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Neoliberalism as a Cause of Structural Unemployment in the USA

News  Over 50 and unemployed Recommended Links The problem of inequality Computers eat people Underemployment Eroding Western living standards
The neoliberal myth of human capital Perma Temps Adverse Selection The problem of inequality Productivity Myth and "Rising labor costs" hypocrisy Scapegoating and victimization of poor  
Neoliberalism as a New Form of Corporatism Corporatism Casino Capitalism If Corporations Are People, They Are Psychopaths Toxic Managers Office Stockholm Syndrome Learned helplessness
Unemployment after graduation Fake Employment Statistics Destructiveness of GDP Mania   Financial Sector Induced Systemic Instability

Economics Pseudo Theories

Notes on Republican Economic Policy
John Kenneth Galbraith Invisible Hand Hypothesis Inflation vs. Deflation Lysenkoism Financial Humor Humor  Etc

Unemployment offices, homeless shelters,  hospitals, prisons and casinos. and are the only real growth industries of Obama Administration. In Jan 2010 35 millions, or one in eight Americans, were on food stamps.

Obama's  biggest — and only major — jobs program is the U.S. military


When I was a kid they told us that automation would "free" us from working long hours. What they didn't tell us what that they weren't going to pay us for all this leisure time we'd get.

Mass unemployment is the primary indication of the collapse of a given form of society -- James Burnham


Introduction


"Unemployment" statistics has been the political advertising media for every Administration in modern times

From comment in
The Rise of Invisible Unemployment
 The Atlantic, Nov 9, 2014

 

The institutions of neoliberal capitalism, while promoting an expanded role in the economy for "market forces" (read "financial oligarchy")  simultaneously transform labor relations. The “market” under neoliberalism certainly no longer refers to competition as a form of the production and distribution goods and services. Instead, it means something more along the lines of international financial monopolies protected by collusion between captured vassal state institutions (including neoliberal fifth column domination in the all major branches of government, especially executive and  legislative branches, educational institutions and media) and multinationals, which pay money to sustain this social order. The term “Free markets” under neoliberalism means letting rich people do what they want, not promoting efficient allocation of resources through competition and the price mechanism. The core of the fifth column are local oligarchs and so called "Chicago boys": sons and daughters of local elite who are trained for and indoctrinated for this purpose in Western universities. As aptly noted Neoliberalism – the ideology at the root of all our problems ( The Guardian,  April 15, 2016)

We internalize and reproduce its creeds. The rich persuade themselves that they acquired their wealth through merit, ignoring the advantages – such as education, inheritance and class – that may have helped to secure it. The poor begin to blame themselves for their failures, even when they can do little to change their circumstances.

Never mind structural unemployment: if you don't have a job it's because you are unenterprising. Never mind the impossible costs of housing: if your credit card is maxed out, you're feckless and improvident. Never mind that your children no longer have a school playing field: if they get fat, it's your fault. In a world governed by competition, those who fall behind become defined and self-defined as losers.

Under neoliberalism labor relations assumes the form of full domination of labor by capitalists. Unions are officially suppressed and large part of middle class is brainwashed to hate using set of propaganda stories about unions corruption, welfare quinsy, lack of competitiveness in unionized industries (with Detroit as a prime story), etc.  In this sense crushing by Reagan of the strike of air controllers was one of the first manifestation of this dominance. Workers again are downgraded to the role of debt slaves, who should be glad to get subsistence wages. And, for example, wages in Wal-Mart are really on subsistence level, no question about it (Making Change at Wal-Mart » Fact Sheet – Wages):

Wal-Mart jobs are poverty-level jobs.
Wal-Mart's average sale Associate makes $8.81 per hour, according to IBISWorld, an independent market research group. This translates to annual pay of $15,576, based upon Wal-Mart's full-time status of 34 hours per week1. This is significantly below the 2010 Federal Poverty Level of $22,050 for a family of four. The Wall Street Journal reported that the average Wal-Mart cashier makes just $8.48 an hour, far below the $11.22 national average for all cashiers.

This contrasts with the capital-labor compromise that characterized the state capitalism that existed several post-WWII decades and that was crushed by neoliberalism in 1970th. Neoliberalism also brought change in the relation between financial and non-financial capital: financial capital now again like in 1920th plays a dominant role dictating the rules of the game to manufacturing sector and controlling it via banks.

Under neoliberalism the wealthy and their academic servants, see inequality as a noble outcome. University professors of economics form the most corrupt part of intellectual elite – they are nothing more than employees of the financial oligarchy paid to administer intellectual anesthetic to those among debt slaves, who still have enough time to ask what’s going on. They want to further enrich top 1%, shrink middle class making it less secure, and impoverish poor.  That's an officially state goal. Then in 1992, when asked what Iran-Contra was really all about, Bush I replied that it was done for "...the continuous consolidation of money and power into higher, tighter and righter hands."

The upward redistribution of wealth requires high unemployment to weep prols into unconditional obedience.  In other words neoliberalism and high unemployment are twins.

Under the disguise of "free market" Newspeak  neoliberals promote a type of economy which is often called a plantation economy. In this type of the economy all the resources and power are in the hands of a wealthy planter class who then gives preference for easy jobs and the easy life to their loyal toadies. The wealthy elites like cheap labor: it's much easier to  dictate their conditions of employment when unemployment is high.

Keynesian economics values the middle class and does not value unemployment or cheap labor, so it is incompatible with neoliberal ideology and needs to be suppressed.  Neoliberals created the system which richly reward stooges of neoliberalism for their loyalty to the top 1%  bestowing on them an easier life than they otherwise merit. In a meritocracy where individuals receive public goods and services that allow them to compete on a level playing field, many neoliberal academic toadies would be losers who cannot compete.

One of the most important measures of the health of an economy is the following criteria: how many fulfilling, living-wage jobs are created or destroyed (most other economic factors can be distilled to this.). For example, widely used measure of economic growth, GDP is too influenced by financial masturbation and does not distinguish useful activity from harmful or irrelevant. 

Under neoliberalism the elite revived Roman emperor Septimius Severus advice to his sons before he died at Eboracum (York) on  February 4, 211:

"Avoid infighting, pay well the soldiers, and ignore everybody else" . 

So during the Great Recession Congress simply tuned backs to unemployed. With the implicit message you just need to die out folks ;-).

Military budget at the same time was greatly expanded and several unnecessary wars were launched.  Brainwashed American public eats all those neoliberal policies like real lemmings, demonstrating the level of groupthink and lack of critical thinking that is typical for high demand cults. So the myth about highly conscious "proletariat" that Marxists cherished remains a myth. Moreover quite opposite tendencies to creation of "enlightened lower classes" show their ugly face (Chris Hedges America is a Tinderbox naked capitalism):

ictus92, July 21, 2013 at 5:07 pm

To paraphrase Madeline Albright: “What’s the point of creating a totalitarian police state if you’re not going to use it?”

So where is the American totalitarian state going? If you look at the NDAA and the discussion around repealing the Posse Comitatus Act, the key words include quelling “domestic civil unrest”… So what are the “deep government” types anticipating so hysterically?

Well, the financial crisis keeps grinding away and is about to enter another phase of collapse as “quantitative easing” has run its course. Interest rates are rising, posing “technical insolvency” of the Federal Reserve itself. What this means is that time’s up for the 46 million in the Food Stamp Supplemental Program; 56 million getting Social Security retirement or disability benefits; and at least 20 million more needing full time employment. Obviously there’s some overlap, but the total number of people living on the margins of subsistence pushes 30% of the population.

For these, they face an immediate “Final Solution”… not exactly direct extermination, but death by deprivation, illness etc. Can work camps be far off for these tens of millions and the many millions more living paycheck to paycheck? This population and their sympathizers comprise the tinder for “civil unrest”. Hence the corollary to the famous “Collect it all” (communications) is “control it all” (civil disorder following further economic collapse).

Furthermore, prolonged neglect of key infrastructure will lead inevitably to severe food, water and electric power access shortages — another source of civil unrest potential.

Of course, overseas the totalitarian police state eliminates all expression of opposition that can change policies in the quest for “Permanent War” and “full spectrum” military dominance. This ends in global military confrontation… just as the financial crisis of the 30’s gave rise to another World War… only this time around world war will pitch towards thermonuclear war in short order. That’s how totalitarian regimes collapse into catastrophe, dragging the rest of us to an unpleasant demise.

Unfortunately, I don’t think there’s a damn thing any of us can do to arrest this beserk Levithan…

tongorad, July 20, 2013 at 3:21 pm

This is America, not Denmark. In this country, tens of millions of people choose to watch FoxNews not simply because Americans are credulous idiots or at the behest of some right-wing corporate cabal, but because average Americans respect viciousness.

They are attracted to viciousness for a lot of reasons. In part, it reminds them of their bosses, whom they secretly adore. Americans hate themselves for the way they behave in public, always smiling and nodding their heads with accompanying really?s and uh-huhs to show that they’re listening to the other person, never having the guts to say what they really feel. So they vicariously scream and bully others into submission through right-wing surrogate-brutes. Spending time watching Sean Hannity is enough for your average American white male to feel less cowardly than he really is.

The left won’t accept this awful truth about the American soul, a beast that they believe they can fix “if only the people knew the Truth.”

But what if the Truth is that Americans don’t want to know the Truth? What if Americans consciously choose lies over truth when given the chance–and not even very interesting lies, but rather the blandest, dumbest and meanest lies? What if Americans are not a likeable people? The left’s wires short-circuit when confronted with this terrible possibility; the right, on the other hand, warmly embraces Middle America’s rank soul and exploits it to their full advantage. The Republicans know Americans better than the left. They know that it’s not so much Goering’s famous “bigger lie” that works here, but the dumber and meaner the lie, the more the public wants to hear it repeated.”

“We, The Spiteful” by Mark Ames

http://exiledonline.com/we-the-spiteful/

Dave, July 20, 2013 at 8:18 pm

Please consider that the “right” is far more realistic in their assessment of human nature. The “left” wants things to be according to what they think it should be, mostly because of their left wing educators. The majority of humans are not perfectible.

Even Asians, with their highly socialized societies, have behaved very badly towards those outside their country.

This tendency of self-deception of "blue color America" and resonating of Republican Party ideas within "working poor" and lower middle class, two strata of the US society that typically votes against its own economic interests is analyzed in   What's the matter with Kansas  And to fight neoliberal machine is not easy as media dominance is total, and on a new technological level, which does not require silencing of opponents, just ignoring them, approach the level typical for the USSR or Nazi Germany.  And even if some people question the system, like (at the very beginning) Tea Party did, or later "Occupy Wall Street" movement did, they are mercilessly co-opted or crashed by well paid guard labor. The latter is one of the few  types of employment which prospers under neoliberal empire. See  The Rise of Guard Labor (dollarsandsense.org)

The reality is that many rich countries including the USA now face two problems. One is a shortage of jobs, especially middle class jobs.  The other is stagnant (or falling) wages for those outside top 1%.  This is not a temporary problem. Despite all the propaganda smoke this is an immanent feature of neoliberal regimes that now dominate in the USA and most other countries.  Neoliberalism requires high unemployment as a way to keep workers in check and prevent attempts to slow down redistribution of wealth toward the top.

