Sunday, May 29, 2011

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."

From the Guardian, Friday 27 May 2011
By Richard Wolff

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

Thursday, May 19, 2011

It's all about banking

The Second American Revolution
From the Bucks County Courier Times
May 17, 2011

More than 80 years ago, Wall Street triggered the Great Depression and cast millions into poverty and despair. The capacity of the states and local governments to deal with the catastrophe was overwhelmed. President Franklin D. Roosevelt used the federal government in ways never before seen or imagined to rescue the American people.

Today, Americans are living through a Second Great Depression, again brought on by Wall Street. Tens of millions endure great hardship and deprivation. There is no rescue in sight from what one observer rightly called "a slow moving social catastrophe."

Now, Washington is powerless to help. It is dominated by corporate interests and the institutions of a federal establishment grown so grotesquely large they can no longer act, but only feed themselves.

But far from Washington a Second American Revolution may be underway, as states from Maine to California move to fill the vacuum left by a federal establishment that can no longer make any credible claim to represent the broad majority of the American people.

The seeds of this revolution were planted in North Dakota, in a long ago and little remarked act of independent and forward looking Americans. It was all about banking.

A few years after the creation of the Federal Reserve gave Wall Street effective control of banking, money and credit in the rest of the nation, North Dakota established a public bank, independent of the Fed, to insure a steady source of liquidity and credit for the state's farmers, businesses and families.

It has been an engine of prosperity. Last month the Bank of North Dakota (BND) reported a $2.6 billion loan portfolio of credit and liquidity injected into the state's economy and people, in partnership with community banks. The bank also reported another year of record profits - $62 million. These profits belong to the bank's only shareholder, the people of North Dakota, and were produced without taxation.

That in a state with a population of only 670,000.

The bank has also acted as a "rainy day" fund for the state, and when a North Dakota town suffered a massive flood and fire, the BND provided emergency credit lines to the city.

Having a less expensive and readily available credit line with the state's own bank reduces the need for municipal and county rainy-day funds that are a waste of capital; often invested in out-of-state banks, and often at very modest interest.

And the BND purchases municipal bonds and can fund infrastructure projects, offering dramatic reductions in the costs of debt service.

Again this year, almost alone among the states, North Dakota boasts a healthy surplus, low unemployment, a booming economy and a strong banking industry, aided in no small measure by something most Americans have never heard of: a publicly owned state bank.

As states and cities slash spending on even vital services and beggar the future, the Federal Reserve declared that it cannot help with their budget problems, although it advanced almost $12.3 trillion in liquidity and short-term loans to bail out Wall Street - an amount 64 times the $191 billion required to balance the budgets of all 50 states.

It didn't matter in North Dakota.

On May 2, Treasury Secretary Geithner announced that the Treasury would stop issuing special securities that help state and local governments pay for their debt.

It won't matter in North Dakota.

Faced with the endemic failure of the federal establishment and the dire needs of the people, legislators in more than a dozen states have embraced the example of North Dakota, and fired the first shots in what may become the Second American Revolution, introducing legislation to form state-owned banks or to study their feasibility.

The Center for State Innovation performed detailed analyses for two of those states, Washington and Oregon. Their conclusion was that a publicly owned bank on the model of the Bank of North Dakota would have a substantial positive impact on employment, new lending, and government revenue in those states.

State and even municipal level public banks have the potential to direct trillions of dollars of credit and hundreds of billions in revenue into locally directed economic expansion, creating jobs and building up prosperity - without raising taxes and without the helpful hand of federal bureaucrats.

Hyperbole? Wishful thinking? Consider California. The state has the eighth largest economy in the world, and it has a debt burden to match. But as large as California's liabilities are, they are exceeded by its assets: immense revenues, investments, pensions and other funds which are sufficient to capitalize a bank to rival any in the world.

Following the BND model and adhering to the reserve requirements that the "too big to fail banks" ignored or evaded before they failed, a public bank in California could be formed with $12 billion in capital and $148 billion in deposits, which in turn could generate $133 billion in credit for the state. Such a proposal is circulating now among California legislators and policy makers.

No other state can match California's ability to capitalize a public bank. But in the aggregate, the potential impacts of only a dozen state banks are revolutionary. A river of credit, investment and revenue, locally generated and locally directed, bypassing Washington, Wall Street and the Fed.

Now as before, it's all about banking.

