 2008, has been to ensure the subsidization of financial institutions’ profitability. It’s no longer just serving as ‘lender of last resort’ to bail out the private banks periodically when they get in trouble (which chronically occurs). Now it is permanent subsidization of the private banking system.

A Constitutional Amendment to Democratize the Fed

In the book I also propose in the addendum a constitutional amendment and enabling legislation that will sever the relationship of the central bank, the Fed, from the banking industry (and its government representatives) for good. (see the reviews and information re. the book,’Central Bankers at the End of Their Ropes‘ on my blog, jackrasmus.com, on my website, kyklosproductions.com, and at Amazon books. See the book’s addendum for the amendment and enabling legislation).

The trend in banker control of the Fed–and thus US economic policy–is about to deepen as Trump fills the open governor, chair, and vice-chair positions at the Fed in coming months. This will begin immediately after Jerome Powell assumes the chair position from Janet Yellen in early February 2018.

Economic Consequences of a Trump Fed

The shadow bankers, who gave us the last financial crash in 2007-09, will then be in total control–at the Treasury, in the White House, at the New York Fed, and in a majority of the Fed governorships. They will support Treasury Secretary Mnuchin’s policies–keep US rates at levels to ensure that the US dollar’s exchange rate is low versus other key world currencies. That will ensure that US multinational corporations’ profits offshore are not threatened, as they bring back those profits in 2018 at lower tax rates, and then can bring back profits thereafter paying little, if any, taxes on offshore profits at for the next nine years.

The next financial crisis and crash is coming. It is not more than two years away, and could come sooner. The Fed will be totally unprepared and unable to lower interest rates much in response. It will then re-introduce its massive free money injections into the banking system, as it did with ‘QE’ for seven years starting with 2009. The Fed and other central banks provided ‘free money’ in the amount of at least $25 trillion to bail out the private banks over the last 9 years. How much more will they give them next time? Will it be enough again to stabilize the US and world financial system? And will the Fed and US government then legitimize and legalize the private banks’ taking the savings of average depositors and converting those savings to worthless bank stocks? UK and US government preparations are already underway for that last draconian measure. For even today, when one deposits one’s money in a bank, that money legally becomes ‘owned’ by the bank.

Trump’s imminent appointments of Fed vice-chair and governors may prove historically to be the first step in the total capture of the US central bank by the shadow banker element in the US economy–by the Goldman Sachsers, the private equity firms, the hedge fund vulture capitalists, and the commercial real estate speculator that is Trump himself.

We now have government by the bankers unlike ever before in the US. And their policies will inevitably lead to another financial crisis. Only this next time, the rest of US will be even less prepared and able to endure–given the decade of stagnant wages, new record in household debt, collapsing savings rates, greater reliance on part time/temp/gig employment, decline of pensions, loss of social benefits and safety net, higher cost of healthcare, and all the rest of the economic decline that is afflicting more than 100 million households in the US today.

Meanwhile, Trump went to Davos, Switzerland, this week to party with the rest of the World Economic Forum’s multimillionaire-billionaire class. They will celebrate and pat themselves on the back about how well they’ve done for themselves in 2017: record profits, record stock markets’ price appreciation, record dividend payouts to wealthy shareholders, new tax laws that mean they can now keep even more of those profits and capital gains, continuing austerity for the rest of us, further destruction of unions (called ‘labor market reform’), decline and co-optation of remaining social democratic parties, etc. At Davos, Trump will bask his ego and give an ‘American First’ speech, largely for public consumption to his base in the US. But ‘America First’ means Trump, and his more aggressive wing of US capital, are signaling they plan to squeeze the rest of the world’s capitalists for a US larger share of the total pie (that is growing slower and slower). So they’ll have to take even more out of their workers with austerity, wage compression, social benefits reduction, and even more ‘labor market reform’, to keep up competitively with Trump’s USA.

The Davos crowd may think they are sitting on their mountain in Switzerland, but they are really sitting on a powder keg of accelerating inequality, growing economic populism and anti-globalism, and escalating global debt amidst slowing trade, investment, productivity and wages. The Trump answer is for the US elite to protect and expand its share of the global capitalist pie (which is growing more slowly) at the expense of its global capitalist competitors as well as its own middle class. Meanwhile, mainstream economists, asleep on the bridge of the Titanic, declare ‘steam on’, all is well and getting better.

Jack Rasmus
copyright 2018
Dr. Jack Rasmus is author of the recently published, ‘Central Bankers at the End of Their Ropes: Monetary Policy and the Coming Depression‘, August 2017, and ‘Systemic Fragility in the Global Economy‘, 2016, both by Clarity Press.

This is Capitalism #5 – The world’s richest 1% took home 82% of the wealth produced by workers in 2017
| January 22, 2018 | 8:24 pm | Analysis, class struggle, Economy | No comments

Monday, January 22, 2018

This is Capitalism #5 – The world’s richest 1% took home 82% of the wealth produced by workers in 2017

http://www.idcommunism.com/2018/01/this-is-capitalism-5-worlds-richest-1.html
Eighty two percent (82%) of the wealth generated last year went to the richest one percent of the global population, while the 3.7 billion people who make up the poorest half of the world saw no increase in their wealth, according to a new Oxfam report released today. The report is being launched as political and business elites gather for the World Economic Forum in Davos, Switzerland.
According to Oxfam,
  • Billionaire wealth has risen by an annual average of 13 percent since 2010 – six times faster than the wages of ordinary workers, which have risen by a yearly average of just 2 percent. The number of billionaires rose at an unprecedented rate of one every two days between March 2016 and March 2017.
  • It takes just four days for a CEO from one of the top five global fashion brands to earn what a Bangladeshi garment worker will earn in her lifetime. In the US, it takes slightly over one working day for a CEO to earn what an ordinary worker makes in a year.
  • It would cost $2.2 billion a year to increase the wages of all 2.5 million Vietnamese garment workers to a living wage. This is about a third of the amount paid out to wealthy shareholders by the top 5 companies in the garment sector in 2016.
South Africa/USA: Inequality Extreme and Rising
| January 17, 2018 | 8:38 am | Africa, Economy | No comments