As George Bush Sr . noted in November 1992 neoliberalism is "the continuous consolidation of money and power into higher, tighter and righter hands". The essence is  the consolidation of money and power to the top 0.1% or even 0.01%.  In a very deep sense our new lords from financial and political oligarchy are not that different from feudal aristocracy, may be only less educated, more prone to avoid military service and much more greedy. 

Unlike Keynesian economy which put middle class in the center of society serving a buffer between rich and poor,  under neoliberalism  middle class is no longer needed as a buffer between aristocracy and proles, as repressive power of the state and regime of total surveillance (National Security State) makes an organized opposition practically impossible. The fate of "Occupy Wall Street" movement is nice illustration here.

On the other hand neoliberalism as an ideology, while discredited by event of 2008 still does not have any viable alternative.  Socialism was discredited by collapse of the USSR (which in reality was a neoliberal counterrevolution by Soviet nomenklatura including part of KGB).  Authoritarian versions of state capitalism does not look too attractive, despite being quite effective as was proven by economic progress of "Asian tigers".

Other important factors are also in play. Technology has stripped away the ability for many to hold a job and the trend continues.  In other words automation eats jobs. Outsourcing eats jobs too. Between those two trends almost no job growth left. This is a structural situation, not transitional caused by recession due to aftermath of 2008 financial bubble bust.  In other words jobs that disappeared will never return. And jobs in construction sector and finance were artificial and unsustainable in any case, crisis or no crisis (as in "what can't last forever eventually stops." )

We are in the midst of slow motion employment collapse. Eurozone unemployment recently reached 12%. The US has probably 20% rate of involuntary unemployment now. The official unemployment "rate" is lower, but that is because both 60-65 years old and 20 to 24 year olds are dropping out of the wage force.

Add to this "peak energy" problem and the situation looks really bleak. That's the funny thing about oil and modern civilization -- almost everybody in large western urban centers is dependent on mass produced technology (much of which was invented before we were born) and cheap oil (and generally cheap energy), Those who live in those urban centers no longer have any direct control or ability to produce own food or transportation energy or heating. those three activities are completely outsourced. See Peak Oil Demand is Already a Huge Problem.

Globalization is yet another problem. I was actually surprised by how many jobs large corporations managed to shred during 2008-2013 without negatively affecting  profitability.  The impression is that it is no low limit.  Usual wisdom is that if you shred too much, this labor shortage will bite you in a couple of years. This is no longer the case in the USA. No visible backlash at all.  Even consumption that should be suffering due to destruction of middle class in this process is no suffering much, because it was already mostly top 1% game and, as such, is recession proof. Here is one interesting comment form Krugman column Globalization and Macroeconomics - NYTimes.com

Floxo Australia

The analysis is flawed. The issue is not goods trade - on its own, this is relatively benign. The real problem is the associated capital drain. Owners of capital will transfer productive capital abroad for better returns. This process creates deep structural problems for all developed economies. Here are some basic predictions:

Recessions are difficult to manage and may become protracted. In a downturn, capital formation dries up but the capital drain continues. This erodes the output gap. A fiscal stimulus now has less headroom for expansion. On top of that, an increase in domestic demand may be met by investment in productive capital abroad; the domestic investment response is missing. This may even cause a fall in labor productivity ( UK productivity puzzle?).

In short, globalization IS the problem.

Unemployment and well being

Recessions generate inequality in both income and well-being: people who lose their jobs bear a disproportionate burden of the recession.  As Kathleen Geier noted the impact of unemployment on well-being it’s even worse than you thought

While reading this odd and meandering New York Times op-ed this morning, I stumbled upon a link to a fascinating study from last year on the impact of unemployment on non-monetary well-being. It was conducted by Stanford sociologist Cristobal Young, who discovered that unemployment has an even more catastrophic effect on personal happiness that we thought.

The study produced three major findings. The first is the devastating impact job loss has on personal well-being. Job loss, says Young, “produces a large drop in subjective well-being”:

Job loss into unemployment, however, is a different matter; this brings on deep distress that is greater in magnitude than the effect of changes in family structure, home-ownership or parental status. The distress of job loss is also hard to ameliorate: family income does not help, unemployment insurance appears to do little and even reemployment does not provide a full recovery [italics mine].

The second finding is that while unemployment insurance (UI) is successful as a macroeconomic stabilizer, it doesn’t make unemployed people any happier. UI, says Young:

is not central to their sense of well-being… [Snip] …[ I]t does little to support their identity, sense of purpose or self-regard.

Third, job loss has a strong, lasting negative impact on well-being that may persist for years:

[J]ob loss has consequences that linger even after people return to work. Finding a job, on average, recovers only about two thirds of the initial harm of losing a job. It is not clear how long it takes for the nonpecuniary effect of unemployment to heal.

Other research suggests that what Young refers to as “the scarring effect” of job loss can last from three to five years, or even longer. He also notes that “the more generalized fear of becoming jobless” may persist.

Young’s discussion of these findings stresses the inequality theme. He points out that “recessions generate inequality in both income and well-being: people who lose their jobs bear a disproportionate burden of the recession.” He suggests job-sharing as a way to reduce the concentrated misery of unemployment. That’s a great idea that unfortunately never seems to go anywhere. Employers today seem more interested in squeezing as much labor out of employees as possible for the lowest cost. They’re looking to shrink their payroll rather than expand it. And unfortunately, there are very few public policies that promote job-sharing, let alone do it effectively.

The sheer human misery created by the economic downturn has been stunning. The economic damage is, in some ways, the least of it. Another study shows that the long-term unemployed experience shame, loss of self-respect, and strained relationships with friends and family. They even suffer significantly higher rates of suicide.

Yesterday, Paul Krugman and others discussed the impact of economic inequality vs. unemployment on income. Krugman argued that inequality has had the greater impact, and I agree. Among other things, inequality is also the root cause of the unemployment problem. Special interests which have disproportionate power in our political system prevented more stimulus and inflicted an austerity agenda, which has had a disastrous effect on employment. Enacting an economic equality agenda will be huge political challenge, but it’s the only way I can see of ultimately resetting the priorities of our government so that it starts working on behalf of ordinary Americans again.

Official measures of unemployment

There are two popular unemployment measured U3 (commonly cited as "official unemployment rate", which dramatically understates real unemployment) and U6, which is close to actual unemployment rate as was measured during the Great Depression. U3 is often as low as half of U6 (that's why it sometimes called 50 cents unemployment rate). As The Big Picture note in the entry Unemployment Reporting

Its been pretty obvious for sometime that the Financial Media are doing a disservice to their readers by only reporting U3, given how dramatically it understates Unemployment. Indeed, consumer sentiment reports are at deep negative levels that only occur when Unemployment is much than what U3 has been saying. It is painfully obvious that U3 does not paint an accurate view of the Employment situation.

Here's the experiment I propose: Let's start reporting both, with appropriate descriptions of each. Report U3, add U6, provide monthly and year over year changes. Let the reader see the full picture, via BLS data.

See Table A-12. Alternative measures of labor underutilization

Factors that make the current unemployment structural

I would like to stress it again: many factors point to the fact that the current level of unemployment is mostly structural. In other words jobs eliminated will not be coming back. Among the most important factors we can mention:

  1. Neoliberal ideology, which prevents strong government action and direct employment by government on infrastructure projects like during New Deal. Related to the dominance of neoliberalism the hypertrophy of financial sector lead to games with "Main street" after which high, self-sustainable (aka structural) unemployment for in now a destiny for millions. Making the whole society sick.
     
  2. Outsourcing (which partially is due to much better communication channels available and computerized navigation)
     
  3. Computerization (which directly "eats jobs" much like during industrial revolution in the UK).
     
  4. High price of energy, which serves as strong depressing factor. If I remember correctly, a decade ago price of oil above $100 was considered an equivalent to permanent recession. This is never mentioned today, but still might be as true today as it was ten years ago: with the high price of oil the economic recovery is simply impossible. The only option, the only trajectory for economy is permanent stagnation.
     
  5. Growth of "lumpen-proletariat". Narcoaddicts, alcoholics, single mothers from poor families with just high school diplomas,  people with "generosity-based" high school (considerable part of Afro-Americans) and university diplomas from "diploma mills" (essentially fake diplomas),  various categories of handicapped, people with criminal records (substantial part of Afro-American male population), etc.  

The first three factors changed the distribution of power between labor and capital in favor of capital; and those guys are not inclined to take prisoners, when there is a chance to fatten their pockets.  None of the first three factors will probably be reversed soon, although neoliberal ideology is after 2008 entered a zombie state.

Also computerization and Internet allowed capital and political forces behind it much better organize politically. So like in in previous human history well organized and wealthy minority dictates its will less-organized poor majority.

I think that financial capital might eventually experience some setbacks. This bacchanalia of greed with those hedge fund  which hack financial system left and right  might come to an abrupt end with the rise of the price of oil. Even now price of oil indirectly pressure "masters of the universe".  And remember famous slogan of 2008 "Jump suckers" ;-). It reflects the society attitude to financial oligarchy and as such entail certain dangers of "blowback" for all those derivatives games.

Not under Obama watch as he is essentially a sock puppet of financial oligarchy. But eventually setback for "big finance" can happen. At the end of the day it is oil that is the real convertible currency and when oil production is diminishing or flat,  financial oligarchy will be pushed back. 

Measures taken by political elite to save financial institutions after 2008 collapse means that unemployment is a part of a general political problem with neoliberalism as a social system. Under neoliberal regime the elite can't care less about long term unemployment. National Security State ensures the security of the neoliberal elite. Elections in the USA are a sham as two party system effectively blocks candidates outside the list approved by the current elite.  The latter might even see sharp division of the society into "have" and "have nots"  as a solution of oil depletion problem (Economist's View):

bakho:

Exactly.

Monetary policy does not operate in a vacuum. Monetary policy operates in an economic system that includes fiscal and regulatory tools. It is a mistake to lock the fiscal and regulatory tools in a shed.

Fiscal policy ALWAYS operates in a recession, at least in the form of automatic stabilizers, (UI, etc.) and sometimes in the form of additional stimulus.

The meagre automatic stabilizers currently in place are enough for a mild recession, but are woefully short of what is needed in a recession like the recent one.

The primary objection to fiscal policy manipulations is that fiscal policy is more easily politicized. This overlooks the fact that monetary policy is not only political, but bankers (who constitute a wealthy special interest) have an agenda that tilts monetary policy to their own self interests.

The primary objection to using fiscal stimulus to address our unemployment crisis is POLITICAL. Wealthy special interests want pay less taxes and short term stimulus would interfere with their political agenda to roll back spending and reduce spending as a percent of GDP.

Wealthy special interests have the upper hand at the moment because enough politicians are dependent on their campaign donations. However, this politicalization of fiscal policy, doing too little to address unemployment, is the prime force behind the Fed keeping interest rates low. If enough fiscal stimulus was enacted to quickly return to full employment and inflation at or slightly above the target, the Fed would not have to consider extraordinary measures.

