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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

“Dramatizing The Truth About Trump”: Trump University Is A Devastating Metaphor For The Trump Campaign

When Donald Trump became the heavy favorite to win the Republican Party’s presidential nomination, news leaked out of Clinton world that the campaign against him would resemble the 2012 campaign Democrats ran against Mitt Romney. “The emerging approach to defining Trump is an updated iteration of the ‘Bain Strategy’—the Obama 2012 campaign’s devastating attacks on Mitt Romney’s dealings with investment firm Bain Capital,” Democratic operative and campaign aides told Politico. “This time, Democrats would highlight the impact of Trump’s four business bankruptcies—and his opposition to wage hikes at his casinos and residential properties—on the families of his workers.”

That idea was puzzling to some liberals because, for all the superficial similarities between Trump and Romney, they represent very different kinds of oligarchs: Trump, a tribune of the working class, versus Romney, a champion of capitalism and big business. Trump’s everyman-billionaire political identity, taken at face value, is much harder to weaponize than Romney’s was. The fear was that if Democrats set about reprising the 2012 campaign against a self-styled populist, it would fail or backfire. Trump, after all, acknowledges his personal avarice— “I‘ve been greedy, greedy, greedy.” His promise now is to turn that greed outward on behalf of us.

Fortunately, the steady pace of disclosures from the civil case against Trump University—including testimony from Trump employees who say his business-education program scammed the vulnerable out of tens of thousands of dollars a head—provides Democrats a way to repurpose the Romney strategy against a very different kind of foe. The Trump University scam undermines the very notion that a man of Trump’s greed can ever be trusted to advance the interests of others. If exploited properly, it will be Trump’s undoing.

The Democrats can capitalize on lessons they learned from 2012. Early in that campaign, they ran up against a problem they hadn’t planned for. When they pressed voters in focus groups for their views on Romney’s economic platform, it didn’t rate as negatively as they expected, because voters literally couldn’t believe the premise of the questions: Why would anyone who wanted to be president propose privatizing Medicare and giving rich people enormous tax cuts? For a scary number of voters, it just didn’t compute.

Trump University will dramatize the truth about Trump for those voters in the same way Bain Capital dramatized Romney’s stone-heartedness.

The sustained attack on Romney’s private equity career and his capital worship—the ads featuring people whose lives were ruined by the “creative destruction” Bain Capital rained down on their places of employment, and quoting Romney telling a voter, “Corporations are people, my friend”—allowed Democrats to dramatize the story they were trying to tell about Romney’s political agenda.

“[O]nce people have learned that Romney was willing to fire workers and terminate health and pension benefits while taking tens of millions out of companies,” a prominent Democratic pollster told The Washington Post’s Greg Sargent four years ago, “they are much more ready to understand that Romney would indeed cut Social Security and Medicare to give tax breaks to rich people like himself.” If the Republican nominee is a heartless capitalist who cares naught for working people, then perhaps he really does want to serve the rich in office.

Trump University will serve the same purpose for a campaign aimed at exposing a phony populist for what he is:

Trump U is devastating because it’s metaphor for his whole campaign: promising hardworking Americans way to get ahead, but all based on lies

— Brian Fallon (@brianefallon) June 1, 2016

Fallon is the Hillary Clinton campaign’s secretary, so consider the source, obviously, but his argument holds up to the 2012 test case exquisitely.

Democrats won’t want to attack populism per se, and will have a hard time convincing certain voters to take them at their word that Trump’s promises are fraudulent. He’s incredibly successful, after all! But Trump University will dramatize the truth about Trump for those voters in the same way Bain Capital dramatized Romney’s stone-heartedness. Trump says that he—and only he—has all the answers for the ailing middle class. That he will ply his business acumen on behalf of the everyman and turn his good fortune into theirs. All they have to do to secure his beneficence is fork over their votes. But it’s all a scam. All lies. And when his victims and former employees testify to this for the country, it will be devastating.

 

By: Brian Beutler, The New Republic, June 1, 2016

June 2, 2016 Posted by | Donald Trump, Hillary Clinton, Trump University | , , , , , , , | 1 Comment

“Trump’s Delusions Of Competence”: Running A National Economy Is Nothing Like Running A Business

In general, you shouldn’t pay much attention to polls at this point, especially with Republicans unifying around Donald Trump while Bernie Sanders hasn’t conceded the inevitable. Still, I was struck by several recent polls showing Mr. Trump favored over Hillary Clinton on the question of who can best manage the economy.