South Africa/USA: Inequality is Extreme and Still Rising

AfricaFocus Bulletin January 15, 2018 (180115) (Reposted from sources cited below)

Editor’s Note

“I came here because of my deep interest and affection for a land settled by the Dutch in the mid-seventeenth century, then taken over by the British, and at last independent; a land in which the native inhabitants were at first subdued, but relations with whom remain a problem to this day; a land which defined itself on a hostile frontier; a land which has tamed rich natural resources through the energetic application of modern technology; a land which once imported slaves, and now must struggle to wipe out the last traces of that former bondage. I refer, of course, to the United States of America.” – Robert F. Kennedy, University of Cape Town, June 6, 1966

More than 50 years after Robert Kennedy’s speech in Cape Town, there have been many victories in the fight for political rights and against racial discrimination in both South Africa and the United States. The sacrifices and victories of those decades should not be discounted.

Nevertheless, despite tha advance of many African Americans and Black South Africans into positions of power and wealth, the inequality inherited from that history remains deeply imprinted in the society and the economy. Its effects are felt not only in the explicit racial inequalities that still exist, but also in the ideologies rationalizing inequality more generally and legitimizing structural inequalities as the allegedly deserved outcome of individual achievement.

The World Inequality Report, just released, documents with the best data available on the trends of inequality at global and national levels, a necessary but of course insufficient step in finding remedies to reverse the trend of increasing inequality and to repair the damages still felt from historical inequities.

This AfricaFocus Bulletin contains excerpts from the chapters on South Africa and the United States from the new World Inquality Report. Excerpts from the executive summary of the report appear in another AfricaFocus Bulletin sent out today and available at http://www.africafocus.org/docs18/ineq1801.php.

For previous AfricaFocus Bulletins on South Africa, visit http://www.africafocus.org/country/southafrica.php

++++++++++++++++++++++end editor’s note+++++++++++++++++

World Inequality Report 2018

Trends in global income inequality

For the full report, database, and extensive additional background information, visit http://wir2018.wid.world/

Robert F. Kennedy in Soweto, June 8, 1966. Credit: Photo taken by Alf Kumalo

2.12: Income inequality in South Africa

  • South Africa stands out as one of the most unequal countries in the world. In 2014, the top 10% received 2/3 of national income, while the top 1% received 20% of national income.
  • During the twentieth century, the top 1% income share was halved between 1914 and 1993, falling from 20% to 10%. Even if these numbers must be qualified, as they are surrounded by a number of uncertainties, the trajectory is similar to that of other former dominions of the British Empire, and is partly explained by the country’s economic and political instability during the 1970s and 1980s.
  • During the early 1970s the previously constant racial shares of income started to change in favor of the blacks, at the expense of the whites, in a context of declining per capita incomes. But while interracial inequality fell throughout the eighties and nineties, inequality within race groups increased.
  • Rising black per capita incomes over the past three decades have narrowed the interracial income gap, although increasing inequality within the black and Asian/Indian population seems to have prevented any decline in total inequality.
  • Since the end of Apartheid in 1994, top-income shares have increased considerably. In spite of several reforms targeting the poorest and fighting the segregationist heritage, race is still a key determinant of differences in income levels, educational attainment, job opportunities and wealth.

South Africa’s dual economy is among the most unequal in the world

South Africa is one of the most unequal countries in the world. In 2014, the top 10% of earners captured two thirds of total income. This contrasts with other high-income inequality countries such as Brazil, the United States and India where the top 10% is closer to 50–55% of national income. However, unlike other highly unequal countries, the divide between the top 1% and the following 9% in South Africa is much less pronounced than the gap between the top 10% and the bottom 90%. Otherwise said, in terms of top income shares, South Africa ranks with the most unequal Anglo-Saxon countries, but, at the same time, there is less concentration within the upper income groups, mostly composed by the white population. The average income among the top 1% was about four times greater than that of the following 9% in 2014 (for comparative purposes, the top 1% in the United States earn seven times more than the following 9%), while average income among the top 10% was more than seventeen times greater than the average income of the bottom 90% (it is eight times more in the United States). It is then only logical that the income share of the top 1% is high, capturing 20% of national income, though this is not the largest share in the world.

The South African “dual economy” can be further illustrated by comparing South African income levels to that of European countries. In 2014, the average national income per adult among the richest 10% was €94 600, at purchasing power parity, that is, comparable to the average for the same group in France, Spain or Italy. But average national income of the bottom 90% in South Africa is close to the average national income of the bottom 16% in France. In light of these statistics, the recently debated emergence of a so-called middle class is still very elusive. Rather, two societies seem to coexist in South Africa, one enjoying living standards close to the rich or upper middle class in advanced economies, the other left behind.

Inequality has decreased from the unification of South Africa to the end of apartheid

South Africa is an exception in terms of data availability in comparison with other African countries. The period for which fiscal data are available starts in 1903 for the Cape Colony, seven years before the Union of South Africa was established as a dominion of the British Empire, and ends in 2014, with some years sporadically missing, and noticeably an eight- year interruption following the end of apartheid in 1994. As is often the case with historical tax data series, only a very small share of the total adult population was eligible to pay tax in the first half of the twentieth century. Therefore, the fiscal data from which we can estimate top-income shares allows us to track the top 1% income share since 1913, but only cover the top 10% of the population from 1963 (with a long interruption between 1971 and 2008).

With important short run variations, the evolution of income concentration over the 1913–1993 period seems to follow a very clear long-term trend. The income share of the richest 1% was more than halved between 1913 and 1993, falling from 22% to approximately 10%. Not only did the income share attributable to the top 1% decrease, but inequality within this upper group was also reduced. Indeed, the share of the top 0.5% fell more quickly than the share of the next 0.5% (from percentile 99 to percentile 99.5). Consequently, while the top 0.5% represented about 75% of the top 1% in 1914, by the end of the 1980s, their representative proportion fell to 60%.