Friday, May 6, 2011

From rugged to savage individualism

The soul-less and the cynical

By Mike Krauss
Bucks County Courier Times

The GOP in Congress and Wall Street's man in the White House have staked out their positions on the debt and deficit. Both are campaign maneuvers. One is utterly soul-less and the other completely cynical.

And both ignore the only thing that can now help Americans climb out of the Second Great Depression: jobs.

Candidate Obama promised jobs. He didn't deliver. House GOP leader Boehner taunted daily, "Where are the jobs, Mr. President?" Now Boehner is the Speaker.

"Where are the jobs, Mr. Speaker?"

He couldn't care less, and the president so far lacks the will - or even the compassion - to go after the money to make the jobs.

Let's start with the proposals of the new GOP wonder-child, Congressman Paul Ryan. Even David Stockman, former budget director for Ronald Reagan thinks the Ryan proposals are a tax cut too far: "Trapped between the religion of low taxes and the reality of huge deficits, the Ryan plan appears to be an attack on the poor in order to coddle the rich."

When Stockman refers to the GOP devotion to low taxes as a "religion", he gets close to the truth of the modern GOP.

Ryan and his crowd are disciples and apostles of Ayn Rand, a novelist hailed as prophet who championed the individual and markets and hated any form of public limits on private activity. Alan Greenspan, former Fed chairman and one of the architects of the government of the rich, by the rich and for the rich was another of Rand's disciples.

All politics is not local, as a famous New York mayor long ago suggested. It is personal. And a look at Rand's biography tells you a lot about the person.

Rand was born in Russia in 1905. The Bolshevik Revolution and resulting communist state destroyed the prosperity of her family, part of the middle class that the Bolsheviks killed off. She hated them.

Rand got to America and made her way as a writer. Her big book, Atlas Shrugged, is Holy Scripture to the modern GOP. It preaches the virtue of the individual and the right to keep the fruits of your labor. Rand published Atlas Shrugged when the tax rate on the wealthiest Americans was 91 percent.

She hated that, too.

The justification for taxes is that we have shared responsibilities to each other. So, that had to go. Rand had no interest in or sympathy for the weak.

Rand's protagonist in Atlas Shrugged is a strong woman who battles heroically to save a railroad. The book was written in the 1950s when there were virtually no female executives in the transportation and distribution industry. There are few today. And Rand made her American life in the male dominated world of Hollywood producers and Manhattan publishers.

Strength was Rand's religion.

Like Dickens' character Scrooge, who so perfectly captured the grinding soul-lessness of the Industrial Revolution, Rand thought the surplus population of the weak was an impediment to creation of the healthy society of the strong and the new Golden Age.

And here it is.

Tens of millions of ordinary Americans without jobs, homes, health care, decent diets, educations, and futures. The nation is in a depression, and the GOP plans to make life even more difficult for the already afflicted, to protect those people of value to the future - the already wealthy.

Where the modern GOP is coming from is best observed in the debate over health care. It's the best in the world, say Ryan and his crowd. But two statistics put the lie to the claim. Life expectancy in the United States is now lower and infant deaths far higher here than in almost every other modern, industrialized society; although we did beat out Portugal on life expectancy. (But not on infant mortality)

What Ryan means to say, but cannot, is that the right Americans have great health care and are living longer, and the right Americans do not and are dying. Rugged individualism has given way in the GOP to savage individualism.

Like a lot of the leadership of the modern GOP, Ryan likes to dress up as a Christian and go to church. He just pays no attention while there.

That brings us to the campaigner-in-chief in the White House. The best Mr. Obama can manage is to suggest maybe the rich can pay more taxes, as a ploy to keep the poor and enough of the middle class on board for his re-election. It just isn't good enough.

The unfunded health and Social Security liabilities looming on the horizon are problems not because they are overly generous - but because they are unfunded.

Privatizing health care and retirement just gives Wall Street access to more trillions to gamble away.

Everyone will have to pay a bit more in taxes, and the rich a lot more, and most Americans could support that - if they had jobs and decent wages and saw an end to government-sanctioned corporate looting and a mindlessly over-extended and ruinously expensive military.

Is there a way forward for America? Of course there is. Will this president and Congress lead? Not a prayer.

With the soul-less apostles of a bitter Russian refugee dominating Congress, and a president far better at campaigning than governing, it will fall to the states and the people to rescue the American dream and save the American democracy.