This is pretty remarkable given the incoherence and wild irresponsibility of Mr. Trump’s policy pronouncements. Granted, most voters probably don’t know anything about that, in part thanks to substance-free news coverage. But if voters don’t know anything about Mr. Trump’s policies, why their favorable impression of his economic management skills?

The answer, I suspect, is that voters see Mr. Trump as a hugely successful businessman, and they believe that business success translates into economic expertise. They are, however, probably wrong about the first, and definitely wrong about the second: Even genuinely brilliant businesspeople are often clueless about economic policy.

An aside: In part this is surely a partisan thing. Over the years, polls have generally, although not universally, shown Republicans trusted over Democrats to manage the economy, even though the economy has consistently performed better under Democratic presidents. But Republicans are much better at promoting legends — for example, by constantly hyping economic and jobs growth under Ronald Reagan, even though the Reagan record was easily surpassed under Bill Clinton.

Back to Mr. Trump: One of the many peculiar things about his run for the White House is that it rests heavily on his claims of being a masterful businessman, yet it’s far from clear how good he really is at the “art of the deal.” Independent estimates suggest that he’s much less wealthy than he says he is, and probably has much lower income than he claims to have, too. But since he has broken with all precedents by refusing to release his tax returns, it’s impossible to resolve such disputes. (And maybe that’s why he won’t release those returns.)

Remember, too, that Mr. Trump is a clear case of someone born on third base who imagines that he hit a triple: He inherited a fortune, and it’s far from clear that he has expanded that fortune any more than he would have if he had simply parked the money in an index fund.

But leave questions about whether Mr. Trump is the business genius he claims to be on one side. Does business success carry with it the knowledge and instincts needed to make good economic policy? No, it doesn’t.

True, the historical record isn’t much of a guide, since only one modern president had a previous successful career in business. And maybe Herbert Hoover was an outlier.

But while we haven’t had many business leaders in the White House, we do know what kind of advice prominent businessmen give on economic policy. And it’s often startlingly bad, for two reasons. One is that wealthy, powerful people sometimes don’t know what they don’t know — and who’s going to tell them? The other is that a country is nothing like a corporation, and running a national economy is nothing like running a business.

Here’s a specific, and relevant, example of the difference. Last fall, the now-presumed Republican nominee declared: “Our wages are too high. We have to compete with other countries.” Then, as has happened often in this campaign, Mr. Trump denied that he had said what he had, in fact, said — straight talker, my toupee. But never mind.

The truth is that wage cuts are the last thing America needs right now: We sell most of what we produce to ourselves, and wage cuts would hurt domestic sales by reducing purchasing power and increasing the burden of private-sector debt. Lower wages probably wouldn’t even help the fraction of the U.S. economy that competes internationally, since they would normally lead to a stronger dollar, negating any competitive advantage.

The point, however, is that these feedback effects from wage cuts aren’t the sort of things even very smart business leaders need to take into account to run their companies. Businesses sell stuff to other people; they don’t need to worry about the effect of their cost-cutting measures on demand for their products. Managing national economic policy, on the other hand, is all about the feedback.

I’m not saying that business success is inherently disqualifying when it comes to policy making. A tycoon who has enough humility to realize that he doesn’t already know all the answers, and is willing to listen to other people even when they contradict him, could do fine as an economic manager. But does this describe anyone currently running for president?

The truth is that the idea that Donald Trump, of all people, knows how to run the U.S. economy is ludicrous. But will voters ever recognize that truth?

 

By: Paul Krugman, Op-Ed Columnist, The New York Times, May 27, 2016

May 30, 2016 Posted by | Donald Trump, Economic Policy, Economy | , , , , , , | 2 Comments

“Economic Food Poisoning”: The Bankrupt Delusions Of Donald Trump, The ‘King Of Debt’

According to Donald Trump, at $19 trillion the federal government has too much debt. Or so little debt that we could pay it off in eight years.

He says we could buy back federal debt at a discount by raising interest rates. But if interest rates rise by a couple of percentage points, he said last week that the United States of America would cease to exist.