Despite the extreme social implications of the first segregationist measures that were implemented in the early 1910s, these policies did not lead to large increases in income concentration among the top 1%. This was also a time in which South Africa progressively developed its industrial and manufacturing sector, enjoying notable accelerations in the 1930s that were to the benefit of the large majority of the population. Aside from a brief fall during the Great Depression, average real income per adult then increased steadily. Following a trend similar to other former Dominions of the British Empire (Australia, Canada and New Zealand) inequality decreased significantly in South Africa from 1914 to the beginning of the the Second World War, despite some short-run variations in the late 1910s: the income share of the top 1% fell from 22% to 16%.

During the Second World War, national average continued to follow its previous trend, but the average real income of the richest 1% took off. As a consequence of the demand shock during the war, the agricultural export prices boomed, the manufacturing sector more than doubled its output between 1939 and 1945, and profits for the foundry and engineering industries increased by more than 400%. However, the wage differential between skilled/white and unskilled/black workers remained extremely large. As C.H. Feinstein described, “black workers [were] denied any share of the growing income in the new economy they were creating.” The fact that the peak in the income share of the top 1%–as high as 23% in 1946–was concomitant with the war effort thus seems essentially due to a brief enrichment of the upper class.

In contrast, income growth in the 1950s was more inclusive, as average real income per adult increased by 29% between 1949 and 1961, while the average real income of the top 1% slightly decreased. By 1961 the income share of the top 1% had fallen to around 14%. In the 1960s, both averages grew approximately at the same rate such that inequality remained relatively constant. Following 60 years of successive increases, national average income was almost four times greater by the early 1970s than in 1913. Inequality resumed its downward sloping trend from 1973, but this also marked a period of overall income growth stagnation in South Africa until 1990 that culminated in a three-year recession.

For the first time in the previous 90 years, gold output started falling. Richer seams were exhausted and extraction costs increased rapidly. The industry that was once the engine of the economy started to weaken. Increases in oil prices and other commodities accelerated inflation dramatically, averaging about 14% per year between 1975 and 1992. In the 1980s, international sanctions and boycotts were placed on South African trade as a response to the apartheid regime, adding further pressure to that created by domestic protests and revolts, and contributed to the destabilization of the regime in place. White dominance was challenged on both economic and political grounds, to which the ruling government progressively made concessions, recognizing trade unions and the right to bargain for wages and conditions; this could partly explain why the average real income per adult of the top 1% decreased faster than the national average.

The progressive policies implemented after apartheid were not sufficient to counter a profoundly unequal socio-economic structure

There are no fiscal data to estimate top-income shares for the eight years that followed 1993. However, joining up the data points to the next available figure in 2002 suggests that income inequality has increased sharply between the end of apartheid and the present, even if the magnitude of the increase must be taken with caution, as the estimates in these two periods may not be totally comparable. The income share of the top 1% increased by 11 percentage points from 1993 to 2014. Part of the increase from 1993 to 2002 should come from changes in the tax code. In particular, before 2002, capital gains were totally excluded, which is very likely to downward bias the share of top-income groups. Also, the tax collection capabilities seem to have increased substantially in the last years. That being said, household survey data for the years 1993, 2000 and 2008 research has demonstrated that inequality increased significantly during the period for which we have no fiscal data.

At first, it might seem puzzling that the abolishment of a segregationist regime was followed by an aggravation of economic inequality. The establishment of a multiracial democracy, with a new constitution and a president of the same ethnic origin as the majority of the population, did not automatically transform the inherited socio-economic structure of a profoundly unequal country. Interracial inequality did fall throughout the eighties and nineties, but inequality within race groups increased: rising black per capita incomes over the past three decades have narrowed the black-white income gap, although increasing inequality within the black and Asian/Indian population seems to have prevented any decline in aggregate inequality. In explaining these changes scholars agree in that the labor market played a dominant role, where a rise in the number of blacks employed in skilled jobs (including civil service and other high-paying government positions) coupled with increasing mean wages for this group of workers.

Since 1994, several redistributive social policies have been implemented and/or extended, among which important unconditional cash transfers targeting the most exposed groups (children, disabled and the elderly). At the same time, top marginal tax rates on personal income were kept relatively high and recently increased to 45%. However, in spite of these redistributive policy efforts, surveys consistently show that top-income groups are still overwhelmingly white. Other studies further demonstrate that such dualism is itself salient along other key dimensions such as unemployment and education. Furthermore wealth, and in particular land, is still very unequally distributed. In 1913, the South African parliament passed the Natives Land Act which restricted land ownership for Africans to specified area, amounting to only 8% of the country’s total land area, and by the early 1990s, less than 70 000 white farmers owned about 85% of agriculture land. Some land reforms have been implemented, but with seemingly poor results, and it is likely that the situation has not improved much since, although precise data about the recent distribution of land still needs to be collected.

Given this socio-economic structure, the interruption of the international boycotts in 1993 might have more directly favored a minority of high skilled and/or richer individuals who were able to benefit from the international markets, which therefore contributed to increase inequality. This hypothesis would also explain the fact that income inequality in South Africa did not increase in the 1980s, while boycotts were put in place, contrary to other former Dominions (New Zealand, Canada and Australia) despite the country having so far followed a similar trend. Furthermore, the implementation of the Growth, Employment and Redistribution (GEAR) program in 1996, which consisted of removing trade barriers, liberalizing capital flows and reducing fiscal deficit might also have contributed, at least in the short run, to enrich the most well off while exposing the most vulnerable, in part by increasing returns to capital over labor and to skilled workers over unskilled workers.

The rapid growth experienced from the early 2000s until the mid-2010s was essentially driven by the rise in commodity prices and was not accompanied with significant job creation as the government hoped it would. The income share of the top 1% grew from just less than 18% in 2002 to over 21% in 2007, then decreased by about 1.5 percentage points and increased again in 2012–2013 as prices reached a second peak. The fact that these variations closely mirror the fluctuation in commodity prices suggest that a minority benefiting from resource rents could have granted themselves a more than proportional share of growth.

