After the crash

[Rabaelthazar]

Borrowed this link from a facebook feed. Perhaps not news, per se, but an interesting and relevant read nonetheless. Enjoy.

After the crash: the pauperisation of middle-class America

With the crisis now in its fifth year, it's plain that the rich and powerful have restructured society toward ever-greater inequality

The current global crisis of capitalism began with the severe contraction in the housing markets in mid 2007. Therefore, welcome to Year Five. This inventory of where things stand may begin with the good news: the major banks, the stock market and corporate profits have largely or completely "recovered" from the lows they reached early in 2009. The US dollar has fallen sharply against many currencies of countries with which the US trades, and that has enabled US exports to rebound from their crisis lows.

However, the bad news is what prevails notwithstanding the political and media hype about "recovery". The most widely cited unemployment rate remains at 9% for workers without jobs but looking. If instead, we use the more indicative U-6 unemployment statistic of the US labour department's bureau of labour statistics, then the rate is 15.9%. The latter rate counts also those who want full-time but can only find part-time work and those who want work but have given up looking. One in six members of the US labour force brings home little or no money, burdening family and friends, using up savings, cutting back on spending, etc.

At the same time, the housing market remains deeply depressed as 1.5-2m home foreclosures are scheduled for 2011, separating more millions from their homes. After a short upturn, housing prices nationally have resumed their fall: one of those feared "double dips" downward is thus already under way in the economically vital housing market.

The combination of high unemployment and high home foreclosures assures a deeply depressed economy. The mass of US citizens cannot work more hours – the US already is No 1 in the world in the average number of hours of paid labour done per year per worker. The mass of US citizens cannot borrow much more because of debt levels already teetering on the edge of unsustainability for most consumers. Real wages are going nowhere because of high unemployment enabling employers everywhere to refuse significant wage increases. Job-related benefits (pensions, medical insurance, holidays, etc) are being pared back.

There is thus no discernible basis for a substantial recovery for the mass of Americans. The US economy, like so many others, is caught in serious stagnation, a situation flowing partly from the economic crisis that began in 2007 and partly from the way in which most governments responded to that crisis. Thus US businesses and investors increasingly look elsewhere to make money.

Rapidly rising consumption is not foreseeable in the US, but it is already happening where production is booming: China, India, Brazil, Russia, parts of Europe (especially Germany). Growth-oriented activity is leaving the US economy, where it used to be so concentrated. The US was already becoming less important as a production centre as profit-driven major US corporations shifted manufacturing jobs to cheaper workers overseas, especially in China. In recent decades, those corporations' export of jobs expanded to include more and more white-collar and skilled work outsourced to India and elsewhere. Now, US corporations are also spending their money on office, advertising, legal, lobbying and other budgets increasingly where the expanding markets are – and not inside the US.

Republicans are now celebrating "American exceptionalism", the unique greatness of living conditions in the US. Yet again, their politics stress vanishing social conditions whose disappearance frightens Americans who counted on them. In reality, the US is fast becoming more and more like so many countries where a rich, cosmopolitan elite occupies major cities with a vast hinterland of people struggling to make ends meet. The vaunted US "middle class" – so celebrated after the second world war even as it slowly shrank – is now fast evaporating, as the economic crisis and the government's "austerity" response both favour the top 10% of the population at the expense of everyone else.

The US budget for fiscal year 2011 is scheduled to spend $ 3.5tn while taking in $2tn in taxes. It is borrowing the other $1.5tn – the deficit – and thereby adding to the US national debt (already over $14tn, roughly the same as the annual output, or GDP, of the US). Such massive borrowing is what got Greece, Portugal, Spain, Italy and other countries into their current massive crises. The "great budget debate" between Republicans and Democrats over the first few months of 2011 haggled over $60bn in cuts versus $30bn with the final compromise of $38bn. That $38bn cannot and will not make any significant difference to a 2011 deficit of $1,500bn (that is, $1.5tn).

Obviously, both Republicans and Democrats are agreed to do nothing more that quibble over insignificant margins of so huge a deficit. Meanwhile, they perform live political theatre about their "deep concern about deficits and debts" for a bemused, bored and ever-more alienated public.

Neither party can shake off its utter dependence now on corporate and rich citizens' monies for all their financial sustenance. Therefore, neither party imagines, let alone explores, alternatives to massive deficits and debts. After all, government deficits and debts mean: first, the government is not taxing corporations and the rich; and second, the government is, instead, borrowing from them and paying them interest. So, the two parties quibble over how much to cut which government jobs and public services.

