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“Too Much Capital In Too Few Hands”: Populist Backlash Will Keep Increasing As Inequality Continues To Rise

Listen to a typical center-left Democrat, and you’ll hear rosy things about the economy. GDP growth is solid, unemployment is low, and even wages are starting to rise. The Clinton campaign and the Democratic Party generally will be touting these achievements even as they focus on issues of structural racism and sexism while offering government support in areas like childcare.

But there’s a big problem: overall, inequality is still rising at an astonishing rate to unprecedented levels:

Financial inequality became even wider in the United States last year, with average income for the top 1% of households surging 7.7% to $1.36 million.

Income for the richest sliver rose twice as fast as it did for the remaining 99% of households, according to an updated analysis of tax data by Emmanuel Saez, an economics professor at the University of California, Berkeley.

It’s true that the 99% is doing better than it has since the 1990s, but the gains are relatively modest. Furthermore, basic cost of living has gone way up, particularly in the areas of tuition and housing. Housing in particular is a major problem driven by inequality itself: with accumulation of capital comes the need for places to store it, and real estate is a popular piggybank for wealthy investors. This in turn drives up the cost of housing, making it more difficult to afford housing in the urban areas where most jobs are located.

The bigger problem is that America already tried the 1990s approach to prosperity, assuming that rising inequality isn’t a problem as long as everyone is doing OK. What does it matter if the rich are getting much much richer, if the fortunes of the poor and the middle class are also improving even if at a slower rate?

The answer is that it’s unsustainable in both the short and long term. Over the long term high rates of inequality shrink the middle class and increase political instability. In the short term, too much capital in too few hands leads to speculative bubbles, that in turn lead to big recessions. Recessions tend to wipe out the wealth of the middle class in a much more devastating way than that of the wealthy who have more ways to protect their money. More importantly, the wealthy recover their position much more quickly as asset values balloon back, but the jobs that sustain the middle class and the poor return more slowly–often at permanently lower wage levels when adjusted for inflation.

Automation and globalization are likely to inexorably drive the trend toward rampant inequality, exacerbated by tax policy designed to protect the wealthy and overgrown financial sector. Merely tackling structural racist and sexist inequalities will do good in their own ways for women and minorities, but they will do little to address the overall problem. Targeted government programs to help citizens with childcare and other needs will help somewhat but won’t do much to fix what’s fundamentally wrong.

Only much more aggressive policies that give workers a greater say in how companies are run to “pre-distribute” wealth, as well as much more progressive graduated tax policies that distribute uneven gains more equitably, will ultimately tilt the balance back toward the middle class where it belongs. Until then, expect to see increasingly virulent strains of populist backlash from both the right and the left until something changes. Incrementalism may be all that is possible politically, but it’s not an answer for the problems that beset us and give rise to anxious backlash. As long as inequality rises, Donald Trump, Brexit and ISIS will be just the beginning of the world’s back-to-basics nativist woes.

People don’t just want the 99% to do better. As the 1% continues to outpace everyone else, a great many people in America and the world actively want the 1% to do worse. And it’s hard to blame them for that sentiment.

 

By: David Atkins, Political Animal Blog, The Washington Monthly, July 4, 2016

July 6, 2016 Posted by | Economic Inequality, Middle East, Populism, The 1% | , , , , , , , , | Leave a comment

“He’ll Magically Make Us All Filthy Rich”: Donald Trump Is Selling American Workers A Scam

Some of our wisest political observers informed us that Brexit would be great news for Donald Trump, because it shows (somehow) that there may be more support here than expected for his nationalist message of restoring American greatness through restrictionist immigration policies and turning the clock back on globalization.

So it’s a bit surprising to see that a new Bloomberg/Morning Consult poll shows that Brexit will not influence the votes of a majority of Americans, and if anything, may benefit Hillary Clinton marginally more than Trump:

A majority of U.S. voters — 57 percent — say they don’t expect the U.K. verdict will influence their vote in the presidential election. For the roughly quarter who say it will, almost half say it will make them more likely to support Democrat Hillary Clinton, while 35 percent say Republican Donald Trump.

This is only one poll, so don’t place too much stock in it, but I wanted to highlight it to make a broader point: There is simply no reason to assume that the debate over globalization, which Trump joined with a big speech on trade yesterday, will automatically play in the Donald’s favor. Indeed, Trump is running a massive scam on American workers on many fronts, and the contrast between his positions and those of Hillary Clinton on trade and other economic matters may prove more important in the end than his blustery rhetoric.

Neil Irwin has a good piece this morning on Trump’s big trade speech, in which he pledged to rip up our trade deals with his large and powerful hands and to bring manufacturing roaring back. As Irwin notes, Trump is right to highlight the very real possibility that trade deals have badly harmed American workers, and that elites have in many respects let those workers down. (Bernie Sanders, too, is rightly calling on Democrats to fully reckon with this phenomenon.) But as Irwin also notes, Trump is selling American workers a highly simplistic, anachronistic tale that doesn’t level with them about the likelihood of reversing trends in globalization and automation that are partly responsible for workers’ current plight.