Lastly, it should be stressed that the top 1% only represents a small part of the broader top 10% elite which is mostly white. While the share of income held by the top 1% is relatively low as compared to other high inequality regions such as Brazil or the Middle East, the income share of the top 10% group is extreme in South Africa. The historical trajectory of the top 10% group may be different to that of the top 1%–potentially with less ups and downs throughout the 20th century. Unfortunately at this stage, historical data on the top 10% group does not go as far back in time as for the top 1% group.”

2.4 Income inequality in the United States

  • Income inequality in the United States is among the highest of all rich countries. The share of national income earned by the top 1% of adults in 2014 (20.2%) is much larger than the share earned by the bottom 50% of the adult population (12.5%).
  • Average pre-tax real national income per adult has increased 60% since 1980, but it has stagnated for the bottom 50% at around $16 500. While post-tax cash incomes of the bottom 50% have also stagnated, a large part of the modest post-tax income growth of this group has been eaten up by increased health spending.
  • Income has boomed at the top. While the upsurge of top incomes was first a laborincome phenomenon in 1980s and 1990s, it has mostly been a capital- income phenomenon since 2000.
  • The combination of an increasingly less progressive tax regime and a transfer system that favors the middle class implies that, even after taxes and all transfers, bottom 50% income growth has lagged behind average income growth since 1980.
  • Increased female participation in the labor market has been a counterforce to rising inequality, but the glass ceiling remains firmly in place. Men make up 85% of the top 1% of the labor income distribution.

Income inequality in the United States is among the highest of rich countries

In 2014, the distribution of US national income exhibited extremely high inequalities. The average income of an adult in the United States before accounting for taxes and transfers was $66 100, but this figure masks huge differences in the distribution of incomes. The approximately 117 million adults that make up the bottom 50% in the United States earned $16 600 on average per year, representing just onefourth of the average US income. As illustrated by table 2.4.1, their collective incomes amounted to a 13% share of pre-tax national income. The average pre-tax income of the middle 40%–the group of adults with incomes above the median and below the richest 10%, which can be loosely described as the “middle class”–was roughly similar to the national average, at $66 900, so that their income share (41%) broadly reflected their relative size in the population. The remaining income share for the top 10% was therefore 47%, with average pre-tax earnings of $311 000. This average annual income of the top 10% is almost five times the national average, and nineteen times larger than the average for the bottom 50%. …

Income is very concentrated, even among the top 10%. For example, the share of national income going to the top 1%, a group of approximately 2.3 million adults who earn $1.3 million on average per annum, is over 20%–that is, 1.6 times larger than the share of the entire bottom 50%, a group fifty times more populous. The incomes of those in the top 0.1%, top 0.01%, and top 0.001% average $6 million, $29 million, and $125 million per year, respectively, before personal taxes and transfers.

As shown by Table 2.4.1 , the distribution of national income in the United States in 2014 was generally made slightly more equitable by the country’s taxes and transfer system. Taxes and transfers reduce the share of national income for the top 10% from 47% to 39%, which is split between a one percentage point rise in the post-tax income share of the middle 40% (from 40.5% to 41.6%) and a seven percentage point increase in the post-tax income share of the bottom 50% (from 12.5% to 19.4%). …

National income grew by 61% from 1980 to 2014 but the bottom 50% was shut off from it

Income inequality in the United States in 2014 was vastly different from the levels seen at the end of the Second World War. Indeed, changes in inequality since the end of that war can be split into two phases, as illustrated by Table 2.4.2 . From 1946 to 1980, real national income growth per adult was strong–with average income per adult almost doubling– and moreover, was more than equally distributed as the incomes of the bottom 90% grew faster (102%) than those of the top 10% (79%). However, in the following thirty-four-year period, from 1980 to 2014, total growth slowed from 95% to 61% and became much more skewed.

The pre-tax incomes of the bottom 50% stagnated, increasing by only $200 from $16 400 in 1980 to $16 600 in 2014, a minuscule growth of just 1% over a thirty-four-year period. The total growth of post-tax income for the bottom 50% was substantially larger, at 21% over the full period 1980–2014 (averaging 0.6% a year), but this was still only one-third of the national average. Growth for the middle 40% was weak, with a pre-tax increase in income of 42% since 1980 and a post-tax rise of 49% (an average of 1.4% a year). By contrast, the average income of the top 10% doubled over this period, and for the top 1% it tripled, even on a post-tax basis. The rates of growth further increase as one moves up the income ladder, culminating in an increase of 636% for the top 0.001% between 1980 and 2014, ten times the national income growth rate for the full population.

The rise of the top 1% mirrors the fall of the bottom 50%

This stagnation of incomes of the bottom 50%, relative to the upsurge in incomes experienced by the top 1% has been perhaps the most striking development in the United States economy over the last four decades. As shown by Figure 2.4.1a , the groups have seen their shares of total US income reverse between 1980 and 2014. The incomes of the top 1% collectively made up 11% of national income in 1980, but now constitute above 20% of national income, while the 20% of US national income that was attributable to the bottom 50% in 1980 has fallen to just 12% today. Effectively, eight points of national income have been transferred from the bottom 50% to the top 1%. … This has increased the average earnings differential between the top 1% and the bottom 50% from twenty-seven times in 1980 to eighty-one times today.

Excluding health transfers, average post-tax income of the bottom 50% stagnated at $20,500

The stagnation of incomes among the bottom 50% was not the case throughout the postwar period, however. The pre-tax share of income owned by this chapter of the population increased in the 1960s as the wage distribution became more equal, in part as a consequence of the significant rise in the real federal minimum wage in the 1960s, and reached its historical peak in 1969. These improvements were supported by President Johnson’s “war on poverty,” whose social policy provided the Food Stamp Act of 1964 and the creation of the Medicaid healthcare program in 1965.