Anyone unhappy about extraordinary monetary measures should be urging Congress to fix unemployment now. This is not what our elites are doing. They are complaining about extraordinary monetary measures AND about additional stimulus. This suggests that these policy elites care nothing about social problems of long term unemployment, are content to have the US become a divided nation between haves and have nots and are content to oversee the creation of an underclass in order to concentrate wealthy upward.

When one is saying that unemployment became a structural problem that means that it is immune to the business cycle. For example, during the last economic expansion (Jan 2002 -Dec 2007), the median US household income dropped by $2,000. In other words many Americans were worse off at the end of an economic cycle as jobs went outsourced to low wage countries due to wage arbitrage... 

Collapse of Casino Capitalism and unemployment

The collapse of “casino capitalism” model in 2008-2009 was so profound that all sectors of the economy became depressed. As securitization mess exploded in the face of their creators as it became clear to everybody that the king is naked. Debt overhand of financial industry is tremendous and it was just socialized, not removed. Essentially it became the problem of the USA government debt. In many ways problems the USA faces now are more serious then the problems the country faced during Great Depression because economic crisis doubles as the crisis of dominant ideology -- the ideology of neoliberalism.  And the Great Recession, despite Economic Cycle Institute premature desire to bury it, is still with us. Five years in the making as of 2013.

Ideology on which FIRE sector dominance was based is now questioned and that creates additional problems both nationally and internationally, much more internationally. Internationally it means a substantial loss of the USA "soft power", the factor that played tremendous role in the decade of 1990-2000.  When other country laugh at the US financial oligarchy tribulations it is difficult to open new markets selling old neoliberalism doctrine. due to debt overhand the US dollar is replaced by currency swaps in national currency for several major trading partners of China such as Brazil and Russia.   First of all that makes the crisis even deeper and analogies between the USSR and the USA more sinister. As with Stalinists in USSR who destroyed the country economically, there is a powerful block of republican dead enders and democratic supporters of financial oligarchy (blue dogs) who  will continue to promote the current neoliberal course with its deification of "free markets" (free as in "free shooting zone"), oblivious to consequences of neoliberal policies which eat the society and protected by the size of their accounts. There is nothing new here. Oligarchic  democracies can commit suicide. Actually none lasted long. And with such a formidable political wrecking crew in action and gridlock in Congress even over minor reforms that became less probable.

For all practical purposes two party system actually works like one-party system: democrats were also captured by FIRE industries to the extent that they should not be considered an independent party, but as a slightly more moderate wing of the Republican Party. Similarly by all accounts Obama is a moderate Republican with the policies to the right of such Republican Presidents as Dwight Eisenhower and Theodore Roosevelt. In a way, Democratic Party perform the role of spoiler: it exists for the sole purpose of attracting disgruntled left-wing electorate away from more radical parties. Republicans play symmetrical role for right wing crazies. None can or want to became the agent of change. In this sense Obama electoral slogan "change we can believe in" was a nasty, cruel joke of political insiders over political outsiders.  Note how unceremoniously Obama dumped labor after his reelection, while courting it during his reelection campaign.

As private sector is still downsizing, and government can't be the employer of last resort due to dominance of neoliberal ideology, the whole situation looks more and more like Japanese lost decade. The only area where government can expand workforce are defense contractors (military keysianism):

Minsky, however, argued for a “bubble-up” approach, sending money to the poor and unskilled first. The government - or what he liked to call “Big Government” - should become the “employer of last resort,” he said, offering a job to anyone who wanted one at a set minimum wage. It would be paid to workers who would supply child care, clean streets, and provide services that would give taxpayers a visible return on their dollars. In being available to everyone, it would be even more ambitious than the New Deal, sharply reducing the welfare rolls by guaranteeing a job for anyone who was able to work. Such a program would not only help the poor and unskilled, he believed, but would put a floor beneath everyone else’s wages too, preventing salaries of more skilled workers from falling too precipitously, and sending benefits up the socioeconomic ladder.

It is important to understand that the USA is not just coping with the largest financial crisis in history, the USA is also going through a major restructuring of the American economy as well as the world economy due to plato in oil extraction. This transformation, which was postponed by two decades due the collapse of the USSR (which gave the USA companies half billion of new consumers and huge area to dollarize and buy assets for pennies on a dollar), will be very long, very painful and very slow. One additional factor that complicates the picture of "peak oil", is that it is  more properly can be called "end of cheap oil", as at higher prices more oil became economically available. So this is  not a peak but long plato.

As GDP is highly correlated with the energy consumption, the side effect of peak oil will probably be stagnant (close to zero after inflation) growth and with it speed up in permanent decline of the standard of living for middle class 

Also complicating the situation is the status of baby boomers which lost significant part of their savings during last two bubble bursts and now need to retire or will be pushed out of workforce. Pensions are already cuts either directly or indirectly (via inflation). For example, defined benefit pensions almost disappeared outside of government job force. After housing crash middle class no longer has a realistic prospect to fund their retirement and need to work longer: that increases competition for jobs. For middle aged professionals who are unemployed now the odds of finding reasonably paid work are low and they create additional competition for young people entering work force from universities. People over 50 now face especially poor job prospects.

At the same time corporate executives became corporate aristocracy (with differences in pay raising from 10-20 to 100-200 more of average corporate salary; this is the differences close to what used to exist in feudal societies). Most corporations are taking a lazy way out of the crisis with relentless cost-cutting.  This is a self-defeating strategy as cost cuttings eventually returns back via supply chain and bite the corporation which performs it. But so far this did not happened.

In addition productive sectors of economy are now under pressure of rampant financial speculation which serves as a huge tax on productive sectors of economy. Financial system is controlled by small number of large firms that permanently shifted their main activity into gambling and hacking of the financial system. There is some justice that computers which fueled all this crazy gambling on the strength of global reserve currency led to outsourcing of IT professionals to the extent that this part of US economy was destroyed and became a shadow of its former self in just ten years (2000-2010).

Another important sign of stagnation is that new college graduates face extremely bad job market which squeezes out anybody without substantial experience so for them it's Catch 22. Only graduates form Ivy League colleges has real prospect to get a job after graduation. Plus those with good family connections. In a way education is no longer a guarantee for better paying job, the same situation what was typical for the USSR and other countries of Eastern block during Brezhnev's stagnation.

There is also an interesting transformation of the quality of the education that also parallel transformation  experienced by the USSR in post-war period, but in especially acute form, three decades before the collapse. Private education became more like subprime lending.  It's quality became fake, as the term "diploma mills" suggests.  This rat rate to the lowest possible quality (quality instead of quality) was the central tendency in Brezhnev's USSR. 

In the USA in addition to devaluation of education caused by low quality "everything passes, everybody graduates, just pay" modus operandi of diploma mills, graduates from lower middle class families are now overloaded with debt, which creates for them really difficult situation and push many of them into low level service jobs like waiting. In other words excessive debt after college make getting into workforce using acquired specialty even more difficult as there is no space for long job search, relocation is more difficult and so on and so forth. 

There is also huge criminal industry that flourished around people desperate attempts to find well paying jobs. Many educational scams like "we will make you an ultrasound technician in six month; 90% of our graduates found jobs that pay over $60K in the first month after graduation"  or " software tester in four month; 100% of our graduates find jobs" are trying to capitalize of people desperate to find job, any job and getting into crushing debt trying to improve their chances in job market. Those criminals are not prosecuted.  For more information see:

The main source on new jobs is service sector and the lion share of new positions are McJobs

The employment growth comes mainly from the service sector which feeds off of consumer spending. It was hit by outsourcing especially in such areas as IT. Manufacturing no longer create jobs – outsourcing and computers eat them and you no longer need more people to make more stuff. 

Peter Dornan at EconoSpeak has the following comment which perhaps looks deeper at why the elite is so indifferent to mass unemployment and growing poverty in the U.S.

“…The process is more complicated: where one sits in society and the kinds of problems one typically has to solve leads to a way of thinking, and this manner of thinking then informs politics.

For centuries, the finance perspective has played a central role in economic theorizing, and there is ordinarily a body of research to support it. What I am proposing is this: economic orthodoxy is regaining control over policy because it reflects the outlook of those who occupy the upper reaches of government and business….”

http://economistsview.typepad.com/economistsview/2010/05/a-political-economy-moment.html

IMHO to get the economy out of this mess, government should concentrate on direct job creation (like was the case with Roosevelt administration), not on propping zombie banks hoping that they will generate credit necessary for creation o new jobs. Growth of credit will not happen and if it will happen it will not generate new jobs: most of it  is pushed into speculation.  Spectacular rise of S&P500 in first half of 2013 is a pretty good illustration of the process.

Long term high unemployment is a disaster for the country and disaster for the people, despite the fact that it is irrelevant for banksters, too busy playing in the huge casino they created. Failure to address this problem directly by Obama administration (which in economic terms is the second Summers-Bush administration making a joke in the slogan "change we can believe in") make Obama a real serial betrayer of people who elected him, the role he seems enjoy playing. 

Additional factors the complicates the picture

There are several additional factors that makes addressing the problem of chronic, structural unemployment even more difficult:

  1. The economic crisis coincides with deep ideological and political crisis.

    One can't solve the current problems the US are facing without the reform of the political system and institutions. Power of lobbyists need to be curtailed. Senate needs to be reformed.  Republican Party probably should be dissolved or temporary prohibited like Communists after the dissolution of the USSR as it is unable to reform. As there is no political will for political changes the crisis is structural and little people have to suffer.
     

  2. Real economy was damaged by excessive growth of  FIRE sector and associated "fictional" economy.  Real economy can't support the current size of FIRE sector and it needs now to downsized. There is no smooth, painless route back to the easy-money based false prosperity of Reagan-Clinton-Bush era (age of leveraging). A new economy needs to be created for sustainable recovery because the old, FIRE-based was unsustainable. In 2010 housing probably will decline further. Both commercial and residential construction continues to decline. States continue to cut back budgets creating negative feedback loop. Personal bankruptcies are up, more defaults are on the horizon. The U.S. economy needs to be re-structured, both on the "technical" and inter-sectoral level. That amounts to a collective, system-wide Chapter 11 re-organization. Obama administration has totally failed to sell the public on the validity of "stimulus", however named. Suspicion that this administration is a puppet of big banks had grown sharply. Trying to kick the can down the road will yield Republican Congressional majorities in both houses.
  3. The USA is experiencing the process of separation of workforce into two-tiers, with an elite class of highly paid employees at top companies and a subclass of minimal wage and part time laborers who work for less pay, have less job security and receive fewer benefits.
  4. Foreign wars have substantial financial costs and are an important drag on the USA economy. In the book True Cost of the Iraq Conflict, Joseph Stiglitz was estimated he cost at three trillion dollars of which probably only one trillion was offset by looting of Iraq resources. Afghanistan is about  $2 billion a week, and unless all heroin trade is controlled by CIA there is little that can offset those costs. This is the longest ongoing conflict in U.S. history.  And since Joseph Stiglitz book was written things became worse.

    The disability rates are higher. The cost of caring for the disabled are higher. Almost one out of two people coming back from Iraq and Afghanistan are disabled. This is an unfunded liability of—we calculate now to be almost a trillion dollars, over $900 billion. So, one of the big ways of reducing our deficit is a—is cut back some expenditures....