Yet, the tax burdens of US corporations and the richest citizens (what they actually pay) are significantly lower than in most other advanced industrial economies. Indeed, they are far lower than they were inside the US a few years ago. In the mid 1940s, the corporate income tax brought Washington 50% more than the individual income tax. Today, the corporate income tax brings the federal government 25% of what is taken from individuals. In the 1950s and 1960s, the top individual income tax rate in the United States (the rate paid by the richest citizens on all their income over about $100,000) was 91%. Today, that rate is 35%, a staggering cut in the taxes on the richest Americans, far larger than the cuts in anyone else's tax rates. Half or more of today's federal deficits would be gone if we simply taxed the richest US citizens at the rates in effect in the 1950s and 1960s. If we also taxed corporations in relation to individuals as we did in the 1940s, the entire deficit would vanish.

In summary, shifting the burden of federal taxation from corporations to individuals and from the richest individuals to the rest of us contributed to massive deficits and debts. Instead of correcting and reversing that unjust shift, Republicans and Democrats plan, instead, to deal with deficits and debts by cutting Medicaid and Medicare and threatening social security.

A revealing historical incident can introduce our conclusion about the capitalist crisis as it enters Year Five. In May 2011, as gasoline prices rose to between $4 and $5 per gallon, a US Senate committee run by Democrats summoned the heads of major oil companies to testify. The senators asked why the federal government should continue to provide them with special tax loopholes and direct subsidies of $4bn per year when their companies were earning record high profits. The Democrats had offered a meek plan to merely cut those loopholes and subsidies from $4bn to $2bn per year. After the hearings, the US Senate voted not to cut the loopholes and subsidies at all.

The largest corporations and richest citizens long ago learned that if you want to sustain an extremely unequal distribution of wealth and income, you need an equally unequal distribution of political power. Those corporations use their profits to pay huge salaries and bonuses to their executives, to pay big dividends to their major shareholders, and to "contribute" to politics. The corporations, their top executives and the major shareholders whom they enrich all regularly finance the political campaigns and politicians that perform that sustaining function. An increasingly unequal capitalist economy pays for the increasingly undemocratic politics it needs.

Any serious effort to change the basic situation, functions and direction of government policy must change the answer our society now gives to this basic question: who gets and disposes of the profits of producing goods and services in the US economy? So long as the answer remains corporations' boards of directors and major shareholders (the status quo), current trends will continue until bigger economic collapses bring the system to self-destruction. Then we will have graduated from a crisis with banks "too big to fail" to a crisis that is itself "too big to overcome."

A changed system – perhaps called "economic democracy" – in which the workers themselves collectively operate their enterprises would immediately redirect enterprise profits in different ways, with very different social consequences. For example, according the bureau of labour statistics, during 2010, the pay for average workers rose 2% while the pay for CEOs rose 23%. Workers who collectively directed their own enterprises would distribute pay increases very differently and far less unequally. Likewise, to take another example, self-directing workers would allocate their enterprises' profits to the government (that is, pay taxes) but demand in return the sorts of mass-focused social programmes that the current CEOs and boards of directors want government to cut. Democratic enterprises would have to work out collaborations and agreements with democratically run residential units (cities, states, etc) where their decisions impact one another.

This short article is hardly the place to work out the details of so changed an economic system. That is, after all, the task of democratic economic and political institutions to do together, once the change has been discussed, adopted and set in motion.

Throughout the cold war decades, and even after the USSR dissolved in 1989, we remained, as a nation, afraid openly to discuss and debate a basic economic issue. Does our economic system, capitalism, serve our needs sufficiently; does it need basic changes; or might a change to another economic system be best? Instead of a debate over alternative answers to such questions, we permitted little beyond self-congratulatory cheerleading for capitalism. Seriously questioning capitalism, let alone challenging it, remained taboo, an activity to keep repressed. That repression encouraged an unquestioned and unchecked US capitalism to become ever more unequal, delivering more "bads" than "goods" to ever larger majorities of people. This unsustainable situation is being strained to breaking point by the crisis that now enters Year Five.

 

Source: http://www.guardian.co.uk/commentisfree/cifamerica/2011/may/27/economics-useconomy?INTCMP=ILCNETTXT3487

[santiago]

its useful to understand the debt this way too, its not a be all end all debt usa has.

sure i have been on their case a bit but everybody see's this big 15 trillion debt and thinks its the end of the world..its true but not as bad as everbody makes out.

just think of the usa like a rich family with a 4 story house, land, a business, servants, a few cars a caravan, a holiday house and all the trappings..........all owned 100%, simply the 15 trillion debt is a loan for the new boat they just bought, sure they could just sell off a few cars or a bit of land to buy the boat initially or pay for the boat now but the family would rather keep its assets and just loan for the boat.

they will pay it off eventually, its no big deal i am sure they have many assets available to pay it immediately......so long as its not out of control there is no issue, 15 trillion might sound a lot but a few years of good economic times which almost if not always follow crashes will put it all back to equal again.........hopefully.