As for taxes, we need to raise them on the rich. No, we need to lower them. Or raise them.

And American workers? Their wages are too high. No, too many earn nothing because foreign workers make so much less. Then again, maybe the minimum wage is too low.

If all his contradictory comments seem confusing, the fact is that they are. They are also difficult to square with Trump touting his economics degree from an Ivy League school, the University of Pennsylvania, where he claims he was a top student.

What reality-show hosts say is of no consequence. But every public word presidents speak gets scrutinized worldwide. Candidate Trump’s wildly inaccurate and ahistorical statements are of no official consequence, but were he president they would have serious and damaging effects on the United States.

Consider what Trump said on May 5 to CNN’s Wolf Blitzer about the cost of servicing federal debt: “If interest rates go up 1%, that’s devastating. What happens if that interest rate goes up 2, 3, 4 points? We don’t have a country.”

By Trump’s reckoning America should have ceased to be a country long ago. Back in 1982 the 10-year bond paid 14.6%. Uncle Sam’s average interest cost on all federal debt was 6.6% when George W. Bush took office. Last month it was just 2.3% even though the debt is 17 times the level of 34 years ago.

Trump talked about buying back debt at a discount and cited his own success in taking out loans, but not paying them back in full. “I’m the king of debt,” he said, in one of his frequent tangential comments focusing not on how a Trump administration would govern, but reminding us of his self-proclaimed greatness.

When journalists try to parse Trump’s words—no easy task because transcripts show jumbled thoughts galore—his response is to accuse them of misquoting him. So, whom to believe: Trump or that lying videotape?

On CNBC, Trump implied that when he took out some loans, he never intended to repay them in full.

“I’ve borrowed knowing that you can pay back with discounts,” he said on CNBC. “And I’ve done very well with debt. Now, of course, I was swashbuckling, and it did well for me, and it was good for me, and all that. And you know debt was sort of always interesting to me. Now, we are in a different situation with a country, but I would borrow knowing that if the economy crashed you could make a deal.”

That last sentence might send shivers down the spines of those who buy federal debt, as it could be read to say he would crash the economy as president just to make the market price of Treasury debt fall. I read his remarks as another example of his lack of articulation, but others could reasonably read into those remarks a plan to submarine the economy.

When challenged about his words, Trump revised his comments saying he was thinking only in terms of renegotiating the federal debt—88% of which matures in 10 years or less—to longer terms. What Trump didn’t mention is that Treasury bonds with maturities of up to 30 years pay on average 4.5% interest, more than double the average federal interest rate. The contradiction here is obvious: By Trump’s own words switching to longer-term Treasury bonds would result in interest expenses so high that America would cease to exist.

The Politics of Winging It

How and why “we wouldn’t have a country” were interest rates to rise is just one of the many observations that Trump has never been asked to explain.

When Trump’s comments drew widespread criticism as reckless, he turned the tables on those who reported what he said. He claimed that others put words in his mouth and distorted his intent.

So how do we make sense of the following: “If we can buy bonds back at a discount,” he said, “we should do that.” He also said that there would be no reason for holders of federal debt to ask the government to buy their bonds back at a discount. If that is so—and it is—then why say any of this?

The explanation is that Trump is winging it, making it up as he goes along just as he has through his career, which I have covered on and off for 27 years.

To those who understand economics, public finance and taxes, listening to Donald Trump talk about these issues is like listening to Sarah Palin talk about anything. The contradictions, the baseless assumptions, the meandering sentences that veer off into nowhere belong more in the fictional world of “Alice in Wonderland” where, as the Cheshire cat advised, “it really doesn’t matter which way you go” in search of the White Rabbit, but you could ask the Mad Hatter or the equally mad March Hare.

You might think that after decades of planning a run for the White House—after all, he did run in 2000 as a Reform Party candidate—Trump would have developed a clear set of views on economics. You might think he would have devoured policy papers, retained top experts and tested out ideas in speeches heard by few. You might think he would have polished and logical lines by now.

But that would require treating these issues as matters deserving of serious study. Absent such study, it is no surprise that much of what Trump says confounds those who have spent their lives studying economics, public finance, taxes and history.