    With Libya and Syria added to the list, the hidden costs of foreign wars will weight on weakened economics more heavily. Annual cost per soldier oversees is approximately $1 Million per year.
  5. Rent that hypertrophied financial sector  extracts from the rest of the society continues to be a serious drag on the economy. This drag adds to substantial drag caused by foreign wars and military bases as well as huge military industrial complex. While parasites are omnipresent in nature, two large parasites instead of one might spells trouble for the host. Moreover the ascendancy of the financial sector and the decline of manufacturing in the U.S. ("Casino Capitalism" ) has implications similar to consequences of an organized crime running the country.  The creation of tangible products whose utility/quality can be more or less objectively measured were phased out in favor of "financial products," whose utility/quality is much easier to conceal behind legal/technical jargon and junk economics. That created a huge new class of white collar criminals. While Blankfein is out claiming that GS is doing God’s work, the reality is quite different: it became a training ground for new type of ruthless criminals, much more dangerous then bank robbers. Killing of Glass-Steagall by Clinton and leverage obtained by financial sector operating without regulatory limit created prerequisites to the financial panic of 2008. Glass-Steagall enshrined two principles that were abandoned:

    The violation of the second principle directly leads to a regulatory capture in which anything goes and a corresponding observed "need" to accommodate indiscretions, as with the Greenspan/Bernanke put. It perhaps should be identified as THE primary cause, since it left Wall Street with the well-founded (LTCM, Latin America debt crisis, etc. ) and since-proved belief that prudence and capital were quite unnecessary, and that reckless, sociopathic deal making is profitable. Four examples :

  6. Capture of the government and the media by financial sector makes the necessary reforms unlikely. “Failed Regulatory Oversight” is a politically correct term for corruption. The latter was probably the second reason of the current high unemployment . See Toxic Sludge is Good For You: Lies, Damn Lies and the Public Relations Industry by John C. Stauber
  7. Effects of coming CRE crash on unemployment and economy in general might be underestimated of official forecasts.  The occupancy rate is the malls and commercial buildings is still declining. Many strip malls in the country are still are empty. Nice office buildings with signs "for rent" are feature of landscape in 2013. Many buildings, even large well designed buildings with datacenter infrastructure are vacant for years and eventually are demolished.  A full scale commercial real-estate crash can also hurt the economy in a way similar to residential home estate crash. Loans that were made in 2005-2007 were refinanced for three years in 2009-2011. And again in 2012-2013. But eventually they will be coming home to roost.  This also affects the construction  sector.  Only $400 billion of loans came due by the end of 2009, but nearly $2 trillion was refinanced by 2012.  

    The collapse in the U.S. commercial real estate market is fought by the government will maximum force but government resources to fight the crisis are diminishing too. in 2011 state financial crises led to cuts in state budget. In addition, in June 2013 municipal bonds came under fire, making financing more costly.  Commercial debt is approximately one third of the size of the total residential debt and it is concentrated in the same places creating double whammy. In Florida commercial loans, broadly defined, are bigger then residential. Unlike residential real estate, problem with commercial real estate are not solved by growth of population and creation of new families.

    Retail and white-collar positions will be directly impacted by CRE crash. As stores and offices close, mall and office building owners suffer from cuts in cash flow and severely limited prospects for new tenants. Insurance companies, hedge funds and regional banks are heavily invested in CRE and are next in line so some financial jobs will be lost too. Extend and pretend might work but the question is if there is enough liquidity to stretch loans.
     

  8. Computers eat people jobs. Automation and the recent advances in robotic and computers make more and more workers redundant.  The latest victims are cashiers in supermarkets. Manufacturing jobs continue to disappear not only due to outsourcing, but also due to new computerized technologies. The reality is that manufacturing employs a mere 11.5 million workers in the U.S.A., or 9% of the workforce and this percentage will never increase substantially.

    My feeling is that even in corporate IT after drastic cuts that were the standard game for large corporations in 2008-2009, additional cuts are possible. But the situation on the ground is somewhat paradoxical as real cuts runs deeper that you would assume from headcount: a lot of current IT personnel belongs to "untouchable" caste -- wives of somebody higher up in this or linked by the supply chain company, sons of somebody important and so on. I can't give you percentage, but probably 10%-20% of "untouchables" would be an educated guess. So removing of at least 10% of the current IT workforce means removal of 12% or more those who do actual work. 

    Another factor is that cuts in IT are one way street as they stimulate replacing of people with technology and there are still tremendous potential for computerization of many areas including first of all IT itself.

    For example all this cloud initiatives are in disguise politically correct way to move things in the direction of higher automation and outsourcing because under the surface there is not much innovation in those "new" technologies.
     

  9. Oil prices despite coming down in September 2011 are back to $85-$90 level.  That level is putting additional stress on manufacturing, transportation and agriculture. Solid US growth of the past decade and earlier was dependent on two factors:

    With the rising oil all bets for re-inflating the economy (aka kicking the can down the road) are off.
     

  10. Indirect job creation strategies via stimulus to businesses seized to produce meaningful job generation. Reaganomics has put the U.S. economy into a high-unemployment equilibrium when the high-rate of labor unemployment is reinforced by the shortage (or absence) of idle, but useful capital stock due to offshoring and  outsourcing as well as chronically low consumer demand due to high level of debt. Only service sector and financial jobs can be generated with minimum capital infrastructure (for financial jobs internet connection and computer are almost all that needed). Automation of production lead to less and less workers.
     
  11. Confidence is really low.  Businesses have no confidence that customers ever return, therefore are not hiring much and scaling down the production. This chicken-egg-chicken-egg cycle has to be broken, but I am really puzzled how that is going to happen without large government role in the economy, which is big no-no for ideological consideration (the USA preaches neoliberalism as a "civil religion" similarly like USSR and other "communist" countries preached Marxism). Without large government projects employees have no confidence in their jobs, therefore are not consuming much.
     
  12. In the face of growing unemployment the current administration proved to be as incompetent as Bush administration in case of Hurricane Katrina. And that means totally incompetent.

Effects on population

Unemployment is a very harsh condition, that traumatize the workers greatly (Sliding into the Great Depression)

At first the unemployed searched eagerly and diligently for alternative sources of work. But if four months or so passed without successful reemployment, the unemployed tended to become discouraged and distraught.

After eight months of continuous unemployment, the typical unemployed worker still searches for a job, but in a desultory fashion and without much hope.

And within a year of becoming unemployed the worker is out of the labor market for all practical purposes: a job must arrive at his or her door, grab him or her by the scruff of the neck, and through him or her back into the nine-to-five routine if he or she is to be employed again.

The USA as a whole is facing the worst labor market prospects since 1929. In terms of duration of elevated unemployment we already rival the early 80s. But in no way we can expect a steep decline in the rate of unemployment in the way that happened in 1983 when unemployment declined at a brisk 2%. And permanent high unemployment creates economic conditions that feel like the USA brought back slavery. The new reserve army of the unemployed drives wages down, while average productivity continues to rise, as a way to generate surpluses to be channeled into executive bonuses. The whole sectors like IT were decimated by outsourcing. Unfortunately given the current overcapacity and ample supply of qualified job seekers in many occupations, I certainly don't expect labor arrangements and employment conditions to become more favorable.

Looks like 7% unemployment is going to become the "new normal". In any case government statistics is very suspect (see Fake Employment Statistics) and actually unemployment is higher. For example, the declining participation in work force means that actual unemployment rate is higher then reported.

Obama-Bush administration saved banks waiting most of taxpayers money and piling up debt in hopes that they restore credit flow in the economy. But this was a fallacy: banks aren’t lending to prospective home buyers, small businesses and real estate developers because bankers recognize the obvious — many of those loans won’t get repaid. Of course, as bankers refuse to lend, the stagnation becomes a self-fulfilling prophecy. But since society is burdened with too much debt, piling on more debt would not be the solution in any case.

There is no smooth, painless route back to the easy-money based false prosperity of Reagan-Clinton-Bush era (age of leveraging). We entered the age of deleveraging. Obama’s “you owe us” message to the banks is the height of naďveté’ and tells us a lot about him. In 2013 our problems are worse than they were in 2007 before the crisis. Peak credit is as dangerous for the economy as peak oil...

Corruption of economic profession

The inability of the economics profession to forecast unemployment in the short, medium, or long run would be downright comical, if not for the human tragedy involved. While the Occam Razor approach suggests incompetence as a culprit, I think it's a manifestation of the corruption of the profession by financial interests (with some "don't rock the boat" variations).  First of all, economists much like elected officials and Wall Street executives have a vested interest in keeping the perception of a robust economy. The employment data announced each month are critical to this perception. That's why government "prints up jobs out of thin air" the same way the Federal Reserve prints money. This is economic propaganda and as such it is not that much different from the over-stated earnings practiced by companies of all striped and colors.

The second problem is that fiscal policy cannot solve the problem of job creation in all circumstances, especially in deleveraging environment. Position of people like The Fed Can Help, But Fiscal Policy Is The Key To Job Creation ) is a step in right direction. But without something like Jobs Corps to get out of the current situation is very difficult. In 1982 SETH S. KING wrote in NYT (PROPOSAL FOR JOB CORPS RECALLS ROOSEVELT PLAN):

Few of this city's recent celebrations of Franklin Delano Roosevelt's 100th birthday have passed without nostalgic references to the Civilian Conservation Corps, that President's cherished vehicle for getting thousands of jobless, hungry youths off the streets and putting them to work refurbishing the nation's parks and forests.

With today's unemployment rate nearing a postwar high and new thousands of young people again unable to find work, Congress is preparing to wrestle with the Reagan Administration for money to start a new youth job training program and reconstitute the Job Corps, the pale copy of the old C.C.C. that emerged in the Carter days.

But there is little in these plans that is likely to reproduce those Depression era pictures of sturdy, bare-chested young men planting trees, building bridges and saving the nation's battered farmlands.

Nor is today's procedure-encumbered Washington, where a year usually elapses between idea and action, likely to duplicate the astonishing start on the C.C.C., which four months after being conceived had been approved by Congress and had more than 300,000 young men being clothed, housed, fed and paid $30 a month while they breathed all that fresh air.

In this crisis the main lesson was that theologically captured by free market fundamentalism government can destroy economy at a really staggering rate. This is "Back in the USSR" situation. Eight years of Clinton and eight years of Bush administration (see The Economic Consequences of Mr. Bush, by Joseph E. Stiglitz) are as good proof of this as one can ever get. Clinton and Bush regimes (especially Rubin-Greenspan alliance and "vice president from an undisclosed location" activities)  proved to be a real wrecking crew. But that does not mean that government cannot put it weight on easing the unemployment burden. Incentives such a investment tax credit matters. Not tax cuts for the rich, but direct investment credit. direct job creation which is anathema to market fundamentalism would be even better and less costly. Roosevelt administration did it, so why not capitalize on positive experience and develop it further ?

In this crisis the main lesson was that theologically captured by free market fundamentalism government can destroy economy at a really staggering rate.

In any case socializing losses and privatizing gain (crony capitalism) should be downsized. Insurance for gambling by big banks should be cut.