[The Dude]

^^^Fiat currency, EVERYTHING they "own" is actually debt, they are leasing a bit of freedom knowing the cost will be total economic servitude to the bankers they're indebted to, ie: a forced labour camp, or the "shared wealth" of communism.

[botanika]

^^^Fiat currency, EVERYTHING they "own" is actually debt, they are leasing a bit of freedom knowing the cost will be total economic servitude to the bankers they're indebted to, ie: a forced labour camp, or the "shared wealth" of communism.

 

This

The future of america will be more of the same. Expect more financial crashes. It might become like china: a ruling wealthy minority central communist government of Jewish bankers and media running a mass of mixed race people who through multiculturalism have lost ties to their original cultural identity and strength to fight back. During WWII Germany and japan opposed private banking - we should have let them continue instead of letting America into the war. We got scammed. The British empire collapsed, china went into a cultural revolution, the third world went further into chaos and the US had the federal reserve steal away it's liberty.

[Slybacon]

A changed system – perhaps called "economic democracy" – in which the workers themselves collectively operate their enterprises would immediately redirect enterprise profits in different ways,

If you ask me, this sounds very much like anarchy...

[botanika]

If you ask me, this sounds very much like anarchy...

 

The banks should be controlled by the state but the value of currency should be related to the strength of employees output.

[Slybacon]

The banks should be controlled by the state but the value of currency should be related to the strength of employees output.

 

And the currency is backed by the value of the population, not resources?

[SunChaser]

Personally I think it's the last of days for the US being the the unchallenged world power.

Back when America peaked in the 60's and 70's they were producing all there own oil and even had enough left over to export it. Now they can't even produce 30% of there own oil and are running there whole economy on borrowed funds.

A magical endless supply of oil would be the only thing that would save them at this stage.

Peace 

[botanika]

Yes resources too - well ultimately the whole world should be managed on a resource base strategy rather than monetary - but there needs to be a focus on the relationship between labour output, unemployment and inflation. In the US they outsourced their manufacturing (labour) to Asia. Quality made in the USA products are becoming rarer, unemployment is high, their dollar has gone down the drain and the whole nation is in debt.

[santiago]

might be time for a proper war to stimulate their economy, not hired rent a cop situation they are in now not getting paid to be rent a cops like trump said.

[synchromesh]

might be time for a proper war to stimulate their economy, not hired rent a cop situation they are in now not getting paid to be rent a cops like trump said.

 

Huh?

[bℓσωηG]

 

[cactuscarl]

Wtf yeah they can print money but if its not worth anything who's going to accept it

[WoodDragon]

So Greenspan thinks that "the United States can always print money to [pay debt]".

Greenspan has obviously forgotten (or never heard of) Robert Mugabe's attempts to do exactly that... The result was a supernova of inflation in Zimbabwe, where bills were printed with 12 digit numbers displaying the value.

If Greenspan thinks that the US is immune to the factors that combined to bring about the hyperinflation of Zimbabwe, he should take some history lessons, and do some basic introspection into his own country's status...

With monkeys like him running their finances, it's no wonder that the US sank so far into debt in the first place. The trouble is, the answer is politically unpalatable to the voting public:

1) spend far less on military and drugs wars,

2) stop subsidising megacorporation welfare with gagworthy subsidies

3) stop reducing taxes to the wealthy part of society

4) etc, etc, etc...

The big problem for the US is that it's not just factors within its own borders that are causing this problem. The dominoes that are the stumbling countries in Europe are helping to pull the States down.

Take Greece for example (hi Mutant!). The custom of very early retirement, combined (amongst other things) with entrenched and widespread bureaucratic corruption, meant that government costs could only be met by ever-increasing borrowing. But never did Greece actually have a coherent plan for paying back this debt, or for changing the financial practices that caused it all in the first place. Bailing the Greek banks out, and bailing out the banks of other countries affected at the time, and bailing out the megacorporations who spent like drunken sailors, simply transferred the debt higher up the finacial chain. I remember at the time that the more pragmatic economists were asking who was going to bail out the bailers next time 'round, and I guess that if the current nervousness is transmitted much further through the global market, the world is getting closer to finding out the answer.

In the longer term the trouble is that most economists and politicians are Cornucopians, believers in the Magic Pudding of resource availability that simply denies the asymptotes and the boundaries inherent in a finite world. Until that belief is confronted, any solution to the current crisis will be a temporary one - it doesn't matter if you do it now or wait until you get to the other side, but at some point in time ya gotta pay the ferryman, or have him throw you in the drink...

[synchromesh]