I would add an important point: Clinton is offering these workers substantially more than Trump is. Clinton has also pledged to renegotiate trade deals and to oppose the Trans-Pacific Partnership. Whether or not you see that as opportunistic, Clinton has also outlined detailed plans for programs that would try to use tax credits and federal spending to make American workers and businesses more competitive in the global economy. I am not aware of any detailed plans from Trump to do this. Trump’s message is that through his manly prowess, he will kick the asses of other countries and parasitic illegal immigrants and make us all insanely rich again, not that he sees a specific, programmatic role for the federal government in boosting wages, promoting domestic manufacturing, and helping displaced workers.

While it’s true that Trump has promised to spend on infrastructure at home, Trump’s tax plan — which confers an enormous windfall on the rich — would result in a nearly $10 trillion decline in revenues over the next decade. In practice this likely means that, unlike Clinton, he would not try to get Congress to spend substantially on helping American workers. While Clinton has vowed to invest money in helping displaced coal miners, and to invest in clean energy, Trump vaguely promises to put all those coal miners back to work again, which isn’t going to happen. Meanwhile, Clinton supports raising the federal minimum wage to at least $12 per hour. But while Trump has vaguely said workers need higher wages, he has come out for eliminating the federal minimum. Again, all he’s really saying is that he’ll magically make us all so filthy rich that we won’t have to worry ourselves with difficult policy choices. The vow that mass deportations will make the American workforce great again is also a straight-up scam.

The choice is not necessarily between Trumpian turn-back-the-clock proctectionism and throw-workers-to-the-wolves free trade. Clinton is offering up detailed plans for spending and tax credits and economic regulations that would help workers amid large economic trends she believes can’t be reversed. There is no reason to presume that Trump’s simplistic tale will carry the day politically.

 

By: Greg Sargent, The Plum Line Blog, The Washington Post, June 29, 2016

June 30, 2016 Posted by | Donald Trump, Hillary Clinton, Workers | , , , , , , , , | Leave a comment

“Sanders Is Exploiting The Trade Issue”: Mirroring The Republican Approach To Obamacare

Some people are suggesting that Bernie Sanders‘ win in Michigan was a result of his opposition to trade deals like NAFTA and TPP and that this will serve him well with white working class voters in the so-called “rust belt” states. Just prior to the debate in Flint, Michigan, Sanders tweeted this:

Both Danielle Krutzleben at NPR and Steve Chapman at the Chicago Tribune did some fact-checking on the role of trade deals in the challenges faced by cities like Detroit and Flint. Krutzleban begins with a chart showing that the migration out of Detroit started around 1950 and that since then, it has lost more than 60% of its residents. That started long before the trade deals Sanders suggested as the cause of all those abandoned buildings.

Chapman identifies several factors that are not accounted for if we simply look at things like NAFTA to blame. He points out that Michael Moore’s documentary “Roger & Me” about the shut-down of the General Motors plant in Flint came out four years before NAFTA took effect and that the challenge to the auto industry back then was coming from Japan (not China or Mexico), where they were producing more reliable and fuel-efficient cars.

The other issue that hurt Detroit was the migration of auto plants – not overseas – but to states (mostly in the South) who adopted so-called “right to work” laws that undermined unions. Another factor was automation – which reduced the number of workers required to produce cars by a third. Finally, Chapman makes this observation:

Breaking down trade barriers would actually help the American auto industry and those on the assembly lines. One major attraction of building cars in Mexico is that it has free trade agreements with 45 countries — while the U.S. has free trade deals with just 20. Exporting to most of the world is easier there than here.

Bernard Swiecki, an analyst at the Michigan-based Center for Automotive Research, told Business Alabama why Audi recently decided to put a factory in Mexico instead of the U.S.: “If they export it, they save $4,500 per vehicle in tariffs they don’t have to pay.”

These are just some of the complicating factors that affected a state like Michigan. But they are paralleled by a look at history that informs us of what drove the manufacturing boom in the United States as well as what is challenging its survival today. To sum up: it is not as simple as blaming trade deals.

What I find troubling about Sanders’ approach to all of this is not simply his avoidance of even a cursory mention of these complex issues. It is more about the fact that he is obviously tapping into the anger and despair that is felt by those who are affected (much like Donald Trump is doing) and then locating a singular culprit on which to focus their blame.

But beyond even that, the one thing many of us have spent the last seven years criticizing about Republicans is their use of anger/fear mongering to foster obstruction. What is totally lacking from Sanders is any articulation of what his own approach to trade would be. In that way, he is mirroring the Republican approach to Obamacare: suggesting that trade deals need to be repealed without offering a replacement. For those of us who think that it is important to get beyond the anger/fear and talk about actual policy that works, that is not good enough.

 

By: Nancy LeTourneau, Political Animal Blog, The Washington Monthly, March 10, 2016

March 16, 2016 Posted by | Bernie Sanders, NAFTA, Trade Agreements | , , , , , , , , , | Leave a comment

   

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