As long as economists believe their report card is the rise in GDP (GDP Mania), we will remain in a failure mode. A country is not defined by GDP but by the quality of life of its citizens. And quality of life cannot be assessed by a simplistic, one-dimensional metric such as GDP. The key dimensions for well-being are: employment, earnings, wealth, health, infrastructure, and living conditions. In that particular order. With employment as the critical factor: the USA looks like an underdeveloped banana republic by the current measure of unemployment and in many respect has became such.

It looks like high persistent unemployment became the defining feature of this recession. Jobs creation prospect in 2014 look pretty grim -- there is no sector other then government that can absorb redundant workforce and automation in manufacturing makes sure that those who are unemployed right now will stay unemployed in the foreseeable future. Most jobs cut are permanent, not temporary, especially in such sectors as IT (structural shift). As Robert Reich noted:

...The basic assumption that jobs will eventually return when the economy recovers is probably wrong. Some jobs will come back, of course. But the reality that no one wants to talk about is a structural change in the economy that's been going on for years but which the Great Recession has dramatically accelerated.

Under the pressure of this awful recession, many companies have found ways to cut their payrolls for good. They’ve discovered that new software and computer technologies have made workers in Asia and Latin America just about as productive as Americans, and that the Internet allows far more work to be efficiently outsourced abroad.

This means many Americans won’t be rehired unless they’re willing to settle for much lower wages and benefits. Today's official unemployment numbers hide the extent to which Americans are already on this path. Among those with jobs, a large and growing number have had to accept lower pay... Or they've lost higher-paying jobs and are now in a new ones that pays less.

The current crisis also means that financial services and real estate (FIRE) economy, this gigantic casino that the US government was trying to build for the last 25 years is now in trouble and shed workers in vast numbers (although working condition in financial industry are still good or very good depending on your position in the food chain). But the profitability of large banks and can achieved only by oversees expansion and derivatives games with foreign assets. The most profitable essentially converted themselves into hedge funds, getting most profits from trading operations, not from the traditional banking activities.

The simplest and the most obvious solution in the current situation is to cut work week and hours of work (4 days six hours a day). That will put enough people to work to make unemployment bearable and it might slightly help entertainment and hospitality industries which now is suffering more that others. From the other point of view if lower standard of living is inescapable, why not to make the transition smoother and more fun by cutting work hours.

Military Keynesianism no longer works

But that's not enough. The USA needs drastically cut military budget. Military Keynesianism no longer works as expected.  As John Maudin in his e-letter proposed (see Thoughts on the Economy- Problems and Solutions):

Mauldin: Unemployment is likely to continue to rise and last longer than ever before. We have to take care of the basic needs of those who want work but can't find it. Unemployment insurance should be extended to those who are still looking for work past the time for benefits to expire, and some program of local volunteer service should be instituted as the price for getting continued benefits after the primary benefits time period runs out. Not only will this help the community, but it will get the person out into the world where he is more likely to meet someone who can give him a job. But the costs of this program should be revenue-neutral. Something else has to be cut.

Mish: Can we deal with 15 million volunteers? Somehow I doubt it.

Mauldin: We have to re-think our military costs (I can't believe I am writing this!). We now spend almost 50% of the world's total military budget. Maybe we need to understand that we can't fight two wars and support hundreds of bases around the world. If we kill the goose, our ability to fight even one medium-sized war will be diminished. The harsh reality is that everything has to be re-evaluated. As an example, do we really need to be in Korea? If so, why can't Korea pay for much of the cost? They are now a rich nation. There are budgetary fiscal limits to being the policeman for the world.

Mish: Bingo. We can easily slash our military budget by 70% and still be the most powerful nation in the world. Moreover, it is time to declare the war in Iraq and Afghanistan over, pack our bags and leave. Gradually, over the next 5-8 years we should bring home all our troops from literally every county they are stationed.

This chart shows the absurdity of our spending.

Chart courtesy of Global Issues - World Military Spending.

By the way that chart does not include the latest increase in the US military budget. Please consider US lawmakers pass 680-billion-dollar defense budget bill

The US House of Representatives passed a 680-billion-dollar defense authorization bill on Thursday that includes funds to train Afghan security forces and more mine-resistant troop carriers.

Lawmakers defied President Barack Obama's veto threat and approved 560 million dollars to continue work on an alternative engine for the F-35 fighter jet built by General Electric and British manufacturer Rolls-Royce.

The compromise legislation would also raise military pay by 3.4 percent -- half a percentage point higher than Pentagon recommendations -- and assign 6.7 billion dollars for mine-resistant armored vehicles known as MRAPs, which is 1.2 billion dollars more than the administration had proposed.

Nearly $700 billion dollars of "defense" spending. The amount needed for actual defense is 20% of that at most, and more likely 5%. Balancing the budget is easy if you start here.

Mauldin: Glass-Steagall, or some form of it, should be brought back. Banks, which are subject to taxpayer bailouts, should not be in the investment banking and derivatives-creating business. Derivatives, especially credit default swaps, should be on an exchange, and too big to fail must go. Banks have enough risk just making loans. Leverage should be dialed down, and hedge funds selling what amounts to naked call options in any form, derivative or otherwise, should be regulated.

Mish: What we need to do is get rid of the Fed, FDIC, and fractional reserve lending. Regulation has failed every step of the way. Regulation created Fannie Mae, Freddie Mac, and the Fed. Regulation by the SEC anointed Moodys, Fitch, and the S&P as debt rating companies. We do not need more regulation, we need less regulation, a sound currency, and no Fed. Regulation is clearly the problem, yet the cries for still more regulation come from nearly every corner save the Austrian economists.

Mauldin: Let me see, is there any group I have not offended yet? But something like I am suggesting is going to have to be done at some point. There is no way we can continue forever on the current path. At some point, we will hit the wall. The fight between the bug and the windshield always ends in favor of the windshield. The bond market is going to have to see a credible effort to get back to a reasonable deficit, or we risk a very difficult economic environment. The longer we wait, the worse it will be.

Mish: "Is there any group I have not offended yet?" Yes. You failed to offend those on public pension plans. Not to fear, I did that myself in Five Major Pension Problems - One Simple Solution.

Unsolvable Problems


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[Feb 27, 2017] Leoliberal privitization of eduction went way too far

Feb 27, 2017 | economistsview.typepad.com

anne : February 24, 2017 at 05:00 PM , 2017 at 05:00 PM

https://www.nytimes.com/2017/02/23/upshot/dismal-results-from-vouchers-surprise-researchers-as-devos-era-begins.html

February 23, 2017

Dismal Voucher Results Surprise Researchers as DeVos Era Begins
By Kevin Carey

The confirmation of Betsy DeVos as secretary of education was a signal moment for the school choice movement. For the first time, the nation's highest education official is someone fully committed to making school vouchers and other market-oriented policies the centerpiece of education reform.

But even as school choice is poised to go national, a wave of new research has emerged suggesting that private school vouchers may harm students who receive them. The results are startling - the worst in the history of the field, researchers say.

While many policy ideas have murky origins, vouchers emerged fully formed from a single, brilliant essay * published in 1955 by Milton Friedman, the free-market godfather later to be awarded a Nobel Prize in Economics. Because "a stable and democratic society is impossible without widespread acceptance of some common set of values and without a minimum degree of literacy and knowledge on the part of most citizens," Mr. Friedman wrote, the government should pay for all children to go to school.

But, he argued, that doesn't mean the government should run all the schools. Instead, it could give parents vouchers to pay for "approved educational services" provided by private schools, with the government's role limited to "ensuring that the schools met certain minimum standards."

The voucher idea sat dormant for years before taking root in a few places, most notably Milwaukee. Yet even as many of Mr. Friedman's other ideas became Republican Party orthodoxy, most national G.O.P. leaders committed themselves to a different theory of educational improvement: standards, testing and accountability. That movement reached an apex when the No Child Left Behind Act of 2001 brought a new focus on tests and standards to nearly every public school nationwide. The law left voucher supporters with crumbs: a small demonstration project in Washington, D.C.

But broad political support for No Child Left Behind proved short-lived. Teachers unions opposed the reforms from the left, while libertarians and states-rights conservatives denounced it from the right. When Republicans took control of more governor's mansions and state legislatures in the 2000s, they expanded vouchers to an unprecedented degree. Three of the largest programs sprang up in Indiana, Louisiana and Ohio, which collectively enroll more than a third of the 178,000 voucher students nationwide.

Most of the new programs heeded Mr. Friedman's original call for the government to enforce "minimum standards" by requiring private schools that accept vouchers to administer standardized state tests. Researchers have used this data to compare voucher students with similar children who took the same tests in public school. Many of the results were released over the last 18 months, while Donald J. Trump was advocating school choice on the campaign trail.

The first results came in late 2015....

* http://la.utexas.edu/users/hcleaver/330T/350kPEEFriedmanRoleOfGovttable.pdf

anne -> anne... , February 24, 2017 at 05:00 PM
http://la.utexas.edu/users/hcleaver/330T/350kPEEFriedmanRoleOfGovttable.pdf

1955

The Role of Government in Education
By Milton Friedman

The general trend in our times toward increasing intervention by the state in economic affairs has led to a concentration of attention and dispute on the areas where new intervention is proposed and to an acceptance of whatever intervention has so far occurred as natural and unchangeable. The current pause, perhaps reversal, in the trend toward collectivism offers an opportunity to reexamine the existing activities of government and to make a fresh assessment of the activities that are and those that are not justified. This paper attempts such a re-examination for education.

Education is today largely paid for and almost entirely administered by governmental bodies or non-profit institutions. This situation has developed gradually and is now taken so much for granted that little explicit attention is any longer directed to the reasons for the special treatment of education even in countries that are predominantly free enterprise in organization and philosophy. The result has been an indiscriminate extension of governmental responsibility.

The role assigned to government in any particular field depends, of course, on the principles accepted for the organization of society in general. In what follows, I shall assume a society that takes freedom of the individual, or more realistically the family, as its ultimate objective, and seeks to further this objective by relying primarily on voluntary exchange among individuals for the organization of economic activity. In such a free private enterprise exchange economy, government's primary role is to preserve the rules of the game by enforcing contracts, preventing coercion, and keeping markets free. Beyond this, there are only three major grounds on which government intervention is to be justified. One is "natural monopoly" or similar market imperfection which makes effective competition (and therefore thoroughly voluntary ex change) impossible. A second is the existence of substantial "neighborhood effects," i.e., the action of one individual imposes significant costs on other individuals for which it is not feasible to make him compensate them or yields significant gains to them for which it is not feasible to make them compensate him-- circumstances that again make voluntary exchange impossible. The third derives from an ambiguity in the ultimate objective rather than from the difficulty of achieving it by voluntary exchange, namely, paternalistic concern for children and other irresponsible individuals. The belief in freedom is for "responsible" units, among whom we include neither children nor insane people. In general, this problem is avoided by regarding the family as the basic unit and therefore parents as responsible for their children; in considerable measure, however, such a procedure rests on expediency rather than principle. The problem of drawing a reasonable line between action justified on these paternalistic grounds and action that conflicts with the freedom of responsible individuals is clearly one to which no satisfactory answer can be given.