However, the share of both pre-tax and post-tax US income accruing to the bottom 50% began to fall notably from the beginning of the 1980s, and the gap between pre-tax and post-tax incomes also diverged significantly from this point onwards. Indeed, the data indicate that virtually all of the meager growth in the real post-tax income of the bottom 50% since the 1970s has come from Medicare and Medicaid. Excluding these two health care transfers, the average post-tax income of the bottom 50% would have stagnated since the late 1970s at just below $20 500. The bottom half of the US adult population has therefore been effectively shut off from pre-tax economic growth for over forty years, and the increase in their post-tax income of approximately $5,000 has been almost entirely absorbed by greater health-care spending, in part as a result of increases in the cost of healthcare provision.

Taxes have become less progressive over the last decades

The progressivity of the US tax system has declined significantly over the last few decades, as illustrated in Figure 2.4.6 . The country’s macroeconomic tax rate (that is, the share of total taxes in national income including federal, state, and local taxes) increased from 8% in 1913 to 30% in the late 1960s, and has remained at the latter level since. Effective tax rates have become more compressed, however, across the income distribution. In the 1950s, the top 1% of income earners paid 40%–45% of their pre-tax income in taxes, while the bottom 50% earners paid 15–20%. The gap in 2014 was much smaller. In 2014, top earners paid approximately 30%–35% of their income in taxes, while the bottom 50% of earners paid around 25%.

In contrast to the overall fall in tax rates for top earners since the 1940s, taxes on the bottom 50% have risen from 15% to 25% between 1940 and 2014. This has been largely due to the rise of payroll taxes paid by the bottom 50%, which have risen from below 5% in the 1960s to more than 10% in 2014.

Transfers essentially target the middle class, leaving the bottom 50% with little support in managing the collapse in their pre-tax incomes

While taxes have steadily become less progressive since the 1960s, one major evolution in the US economy over the last fifty years has been the rise of individualized transfers, both monetary and in-kind. Public-goods spending has remained constant, at around 18% of national income, but transfers–other than Social Security, disability, and unemployment insurance, which are already included in calculations of pre-tax income–increased from around 2% of national income in 1960 to 11% in 2014. The two largest transfers were Medicaid and Medicare, representing 4% and 3%, respectively, of national income in 2014. Other important transfers include refundable tax credits (0.8% of national income), veterans’ benefits (0.6%), and food stamps (0.5%).

Perhaps surprisingly, individualized transfers tend to target the middle class. Despite Medicaid and other means-tested programs which go entirely to the bottom 50%, the middle 40% received larger transfers in 2014 (totaling 16% of per-adult national income) than the bottom 50% of Americans (10% of per-adult national income). … These transfers have been key to enabling middle-class incomes to grow, as without them, average income for the middle 40% would not have grown at all between 1999 in 2014. By contrast, transfers have not been sufficient to enable the incomes of the bottom 50% to grow significantly and counterbalance the collapse in their pre-tax income.

The reduction in the gender wage gap has been an important counterforce to rising US inequality

The reduction in the gender gap has been an important force in mitigating the rise in inequality that has largely taken place after 1980. …The overall gender gap has been almost halved over the last half-century, but it has far from disappeared. …

Still, considerable gender inequalities persist, particularly at the top of the labor income distribution, as illustrated by Figure 2.4.9 . In 2014, women accounted for close to 27% of the individuals in the top 10% of the income distribution, up 22 percentage points from 1960. Their representation, however, grows smaller at each higher step along the distribution of income. Women make up only 16% of the top 1% of labor income earners (a 13 percentage point rise from the 1960s), and only 11% of the top 0.1% (an increase of 9 percentage points). There has been only a modest increase in the share of women in top labor income groups since 1999. The glass ceiling is still far from being shattered.

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Africa/Global: World Trends in Inequality
| January 17, 2018 | 8:36 am | Africa, Economy | No comments

Africa/Global: World Trends in Inequality

AfricaFocus Bulletin January 15, 2018 (180115) (Reposted from sources cited below)

Editor’s Note

“The divergence in inequality levels has been particularly extreme between Western Europe and the United States, which had similar levels of inequality in 1980 but today are in radically different situations. While the top 1% income share was close to 10% in both regions in 1980, it rose only slightly to 12% in 2016 in Western Europe while it shot up to 20% in the United States. Meanwhile, in the United States, the bottom 50% income share decreased from more than 20% in 1980 to 13% in 2016.” – World Inequality Report, 2018

The first World Inequality Report, just released, represents sustained work by over 100 researchers to collect the best data available from multiple sources on income and wealth inequality both within and between countries. The project is ongoing, and the availability of data for different countries is very uneven. But for the first time there is a common basis for comparison, and both data and analysis are available to the public.

Notably, the project is also stressing the implications of the research for policy, and exploring ways of presenting the data in user-friendly graphic formats. The measures most often used are the percentage of national income (or wealth) held by different percentile groups of the population. A striking regional comparison (see graph below) highlights the percentage of national income received by the top 10% in 2016, from 37% in Europe to 61% in the Middle East. The percentage held by the top 10% is 47% in North America, and around 55% in Brazil, India, and sub-Saharan Africa. Not shown in this graph, but noted in a separate chapter and available in the on-line database (http://wid.world/country/south-africa/), the top 10% in South Africa received 65% of national income in 2012.

The report stresses that the levels of inequality are highly dependent on the progressivity of tax policy, with the obvious implication that the Trump/Republican tax bill will undoubtedly make inequality in the United States even more extreme.

The full database is available to access on-line or to download at http://wid.world/data.

This AfricaFocus Bulletin contains excerpts from the executive summary of the report. Another AfricaFocus Bulletin sent out today, and available at http://www.africafocus.org/docs18/sa-us1801.php) contains excerpts from the chapters on South Africa and the United States.

For previous AfricaFocus Bulletins on inequality, tax evasion, and related issues, visit http://www.africafocus.org/intro-iff.php

Recent articles on closely related topics include:

Amanda Erickson, “The world’s 500 wealthiest people got $1 trillion richer in 2017,” Washington Post, December 27, 2017 http://tinyurl.com/y7splebt, and Gabriel Zucman, “Nearly 10% of the world’s wealth is held offshore by a few individuals. The rest of us pay the price for this theft.” Guardian, 8 Nov. 2017 http://tinyurl.com/y8apyp3v++++++++++++++++++++++end editor’s note+++++++++++++++++

World Inequality Report

Executive Summary

Full report and abundant additional information available at http://wir2018.wid.world/

II. #What are our new findings on global income inequality?

We show that income inequality has increased in nearly all world regions in recent decades, but at different speeds. The fact that inequality levels are so different among countries, even when countries share similar levels of development, highlights the important roles that national policies and institutions play in shaping inequality.