Whatever Trump may have learned in college, his flip-flopping and wavering suggest that Trump saw no need to prepare to be president. It’s as if a chef decided he didn’t need to learn how to cook before pulling off a White House State Dinner.

Trump just tosses concepts into a pot. He starts with made-up numbers (our China trade deficit is $338 billion, not Trump’s $500 billion); adds some brazen conspiracy theories (Obama was not born an American citizen); mixes them with irreconcilable vagaries (taxes should go down, but so should budget deficits); tosses in some populist myths (thousands in North Jersey celebrated as the Twin Towers burned) and rotten ideas (the President telling Carrier, Ford and Nabisco where to build factories)—and finishes it all off with a bucket of rhetorical nonsense.

Trump is superb at one aspect of this. His economic stew would induce economic food poisoning, but he sells it with an appealing name: Make America Great Again.

 

By: David Cay Johnston, The Daily Beast, May 10, 2016

May 12, 2016 Posted by | Donald Trump, Economic Policy, Federal Debt | , , , , , , , , | Leave a comment

“The Slow Pace Of Change In America”: Bravo To Tubman, But U.S. Women Still Not Getting The Full $20

My apologies upfront to those cheering the announcement that Harriet Tubman will grace the front of the $20 bill, and that a few other women will eventually get similar treatment on other currency, but the announcement Wednesday by U.S. Treasury Secretary Jacob J. Lew merely underscores the slow pace of change in America.

The addition of the women — Tubman and other suffragists and civil rights heroines to the $10 and $5 bills — is a positive step. But it won’t count for much, not in most women’s wallets.

According to a report released in April by the Joint Economic Committee (JEC), based on median annual earnings, a woman, working full time, year-round, will lose nearly $500,000 over a career, due to gender pay gaps.

That’s $10,800 less per year than a man.

Pay gaps like this aren’t going to be fixed easily, and certainly not by stamping a few women’s faces on a U.S. sawbuck. And, at the current rate of change, cites the Institute for Women’s Policy Research, the gender pay gap will not close until 2059.

As a result of this inequity, women have less money in retirement, have less to reinvest into the economy and are more likely to live in poverty in old age. The economy in general loses by shorting women’s paychecks, whether we’re talking about Jennifer Lawrence not making as much as Bradley Cooper or the produce manager at your local supermarket who just found out the male butcher makes more.

The gaps are real and repeated studies show that they cannot all be explained away by career choice, level of education, women not being assertive in salary negotiations or by choosing to take time away from a career to raise a family.

Something else is to blame and its name is sexism.

Shuffling Andrew Jackson — a slave owner — to the back of the $20 bill so that Harriet Tubman — a former slave and abolitionist — can take center stage is worthy of note. It’s a monumental example of how far our history has progressed, a genial nod toward inclusion rather than exclusion.

And it only took the federal government 100 years to get there.

But more is needed. Substantive change must be made. The pay gap must close.

No woman in America is going to suddenly earn a fairer wage because Tubman’s face is on our money. Women don’t covet their dollars for the artwork on the front. They simply want to be paid fairly for the work they do.

Bravo to the federal government for acknowledging Tubman, but let’s not lose sight of the goals envisioned by all those women who will come after her (estimates are that it will take until 2030 before (all three of the) new bills are circulating). If the country is serious about righting longstanding inequities surrounding gender and commerce, let’s cut the symbolism and have a deeper discussion. Here are some ideas:

According to the JEC study, African-American women earn only 60 percent of what their white male counterparts earn and Hispanic women earn only 55 percent of white men’s earnings.

Put that on a $10 bill. Or how about putting Phillis Wheatley’s image on a bill worth only 60 percent of the one handed out with Oliver Wendell Holmes’ face on it? It’s not an idea that is likely to catch on. Best just close the pay gap.

The women who will one day have their image on U.S. currency — Susan B. Anthony, Elizabeth Cady Stanton, Alice Paul — spent their lives working for women’s equality.

Let’s not short-change their legacies now by easing up long before the job is done.

 

By: Mary Sanchez, Opinion-Page Columnist for The Kansas City Star; The National Memo, April 22, 2016

April 23, 2016 Posted by | Economic Inequality, Gender Pay Gap, Women | , , , , , , , , | Leave a comment

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