In applying these general principles to education, we shall find it helpful to deal separately with (1) general education for citizen ship, and (2) specialized vocational education, although it may be difficult to draw a sharp line between them in practice. The grounds for government intervention are widely different in these two areas and justify very different types of action....

[Feb 26, 2017] The Revenge Of Comet Pizza Zero Hedge

Feb 26, 2017 | www.zerohedge.com

Remember that one? It was about as weird as it gets. A meme generated out of the voluminous hacked John Podesta emails that some conspiracy connoisseurs cooked up into a tale of satanic child abuse revolving around a certain chi-chi Washington DC pizza joint. I never signed on with the story, but it was an interesting indication of how far the boundaries of mass psychology could be pushed in the mind wars of politics.

Sex, of course, is fraught. Sex and the feelings it conjures beat a path straight to the limbic system where the most primitive thoughts become the father of the most primitive deeds. In our American world, this realm of thought and deed has turned into a political football with the Left and the Right scrimmaging ferociously for field position - while the real political agenda of everything important other than sex lies outside the stadium.

The Comet Pizza story was understandably upsetting to Democrats who didn't like being painted as child molesters. Unfortunately for them, it coincided with the bust of one Anthony Weiner - and his infamous laptop - disgraced former "sexting" congressman, husband of Hillary's top aide and BFF, Huma Abedin. The laptop allegedly contained a lot of child porn.

That garbage barge of sexual allegation and innuendo couldn't have helped the Hillary campaign, along with all the Clinton Foundation stuff, in the march to electoral loserdom. I suspect the chthonic darkness of it all generated the "Russia-did-it" hysteria that cluttered up the news-cloud during the first month of Trumptopia. The collective superego of America is reeling with shame and rage.

On the Right side of the spectrum stood the curious figure of Milo Yiannopoulos, the self-styled "Dangerous Faggot," who has made a sensational career lately as an ideological provocateur, especially on the campus scene where he got so into the indignant faces of the Maoist snowflakes with his special brand of boundary-pushing that they resorted to disrupting his events, dis-inviting him at the last moment, or finally rioting, as in the case at UC Berkeley a few weeks ago.

Milo's battles on campus were particularly ripe because his opponents on the far Left were themselves so adamant about their own brand of boundary-pushing along the frontier of the LGBTQ agenda. The last couple of years, you would've thought that half the student population fell into one of those "non-binary" sex categories, and it became the most urgent mission of the Left to secure bathroom rights and enforce new personal pronouns of address for the sexually ambiguous.

But then Milo made a tactical error. Despite all the mutual boundary-pushing on each side, he pushed a boundary too far and entered the final dark circle of taboo: child molesting. That was the point were the closet Puritan hysterics went in for the kill. This is what he said on a Web talk radio show:

What normally happens in schools, very often, is you have an older woman with a younger boy, and the boy is the predator in that situation. The boy is like, let's see if I can fuck the gym teacher, or let's see if I can fuck the hot math teacher, and he does. The women fall in love with these nubile young boys, these athletic young boys in their prime. We get hung up on the child abuse stuff to the point where we're heavily policing consenting adults, grad students and their professors, this arbitrary and oppressive idea of consent, which totally destroys the understanding many of us have about the complexities, subtleties, and complicated nature of many relationships. In the homosexual world particularly, some of the relationships between younger boys and older men, the sort of coming-of-age relationships in which these older men help those young boys discover who they are, and give them security and provide them with love . [Milo is shouted down by his podcast hosts]

So that was the final straw. Milo got bounced by his platform, Breitbart News , and went through the now-routine, mandatory, abject ceremonial of the televised apology required by over-stepping celebrities - though he claimed, with some justification I think, that his remarks were misconstrued. Anyway, I'm sure he'll rebound on his own signature website platform and he'll be back in action before long.

His remarks about the "coming-of-age" phase of life prompted me to wonder about the boundary-pushers on the Left, on the college campuses in particular, who are encouraging young people to go through drastic sex-change surgeries, at an age before the development of that portion of their frontal lobes controlling judgment is complete. Who are these diversity deans and LGBTQ counselors who lead confused adolescents to self-mutilation in search of some hypothesized "identity?" Whoever they are, this dynamic seems pretty reckless and probably tragic to me. There ought to be reasonable doubt that an irreversible "sexual reassignment" surgery may not lead to personal happiness some years down the line - when, for instance, that person's frontal lobes have developed, and they begin to experience profound and complicated emotions such as remorse.

Our sexual hysteria has many more curious angles to it. We live in a culture where pornography, up to the last limits of freakishness and depravity, is available to young unformed personalities at a click. We stopped protecting adolescents against this years ago, so why should we be surprised when they venture into ever-darker frontiers of sexuality? It was the Left that sought to abolish boundaries in sex and many other areas of American life. And yet they still affect to be shocked by someone like Milo.

I maintain that there is a dynamic relationship between our inability to act on the truly pressing issues of the day - energy, economy, and geo-politics - and our neurotic preoccupation with sexual identity. The epic amount of collective psychic energy being diverted from what's important into sexual fantasy, titillation, confusion, and litigation leaves us pathetically unprepared to face the much more serious crisis of civilization gathering before us.

*

Postscript : This item from The Stanford [University] Daily newspaper puts a nice gloss on the stupefying idiocy in the campus sex-and-identity debate. Single-occupancy Restrooms Convert to All-gender Facilities : "Single-occupancy restrooms on campus will soon all be converted to gender-neutral facilities due to new California legislature and ongoing administrative efforts. The Diversity and Access Office (D&A Office) has been spearheading the campaign to convert all single-occupancy restrooms ."

Here's what I don't get: if a single-occupancy restroom is going to be used by one person at a time, what need is there to officially designate the sex of any person using it? And why are officials at an elite university wasting their time on this?

  1. routersurfer February 24, 2017 at 9:44 am # I agree totally this perverted national pastime of pin the genitalia on the mass of confused youth is a waste of time and energy. Anyone who reaches for the scalpel and plastic surgery before 25 has not been served well by the so called adults in their lives. Nature makes mistakes. Look at the Royals of Europe. But wait until the body is formed before the Medical Industrial Complex steps in. Now back to real problems. I heard on Bloomberg radio The Fed may offer 50 and 100 year T notes. Can someone explain how that fits into our system of accounting scams??

[Feb 25, 2017] Most of the skill and experience has to be acquired on the job - into which graduates will not be hired

Feb 25, 2017 | economistsview.typepad.com
anne : February 25, 2017 at 05:23 AM

http://cepr.net/blogs/beat-the-press/if-inadequate-skills-is-preventing-people-from-being-hired-in-manufacturing-it-s-among-the-ceos

February 24, 2017

If "Inadequate Skills" Is Preventing People from Being Hired in Manufacturing, It's Among the CEOs

The Associated Press ran a story * that told readers:

"Factory jobs exist, CEOs tell Trump. Skills don't."

The piece presents complaints from a number of CEOs of manufacturing companies that they can't find the workers with the necessary skills. The piece does note the argument that the way to get more skilled workers is to offer higher pay, but then reports:

"some data supports the CEOs' concerns about the shortage of qualified applicants. Government figures show there are 324,000 open factory jobs nationwide - triple the number in 2009, during the depths of the recession."

The comparison to 2009 is not really indicative of anything, since this was a time when the economy was facing the worst downturn since the Great Depression and companies were rapidly shedding workers. A more serious comparison would be to 2007, before the recession. The job opening rate in manufacturing for the last three months has averaged 2.5 percent, roughly the same as in the first six months of 2007, which was still a period in which the sector was losing jobs.

According to the Bureau of Labor Statistics, average hourly earnings of production and non-supervisory workers in manufacturing has risen by 2.4 percent over the last year. This means that manufacturing firms are not acting in a way consistent with employers having trouble finding workers. This suggests that if there is a skills shortage it is among CEOs who don't understand that the price of an item in short supply, in this case qualified manufacturing workers, is supposed to increase.

* http://www.pbs.org/newshour/rundown/factory-jobs-exist-ceos-tell-trump-skills-dont/

Peter K. -> anne... , February 25, 2017 at 08:23 AM
See Tyler Cowen for the CEOs's sycophant.
mrrunangun said in reply to anne... , February 25, 2017 at 01:51 PM
Young people who have watched the stampede of manufacturing jobs out of the US may reasonably believe that they would be unwise to commit to developing any scarce skills currently needed in domestic manufacturing. Working in Illinois and Wisconsin, I know many skilled manufacturing technicians and engineers whose situations went from comfort to poverty in the space of a few years. Why would a young person today believe that manufacturing skills developed now will not be offshored the next time political winds shift? One of the reasons Trump got elected was by promising to protect the manufacturing jobs that are left, something that neither the Clintons, Bushes, nor Obama were willing to attempt.

I believe Trump is wrong to try to wreck NAFTA, but PNTR for China has been a disaster for the US working class. This was initiated by Clinton and neither Bush nor Obama did anything to mitigate its effect on working people in the Midwest.

cm -> mrrunangun... , February 25, 2017 at 03:57 PM
Even without that aspect, most of the "skill" and experience has to be acquired on the job - into which they will not be hired.

What most business managers are looking for is trained up people for whose training and hands-on skill somebody else has paid for. They don't want to be that "sucker" themselves.

I suspect it is not purely selfishness (though poaching has always existed), but this mindset has evolved in the past decades where business could draw on a large overhang of sufficiently-skilled labor at home and globally. It was possible to dial down training and still find enough qualified workers. This is one of those things where the downward path is easier than upward. In parallel corporate pensions and unions were eliminated or reduced, both things that promote worker retention; and corporate/public rhetoric shifted to make it clear that you will only have your job as long as you are useful to the company, and maintaining that is up to you. Well, that's a two-way street.

cm -> mrrunangun... , February 25, 2017 at 04:03 PM
One possible solution to the training problem has been practiced in Germany - the government passes out training quotas or subsidies to companies; it is basically "either you train them or you pay a no-training 'fee' and we train them for you". Most large companies have training programs, but they often exceed their demand for new workers (or they can find qualified workers or temps elsewhere), and not everybody will be hired after graduating. That part such programs cannot address.
anne -> cm... , February 25, 2017 at 04:14 PM
One possible solution to the training problem has been practiced in Germany - the government passes out training quotas or subsidies to companies; it is basically "either you train them or you pay a no-training 'fee' and we train them for you"....

[Feb 25, 2017] Unemployment versus Underemployment: Assessing Labor Market Slack

Feb 25, 2017 | economistsview.typepad.com
Unemployment versus Underemployment: Assessing Labor Market Slack : The U-3 unemployment rate has returned to prerecession levels and is close to estimates of its longer-run sustainable level. Yet other indicators of slack, such as the U-6 statistic, which includes people working part-time but wanting to work full-time (often referred to as part-time for economic reasons, or PTER), has not declined as quickly or by as much as the U-3 unemployment rate.