Income inequality varies greatly across world regions. It is lowest in Europe and highest in the Middle East.

Inequality within world regions varies greatly. In 2016, the share of total national income accounted for by just that nation’s top 10% earners (top 10% income share) was 37% in Europe, 41% in China, 46% in Russia, 47% in US-Canada, and around 55% in sub-Saharan Africa, Brazil, and India. In the Middle East, the world’s most unequal region according to our estimates, the top 10% capture 61% of national income (Figure E1).

In recent decades, income inequality has increased in nearly all countries, but at different speeds, suggesting that institutions and policies matter in shaping inequality.

Since 1980, income inequality has increased rapidly in North America, China, India, and Russia. Inequality has grown moderately in Europe (Figure E2a). From a broad historical perspective, this increase in inequality marks the end of a postwar egalitarian regime which took different forms in these regions.

  • There are exceptions to the general pattern. In the Middle East, sub-Saharan Africa, and Brazil, income inequality has remained relatively stable, at extremely high levels (Figure E2b). Having never gone through the postwar egalitarian regime, these regions set the world “inequality frontier.”
  • The diversity of trends observed across countries since 1980 shows that income inequality dynamics are shaped by a variety of national, institutional and political contexts.
  • This is illustrated by the different trajectories followed by the former communist or highly regulated countries, China, India, and Russia. The rise in inequality was particularly abrupt in Russia, moderate in China, and relatively gradual in India, reflecting different types of deregulation and opening-up policies pursued over the past decades in these countries.
  • The divergence in inequality levels has been particularly extreme between Western Europe and the United States, which had similar levels of inequality in 1980 but today are in radically different situations. While the top 1% income share was close to 10% in both regions in 1980, it rose only slightly to 12% in 2016 in Western Europe while it shot up to 20% in the United States. Meanwhile, in the United States, the bottom 50% income share decreased from more than 20% in 1980 to 13% in 2016 (Figure E3).
  • The income-inequality trajectory observed in the United States is largely due to massive educational inequalities, combined with a tax system that grew less progressive despite a surge in top labor compensation since the 1980s, and in top capital incomes in the 2000s. Continental Europe meanwhile saw a lesser decline in its tax progressivity, while wage inequality was also moderated by educational and wage-setting policies that were relatively more favorable to low- and middle-income groups. In both regions, income inequality between men and women has declined but remains particularly strong at the top of the distribution.

How has inequality evolved in recent decades among global citizens? We provide the first estimates of how the growth in global income since 1980 has been distributed across the totality of the world population. The global top 1% earners has captured twice as much of that growth as the 50% poorest individuals. The bottom 50% has nevertheless enjoyed important growth rates. The global middle class (which contains all of the poorest 90% income groups in the EU and the United States) has been squeezed.

At the global level, inequality has risen sharply since 1980, despite strong growth in China.

  • The poorest half of the global population has seen its income grow significantly thanks to high growth in Asia (particularly in China and India). However, because of high and rising inequality within countries, the top 1% richest individuals in the world captured twice as much growth as the bottom 50% individuals since 1980 (Figure E4). Income growth has been sluggish or even zero for individuals with incomes between the global bottom 50% and top 1% groups. This includes all North American and European lower- and middle-income groups.
  • The rise of global inequality has not been steady. While the global top 1% income share increased from 16% in 1980 to 22% in 2000, it declined slightly thereafter to 20%. The income share of the global bottom 50% has oscillated around 9% since 1980 (Figure E5). The trend break after 2000 is due to a reduction in between-country average income inequality, as within-country inequality has continued to increase.

III. Why does the evolution of private and public capital ownership matter for inequality?

Economic inequality is largely driven by the unequal ownership of capital, which can be either privately or public owned. We show that since 1980, very large transfers of public to private wealth occurred in nearly all countries, whether rich or emerging. While national wealth has substantially increased, public wealth is now negative or close to zero in rich countries. Arguably this limits the ability of governments to tackle inequality; certainly, it has important implications for wealth inequality among individuals.

Over the past decades, countries have become richer but governments have become poor.

  • The ratio of net private wealth to net national income gives insight into the total value of wealth commanded by individuals in a country, as compared to the public wealth held by governments. The sum of private and public wealth is equal to national wealth. The balance between private and public wealth is a crucial determinant of the level of inequality.
  • There has been a general rise in net private wealth in recent decades, from 200–350% of national income in most rich countries in 1970 to 400–700% today. This was largely unaffected by the 2008 financial crisis, or by the asset price bubbles seen in some countries such as Japan and Spain. In China and Russia there have been unusually large increases in private wealth; following their transitions from communist- to capitalist-oriented economies, they saw it quadruple and triple, respectively. Private wealth–income ratios in these countries are approaching levels observed in France, the UK, and the United States.
  • Conversely, net public wealth (that is, public assets minus public debts) has declined in nearly all countries since the 1980s. In China and Russia, public wealth declined from 60–70% of national wealth to 20–30%. Net public wealth has even become negative in recent years in the United States and the UK, and is only slightly positive in Japan, Germany, and France. This arguably limits government ability to regulate the economy, redistribute income, and mitigate rising inequality. The only exceptions to the general decline in public property are oil-rich countries with large sovereign wealth funds, such as Norway.

V. What is the future of global inequality and how should it be tackled?

We project income and wealth inequality up to 2050 under different scenarios. In a future in which “business as usual” continues, global inequality will further increase.

Alternatively, if in the coming decades all countries follow the moderate inequality trajectory of Europe over the past decades, global income inequality can be reduced– in which case there can also be substantial progress in eradicating global poverty.

The global wealth middle class will be squeezed under “business as usual.”