If unemployment and PTER reflect the same business-cycle effects, then they should move pretty much in lockstep. But as the following chart shows, such uniformity hasn't generally been the case. In the most recent recovery, unemployment started declining in 2010, but PTER started to move substantially lower beginning only in 2013. The upshot is that for each unemployed worker, there are now many more involuntary part-time workers than in the past.

anne : , February 21, 2017 at 01:01 PM
https://fred.stlouisfed.org/graph/?g=cNuM

January 4, 2017

Unemployment and Unemployment-Underemployment * rates, 1994-2017

* Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers; age 16 and over.


https://fred.stlouisfed.org/graph/?g=cNuZ

January 4, 2017

Unemployment and Unemployment-Underemployment * rates, 1994-2017

* Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers; age 16 and over.

(Indexed to 1994)

New Deal democrat : , February 21, 2017 at 01:19 PM
"during the last recession, firms reduced the hours of workers in low-skill jobs more than they cut the number of low-skill jobs"

I believe this is the correct explanation. I used to tack growth in hours vs. growth in payrolls, and what I found was that, had the 2008 recession followed the pattern of previous recessions, the peak unemployment rate would have been considerably higher. Let me do a little digging ....

New Deal democrat -> New Deal democrat... , February 21, 2017 at 01:29 PM
Here we go: aggregate hours vs. aggregate payrolls (indexed to 100 in 1964):

https://fred.stlouisfed.org/graph/?g=cNwf

The value reached its lowest level ever in 2009. In other words, relative more hours than jobs were cut in the Great Recession, even compared to other recessions.

anne -> New Deal democrat... , February 21, 2017 at 05:13 PM
Nicely done.

https://fred.stlouisfed.org/graph/?g=cNIF

February 21, 2017

Aggregate Weekly Hours for Production and Nonsupervisory Employees as a percent of Total Nonfarm Employees, 1980-2017

(Indexed to 1980)

anne -> anne... , February 21, 2017 at 03:37 PM
http://cepr.net/blogs/beat-the-press/trump-and-trade-he-s-largely-right

February 21, 2017

Trump and Trade: He's Largely Right

-- Dean Baker

pgl -> anne... , February 21, 2017 at 03:57 PM
Dean covers a ton of material here. One is his points is right in one sense. We are below full employment so we need some sort of aggregate demand expansion. Would trade protection do this for the US? Perhaps if we had fixed exchange rates and we did not suffer a trade war. But as Dean has noted elsewhere, we need more expansionary monetary policy. Dean repeats something that Jared Bernstein wrote:

'If we wanted better data on bilateral trade flows, then it would be desirable to pull out the re-exports from both our exports to Canada and our imports from Germany. This adjustment would make our trade deficit with Canada appear larger and trade deficit with Germany smaller, but would leave our total trade balance unchanged.'

So Dean and Jared thinks that a US multinational that buys a product from Mexico at $80 which ultimately sells in Canada for $100 charges the Canadian distribution affiliate only $80? Dean knows better as he in the past has written about transfer pricing. No - transfer pricing games do affect the current reporting of the trade balance. Dean needs to read Brad Setser.

[Feb 25, 2017] Trump and Trade He's Largely Right Beat the Press Blogs Publications The Center for Economic and Policy Research

Feb 25, 2017 | cepr.net
According to CBO , potential GDP for the 4 th quarter of 2016 was $19,049 billion. This is 1.0 percent higher than the estimate of GDP for the quarter of $18,860.8 billion. This means that if CBO is right, if there had been more demand in the economy, for example due to imports being replaced by domestically produced goods, GDP could have been 1.0 percent higher last quarter.

Of course CBO's estimates of potential GDP are not especially accurate. Its most recent estimates for potential GDP in 2016 are more than 10 percent below what it had projected for potential GDP in 2016 back in 2008, before the severity of the crash was recognized. It is possible it overstated potential by a huge amount in 2008, but it is also possible it is understating potential today. It also hugely understated potential GDP in the mid-1990s, with 2000 GDP coming in more than 5 percent above the estimate of potential that CBO made in 1996. In other words, it would not be absurd to think that the economy could sustain a level of output that is 2.0 percent above the current level. (The fact that the employment rate of prime age workers [ages 25-54] is still 4.0 percentage points below the 2000 peak is certainly consistent with this view.)

Suppose that GDP were consistently 2.0 percent higher than current projections over the next decade due to a lower trade deficit. This would imply an additional $4.6 trillion in output over this period. If the government captures 30 percent of this in higher taxes and lower spending on transfer programs like unemployment insurance and food stamps, this would imply a reduction in the projected deficit of $1.38 trillion over the decade. That's not quite the $1.74 trillion projected by Navarro, but close enough to make the derision unwarranted.

In terms of how you get a lower trade deficit, Navarro's strategy of beating up on China is probably not the best way to go. But there is in fact precedent for the United States negotiating a lower value for the dollar under President Reagan, which had the desired effect of reducing the trade deficit.

There is no obvious reason it could not pursue a similar path today, especially since it is widely claimed in business circles that China actually wants to raise the value of its currency. The U.S. could help it.

The second area of seemingly gratuitous Trump trade bashing comes from a Wall Street Journal news article on the Trump administration's efforts to correct for re-exports in trade measures. Before getting to the article, it is important to understand what is at issue.

Most of what the United States exports to countries like Mexico, Japan, or elsewhere are goods and services produced in the United States. However, some portion of the goods that we export to these countries consists of items imported from other countries which are just transshipped through the United States.

The classic example would be if we offloaded 100 BMWs on a ship in New York and then 20 were immediately sent up to Canada to be sold there. The way we currently count exports and imports, we would count the 20 BMWs as exports to Canada and also as imports from Germany. These re-exports have zero impact on our aggregate trade balance, but they do exaggerate out exports to Canada and our imports from Germany.

If we wanted better data on bilateral trade flows, then it would be desirable to pull out the re-exports from both our exports to Canada and our imports from Germany. This adjustment would make our trade deficit with Canada appear larger and trade deficit with Germany smaller, but would leave our total trade balance unchanged.

This better measure of trade flows would be useful information to have if we wanted to know what happened to trade with a specific country following a policy change, for example the signing of a trade deal like NAFTA. The inclusion of re-exports in our export data would distort what had happened to actual flows of domestically produced exports and imports for domestic consumption.

The United States International Trade Commission already produces a measure of trade balances that excludes imports that are re-exported. However this measure is still not an accurate measure of bilateral trade balances since it still includes the re-exports on the import side. In the case mentioned above, it would include the BMWs imported from Germany that were immediately sent to Canada, as imports. In principle, we should be able to construct a measure that excludes these items on the import side as well. If this is what the Trump administration is trying to do, then it is asking for a perfectly reasonable adjustment to the data.

This is where we get to the WSJ article. According to the piece, the Trump administration was asking the Commerce Department to produce measures of bilateral trade balances that took out the re-exports on the export side, but left them in on the import side. This would have the effect of artificially inflating our trade deficit with a bogus number. If this is in fact what the Trump administration is trying to do, then we should be shooting at them with all guns. (This is metaphorical folks, I'm not advocating violence.)

However some skepticism might be warranted at this point. No one with a name actually said the Trump administration asked for this bogus measure of trade balances. The sole source listed is "one person familiar with the discussions."

There was an official statement from the Commerce Department's Bureau of Economic Analysis (BEA), which collects and compiles the data:

"Any internal discussions about data collection methods are no more than the continuation of a longstanding debate and are part of the bureau's normal process as we strive to provide the most precise statistics possible."

I take very seriously efforts to mess with the data. We are fortunate to have independent statistical agencies with dedicated civil servants who take their work very seriously. However we should wait until we have a bit more solid evidence before assuming that the Trump administration is trying to interfere in their independence, as opposed to trying to make a totally legitimate adjustment to the data that the BEA staff would almost certainly agree is an improvement.

[Feb 25, 2017] The main challenges in this new era is to reduce the level of inequality from neoliberal level to New Deal levels

Notable quotes:
"... The Democrats' central weakness comes from being a party of business but having to pretend otherwise. ..."
"... Since Donald Trump was inaugurated as the president of the United States, things have been moving so quickly it's hard to pause and take stock of our surroundings - let alone evaluate how we arrived at this nightmarish place. ..."
"... 'Ironically, both Stiglitz and Sanders have declared themselves to be democrats" ..."
"... I was a Democrat before and would be again. But, that would require that the neocons and neoliberals would be replaced by progressives. ..."
"... Shumer was elected Senate minority leader and that is a bad sign to me. He is sponsored by both neocons and neoliberals. ..."
"... Joe wants to be allowed to speak his piece. If he irritates the plutocrats too much they will cut off his access to media. ..."
Feb 25, 2017 | economistsview.typepad.com
RGC : February 21, 2017 at 07:31 AM

Re: Joe Stiglitz:

Joe says: "One of the main challenges in this new era will be to remain vigilant and, whenever and wherever necessary, to resist."

I disagree. I think we need a clearly articulated alternative to Trump and I think Joe provided one in his recent comment:

Joseph Stiglitz Says Standard Economics Is Wrong. Inequality and Unearned Income Kills the Economy

The rules of the game can be changed to reverse inequality

http://evonomics.com/joseph-stiglitz-inequality-unearned-income/

In that comment Joe says:

Reversing inequality

A wide range of policies can help reduce inequality.

Policies should be aimed at reducing inequalities both in market income and in the post-tax and-transfer incomes. The rules of the game play a large role in determining market distribution- in preventing discrimination, in creating bargaining rights for workers, in curbing monopolies and the powers of CEOs to exploit firms' other stakeholders and the financial sector to exploit the rest of society. These rules were largely rewritten during the past thirty years in ways which led to more inequality and poorer overall economic performance. Now they must be rewritten once again, to reduce inequality and strengthen the economy, for instance, by discouraging the short-termism that has become rampant in the financial and corporate sector.

Reforms include more support for education, including pre-school; increasing the minimum wage; strengthening earned-income tax credits; strengthening the voice of workers in the workplace, including through unions; and more effective enforcement of anti-discrimination laws. But there are four areas in particular that could make inroads in the high level of inequality which now exists.

First, executive compensation (especially in the US) has become excessive, and it is hard to justify the design of executive compensation schemes based on stock options.

Executives should not be rewarded for improvements in a firm's stock market performance in which they play no part. If the Federal Reserve lowers interest rates, and that leads to an increase in stock market prices, CEOs should not get a bonus as a result. If oil prices fall, and so profits of airlines and the value of airline stocks increase, airline CEOs should not get a bonus. There is an easy way of taking account of these gains (or losses) which are not attributable to the efforts of executives: basing performance pay on the relative performance of firms in comparable circumstances. The design of good compensation schemes that do this has been well understood for more than a third of a century, and yet executives in major corporations have almost studiously resisted these insights. They have focused more on taking advantages of deficiencies in corporate governance and the lack of understanding of these issues by many shareholders to try to enhance their earnings- getting high pay when share prices increase, and also when share prices fall. In the long run, as we have seen, economic performance itself is hurt.

Second, macroeconomic policies are needed that maintain economic stability and full employment. High unemployment most severely penalises those at the bottom and the middle of the income distribution. Today, workers are suffering thrice over: from high unemployment, weak wages and cutbacks in public services, as government revenues are less than they would be if economies were functioning well.