  • Rising wealth inequality within countries has helped to spur increases in global wealth inequality. If we assume the world trend to be captured by the combined experience of China, Europe and the United States, the wealth share of the world’s top 1% wealthiest people increased from 28% to 33%, while the share commanded by the bottom 75% oscillated around 10% between 1980 and 2016.
  • The continuation of past wealth-inequality trends will see the wealth share of the top 0.1% global wealth owners (in a world represented by China, the EU, and the United States) catch up with the share of the global wealth middle class by 2050.

Tax progressivity is a proven tool to combat rising income and wealth inequality at the top.

Research has demonstrated that tax progressivity is an effective tool to combat inequality. Progressive tax rates do not only reduce post-tax inequality, they also diminish pre-tax inequality by giving top earners less incentive to capture higher shares of growth via aggressive bargaining for pay rises and wealth accumulation. Tax progressivity was sharply reduced in rich and some emerging countries from the 1970s to the mid-2000s. Since the global financial crisis of 2008, the downward trend has leveled off and even reversed in certain countries, but future evolutions remain uncertain and will depend on democratic deliberations. It is also worth noting that inheritance taxes are nonexistent or near zero in high-inequality emerging countries, leaving space for important tax reforms in these countries.

A global financial register recording the ownership of financial assets would deal severe blows to tax evasion, money laundering, and rising inequality.

Although the tax system is a crucial tool for tackling inequality, it also faces potential obstacles. Tax evasion ranks high among these, as recently illustrated by the Paradise Papers revelations. The wealth held in tax havens has increased considerably since the 1970s and currently represents more than 10% of global GDP. The rise of tax havens makes it difficult to properly measure and tax wealth and capital income in a globalized world. While land and real-estate registries have existed for centuries, they miss a large fraction of the wealth held by households today, as wealth increasingly takes the form of financial securities. Several technical options exist for creating a global financial register, which could be used by national tax authorities to effectively combat fraud.

More equal access to education and well-paying jobs is key to addressing the stagnating or sluggish income growth rates of the poorest half of the population.

  • Recent research shows that there can be an enormous gap between the public discourse about equal opportunity and the reality of unequal access to education. In the United States, for instance, out of a hundred children whose parents are among the bottom 10% of income earners, only twenty to thirty go to college. However, that figure reaches ninety when parents are within the top 10% earners. On the positive side, research shows that elite colleges who improve openness to students from poor backgrounds need not compromise their outcomes to do so. In both rich and emerging countries, it might be necessary to set trans- parent and verifiable objectives– while also changing financing and admission systems– to enable equal access to education.
  • Democratic access to education can achieve much, but without mechanisms to ensure that people at the bottom of the distribution have access to well-paying jobs, education will not prove sufficient to tackle inequality. Better representation of workers in corporate governance bodies, and healthy minimum-wage rates, are important tools to achieve this.

Governments need to invest in the future to address current income and wealth inequality levels, and to prevent further increases in them.

Public investments are needed in education, health, and environmental protection both to tackle existing inequality and to prevent further increases. This is particularly difficult, however, given that governments in rich countries have become poor and largely indebted. Reducing public debt is by no means an easy task, but several options to accomplish it exist–including wealth taxation, debt relief, and inflation–and have been used throughout history when governments were highly indebted, to empower younger generations.

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Economic Nationalism: What It Means
| December 28, 2017 | 7:31 pm | Analysis, Economy | No comments

– from Greg Godels is available at:
http://zzs-blg.blogspot.com/

Economic Nationalism: What it Means

In the throes of the 2007-2008 economic collapse, I projected that the global economy would be irrevocably and qualitatively marred by the unfolding events. I foresaw a shift in the structure of international relations, a shift away from the so-called “globalization” interlude. Writing in November of 2008:

The economic crisis has reversed the post-Soviet process of international integration – so-called “globalization.” As with the Great Depression, the economic crisis strikes different economies in different ways. Despite efforts to integrate the world economies, the international division of labor and the differing levels of development foreclose a unified solution to economic distress. The weak efforts at joint action, the conferences, the summits, etc. cannot succeed simply because every nation has different interests and problems, a condition that will only become more acute as the crisis mounts.
A crisis of the severity of 2007-2008 understandably challenges some earlier verities, but more importantly, it renders some economic roads now impassable. My view was that the era of completely open, free, and secure international exchange fueling dramatic growth in trade was not a new stage of capitalism– as many wished to argue– but a phase created by politically contingent factors and spurred by the intensified international competition of the last thirty years of the twentieth century. Moreover, that phase– unhelpfully called “globalization”– was both fortuitous and disastrous for the fate of capitalism. I elaborated on this further in April of 2009:
To simplify greatly, a healthy, expanding capitalist order tends to promote intervals of global cooperation – enforced by a hegemonic power – and trade expansion, while a wounded, shrinking capitalist order tends towards autarky and economic nationalism. The Great Depression was a clear example of heightened nationalism and economic self-absorption. Most commentators acknowledge this fact, but attribute it to the predilections of national leaders. It was said that Roosevelt “sabotaged” the London Economic Conference, for example. Earlier, he said: “Our international trade relations, though vastly important, are in point of time and necessity secondary to the establishment of a sound economy.” It is my contention, and I believe essential to a Marxist understanding, that Roosevelt’s reaction was an expression of the logic of capitalism under stress; the structural development that led to intense nationalism throughout Europe, especially in Germany and Italy, and ultimately to war.
The stress of the 2007-2008 economic collapse created “centrifugal forces,” forces pulling apart the institutions, the regulations, and the commitment to an open, unified, and universal global marketplace. In its place would come a growing national partisanship, a commitment to winning-against-adversaries, rather than partnership. This process of “de-globalizing,” of going it alone would gain against both the process and ideology of economic integration.
I believe these projections have been borne out. My February, 2017 article New Developments in Political Economy: The Demise of “Globalization”, makes the case that the trade internationalism of the post-Soviet era is in profound decline. Moreover, emergent and growing nationalism enjoys its vitality from the reaction to the failure of the global order. Events in the months since the article appear only to underscore that claim.
Rising Economic Nationalism
President Trump has substantially called the World Trade Organization (WTO) irrelevant to US trade policies. But skepticism about the WTO precedes his political rise as a nationalist. The once heralded WTO Doha (Doha Development Agenda) was mired in dispute and ineffectiveness from its inception in 2001 and especially after 2008. The annual number of WTO trade disputes has more than doubled since 2008 even though trade growth has been tepid (below global GDP growth for the last 3 years), a sure sign of growing protectionist sentiments. The recent December 10-13 meeting of the WTO was largely a failure. “The trade body’s 164 members didn’t reach full consensus on any of the major objectives it had set itself before the meeting,” in the words of Bloomberg’s Bryce Baschuk and Charlie Devereux, with the EU blaming failure on “destructive behavior by several large countries.”
But the European Union (EU) is itself enduring a burst of economic nationalism. While the popular press and liberal pundits stress the role of xenophobia in Brexit, the economic ills that fueled the growth of nationalism in the UK vote against EU membership are largely neglected. Also, the breadth of the rejection of open market policies throughout the EU are largely missed.
A recent The Wall Street Journal article (12-14-17) affirms my projections made in 2008 and 2009 for the EU:
The financial crisis that erupted in 2008 caused a drop in trade between EU countries, with little rebound since beyond precrisis levels. As Europe’s swoon dragged on, many politicians strove to prop up their economies with fixes that prioritized domestic markets over the EU. (The EU, a Disciple of Free Trade, is Erecting Barriers)
The WSJ author, Valentina Pop, choses the example of Emmanuel Macron, the new French President, to highlight the trend in the EU. Macron ran for office as a passionate advocate for Europeanism and free markets. Nonetheless, he nationalized a shipyard to block its purchase by an Italian firm, he supports limiting foreign employment, and he “gutted” dairy imports from EU countries. Further evidence for the retreat from border-free markets and the embrace of nationalism comes from the growth of trade barriers: legal actions against violators of the EU market openness more than tripled last year.
Earlier this year, the European commission moved legally against Romania and Hungary and, in June, against Poland over economic disputes.
Nothing shows the fraying of the one-global-market consensus and the turn to economic nationalism more than the dispute escalating between the US and Canada and waged though their corporate surrogates, Bombardier and Boeing. Boeing lodged a complaint against Canadian aircraft firm Bombardier with the US Commerce Department. With typical US arrogance, Commerce slapped a 300% tariff on Bombardier planes sold in the US.
Indignantly, the Canadian government cancelled its plan to purchase $5.2 billion of new Boeing fighters to supplement its existing Boeing fighter jets. Instead, it will accept bids in 2019 for a purchase of 88 new fighters, but with the pointed caveat that any bidder causing injury to Canada’s interests would be disadvantaged, a not very subtle slap at Boeing.
Further, as Canada grows increasingly unhappy with renegotiations over NAFTA, the government has turned to the People’s Republic of China (PRC) to craft an alternative free-trade agreement (Canadian merchandise exports to the PRC have more than doubled since 2007). Clearly, one of history’s oldest and most intimate trading partnerships is under increasing stress from economic nationalism.
Elsewhere, I have demonstrated the qualitative changes in global energy markets, along with the dramatic intensification of competition and associated hostilities. The shifting energy alliances, the swings in market share, and the political instabilities that are commonplace have spurred the turn to economic nationalism.
What does it Mean?
The hasty conclusion that expansion of global markets along with universal homage to a new global community constituted an irreversible change in capitalist relations is now thoroughly discredited by the realities of imperialist aggression and economic crisis. In fact, the “globalization” moment coincided with the vast inclusion of new economies – the former socialist community – and the absolute hegemony of a capitalist power – the US. History has known other moments, but theorists – including many on the left – were too awed by capitalist triumphalism, drawn to knee jerk anti-Communism, and desirous of facile answers to recognize this continuity with the logic of state-monopoly capitalism. Well before World War I, a similar moment occurred with the massive expansion of markets under the global hegemony of the British Empire, a period followed by economic decline spurring extreme nationalism.
As I stress in the above passage, written in 2009, the normal course of global economic relations in the era of state monopoly capitalism is intense competition, pressure on profitability, accumulation crises, rising nationalism, and conflict. This is the norm in the age of imperialism. This is the logic of late capitalism.
Appearances may suggest to some a different narrative– enduring prosperity in the mid-twentieth century, peace guaranteed by economic internationalism at the turn of the new century– but the reality is different, far different. Reality is imposed by crisis. And the upheaval of 2007-2008 exposed the reality of fierce competition and national self-interest.
For some, the rise of nationalism is strictly a political phenomenon anchored in demagogy and ignorance; they see no linkage with the course of capitalism. But the economic base for this phenomenon cannot be denied. Liberal markets produced the crisis and the resulting human suffering sparked a political response.
And ruling classes, faced with pressure on profits from increasingly desperate and cut-throat competition in the unprecedented slow-growth recovery, are inexorably driven towards economic nationalism. While economic nationalism is a natural fit with the far right’s ultra-patriotism, it attracts centrist forces as well. Elements of the US trade union movement and Democratic industrial state politicians have warmed to economic nationalism since the days of bashing Japanese imports. Liberal Senators like Sherrod Brown have quietly worked with President Trump around overturning trade deals like NAFTA– “strange bedfellows” in the words of The Wall Street Journal.
We do not have to press the parallel too hard to recognize that the economic nationalism of today threatens to spark disastrous wars, as did the rabid economic nationalism of the European powers in the prelude to World War I (and World War II). As in both eras, hostility and tensions are smoldering. And as in that era, war promises to follow, with devastation well beyond the comprehension of a complacent, self-absorbed population. The threat of general war, nuclear war, is possibly greater than any time in my lifetime, excepting the early Cold War years of General Curtis “Dr. Strangelove” LeMay and the US nuclear monopoly.
While extreme right nationalism is a serious political danger, the rise of economic nationalism, a growing policy consensus with capitalist rulers, threatens the very existence of millions, if not the planet.
Greg Godels
zzsblogml@gmail.com