As we have argued, high inequality has weakened aggregate demand. Fuelling asset price bubbles through hyper-expansive monetary policy and deregulation is not the only possible response. Higher public investment- in infrastructures, technology and education- would both revive demand and alleviate inequality, and this would boost growth in the long-run and in the short-run. According to a recent empirical study by the IMF, well-designed public infrastructure investment raises output both in the short and long term, especially when the economy is operating below potential. And it doesn't need to increase public debt in terms of GDP: well-implemented infrastructure projects would pay for themselves, as the increase in income (and thus in tax revenues) would more than offset the increase in spending.

Third, public investment in education is fundamental to address inequality. A key determinant of workers' income is the level and quality of education. If governments ensure equal access to education, then the distribution of wages will reflect the distribution of abilities (including the ability to benefit from education) and the extent to which the education system attempts to compensate for differences in abilities and backgrounds. If, as in the United States, those with rich parents usually have access to better education, then one generation's inequality will be passed on to the next, and in each generation, wage inequality will reflect the income and related inequalities of the last.

Fourth, these much-needed public investments could be financed through fair and full taxation of capital income. This would further contribute to counteracting the surge in inequality: it can help bring down the net return to capital, so that those capitalists who save much of their income won't see their wealth accumulate at a faster pace than the growth of the overall economy, resulting in growing inequality of wealth. Special provisions providing for favourable taxation of capital gains and dividends not only distort the economy, but, with the vast majority of the benefits going to the very top, increase inequality. At the same time they impose enormous budgetary costs: 2 trillion dollars from 2013 to 2023 in the US, according to the Congressional Budget Office. The elimination of the special provisions for capital gains and dividends, coupled with the taxation of capital gains on the basis of accrual, not just realisations, is the most obvious reform in the tax code that would improve inequality and raise substantial amounts of revenues. There are many others, such as a good system of inheritance and effectively enforced estate taxation.

Redefining economic performance

We used to think of there being a trade-off: we could achieve more equality, but only at the expense of overall economic performance. It is now clear that, given the extremes of inequality being reached in many rich countries and the manner in which they have been generated, greater equality and improved economic performance are complements.

This is especially true if we focus on appropriate measures of growth. If we use the wrong metrics, we will strive for the wrong things. As the international Commission on the Measurement of Economic Performance and Social Progress argued, there is a growing global consensus that GDP does not provide a good measure of overall economic performance. What matters is whether growth is sustainable, and whether most citizens see their living standards rising year after year.

Since the beginning of the new millennium, the US economy, and that of most other advanced countries, has clearly not been performing. In fact, for three decades, real median incomes have essentially stagnated. Indeed, in the case of the US, the problems are even worse and were manifest well before the recession: in the past four decades average wages have stagnated, even though productivity has drastically increased.

As this essay has emphasised, a key factor underlying the current economic difficulties of rich countries is growing inequality. We need to focus not on what is happening on average- as GDP leads us to do- but on how the economy is performing for the typical citizen, reflected for instance in median disposable income. People care about health, fairness and security, and yet GDP statistics do not reflect their decline. Once these and other aspects of societal well-being are taken into account, recent performance in rich countries looks much worse.

The economic policies required to change this are not difficult to identify. We need more investment in public goods; better corporate governance, antitrust and anti-discrimination laws; a better regulated financial system; stronger workers' rights; and more progressive tax and transfer policies. By 'rewriting the rules' governing the market economy in these ways, it is possible to achieve greater equality in both the pre- and post-tax and transfer distribution of income, and thereby stronger economic performance.


[Joe had it right with this essay and progressives should elaborate and emphasize this message - not just rant about Trump.]

[The whole essay is worth reading, imo.]

RGC -> RGC... , February 21, 2017 at 07:42 AM
I don't trust the Democratic party.

I fear that if they did defeat trump, they would go back to the same old policies that have given us this mess.

I want to see new leadership that commits to new policies like those articulated by Joe Stiglitz and Bernie Sanders.

I don't want to work for them until I see new policies emerge.

pgl -> RGC... , February 21, 2017 at 07:45 AM
Max Sawicky has a new blog. You might enjoy this description of what his new blog will be about:

http://thepopulist.buzz/2017/02/16/who-we-are-what-we-do/

RGC -> pgl... , February 21, 2017 at 08:04 AM
Thanks for the link.
Peter K. -> pgl... , February 21, 2017 at 08:15 AM
CNN is running a debate tomorrow night 10 eastern between Perez and Ellison. Who are you supporting, if anyone?
libezkova -> RGC... , February 21, 2017 at 07:56 AM
"I don't trust the Democratic party."

That's the key point of the whole discussion. Dems are just a party of neoliberals. Who are in the pocket of Wall Street.

So they are in the pocket of the same guys who bought Republicans (and both parties are also puppets of MIC -- with Dems becoming the major War party; not that different from neocons ).

Stiglitz actually is very shy to criticize neoliberal "cult of GDP":
== quote ==
As this essay has emphasised, a key factor underlying the current economic difficulties of rich countries is growing inequality. We need to focus not on what is happening on average - as GDP leads us to do- but on how the economy is performing for the typical citizen, reflected for instance in median disposable income.

People care about health, fairness and security, and yet GDP statistics do not reflect their decline.

Once these and other aspects of societal well-being are taken into account, recent performance in rich countries looks much worse.

== end of quote ==

This is why "pro growth liberals" are just crooks in disguise... With a smoke screen of mathematical nonsense and obscure terminology to cover their tracks.

RGC -> libezkova... , February 21, 2017 at 08:12 AM
"This is why "pro growth liberals" are just crooks in disguise... With a smoke screen of mathematical nonsense and obscure terminology to cover their tracks."

Agreed. They originated with John Bates Clark and the neoclassical concept of marginal utility:

https://en.wikipedia.org/wiki/John_Bates_Clark

kurt -> RGC... , February 21, 2017 at 11:56 AM
So you don't think Marginal Utility is a thing? And that it would be good to ignore this thing that you believe doesn't exist? Wow.
RGC -> kurt... , February 21, 2017 at 12:11 PM
I think it is a concept that was used by Clark and other neoclassicals to counter Henry George's arguments for a tax on rentiers and then later to obfuscate the role played by finance:

Henry George and john Bates Clark

Henry George was the most popular economist of his day. Why did "elite" economists choose to follow the lead of John Bates Clark instead of George?
IOW, elite economists had various theories to choose from. Why did they choose a theory that neglcted unearned income?
.........................................................
"RA: So let me suggest that there is an alternative, and get your thoughts on this, because this idea has run its course. People are now starting to wake up and say" enough." You've written a lot about unearned versus earned wealth – unearned wealth or unearned increment, if you like – and it goes back to a man called John Bates Clark. He was one of the first neoclassical economists. I think I'm right in saying that. Just talk a bit about him, he said there was no differentiation, is that right?
MH: Yes.
RA: And that seemingly innocuous proclamation has had huge effects.

MH: By the 1870s and '80s there was a lot of pressure in all countries, especially in the United States, by socialists on the one hand and followers of the journalist Henry George on the other. George wanted to tax away the land's economic rent and use that as the tax base, instead of taxing labor and industry. So John Bates Clark wrote about the philosophy of wealth, and said "There's no such thing as unearned income. Everything that the economists before me have written is wrong. Everybody earns exactly what they contribute to national product and that means that whatever their earnings are will be added to national product.""

http://michael-hudson.com/2016/12/innocuous-proclaimations/
..........................................................
Henry George (September 2, 1839 – October 29, 1897) was an American political economist, journalist, and philosopher. His immensely popular writing is credited with sparking several reform movements of the Progressive Era, and inspiring the broad economic philosophy known as Georgism, based on the belief that people should own the value they produce themselves, but that the economic value derived from land (including natural resources) should belong equally to all members of society.
His most famous work, Progress and Poverty (1879), sold millions of copies worldwide, probably more than any other American book before that time. The treatise investigates the paradox of increasing inequality and poverty amid economic and technological progress, the cyclic nature of industrialized economies, and the use of rent capture such as land value tax and other anti-monopoly reforms as a remedy for these and other social problems.
............................................
Furthermore, on a visit to New York City, he was struck by the apparent paradox that the poor in that long-established city were much worse off than the poor in less developed California. These observations supplied the theme and title for his 1879 book Progress and Poverty, which was a great success, selling over 3 million copies. In it George made the argument that a sizeable portion of the wealth created by social and technological advances in a free market economy is possessed by land owners and monopolists via economic rents, and that this concentration of unearned wealth is the main cause of poverty. George considered it a great injustice that private profit was being earned from restricting access to natural resources while productive activity was burdened with heavy taxes, and indicated that such a system was equivalent to slavery – a concept somewhat similar to wage slavery. This is also the work in which he made the case for a land value tax in which governments would tax the value of the land itself, thus preventing private interests from profiting upon its mere possession, but allowing the value of all improvements made to that land to remain with investors.[27][28]
................................
https://en.wikipedia.org/wiki/Henry_George
..................................................
John Bates Clark (January 26, 1847 – March 21, 1938) was an American neoclassical economist. He was one of the pioneers of the marginalist revolution and opponent to the Institutionalist school of economics, and spent most of his career as professor at Columbia University.
............................................................
The foundation of Clark's further work was competition: "If nothing suppresses competition, progress will continue forever".[8] Clark: "The science adapted is economic Darwinism. Though the process was savage, the outlook which it afforded was not wholly evil. The survival of crude strength was, in the long run, desirable".[9] This was the fundament to develop the theory which made him famous: Given competition and homogeneous factors of production labor and capital, the repartition of the social product will be according to the productivity of the last physical input of units of labor and capital.

This theorem is a cornerstone of neoclassical micro-economics.
Clark stated it in 1891[10] and more elaborated 1899 in The Distribution of Wealth.[11] The same theorem was formulated later independently by John Atkinson Hobson (1891) and Philip Wicksteed (1894).

The political message of this theorem is: "[W]hat a social class gets is, under natural law, what it contributes to the general output of industry."[12]

......................................
https://en.wikipedia.org/wiki/John_Bates_Clark
............................
The John Bates Clark Medal is awarded by the American Economic Association to "that American economist under the age of forty who is adjudged to have made a significant contribution to economic thought and knowledge".[1] According to The Chronicle of Higher Education, it "is widely regarded as one of the field's most prestigious awards, perhaps second only to the Nobel Memorial Prize in Economic Sciences."[2] The award was made biennially until 2007, but is being awarded every year from 2009 because many deserving went unawarded.[3] The committee cited economists such as Edward Glaeser and John A. List in campaigning that the award should be annual. Named after the American economist John Bates Clark (1847–1938), it is considered one of the two most prestigious awards in the field of economics, along with the Nobel Prize.
https://en.wikipedia.org/wiki/John_Bates_Clark_Medal
.....................................................

RGC -> RGC... , February 21, 2017 at 12:23 PM
Furthermore;

Cambridge capital controversy:

https://en.wikipedia.org/wiki/Cambridge_capital_controversy

"It is important, for the record, to recognize that key participants in the debate openly admitted their mistakes. Samuelson's seventh edition of Economics was purged of errors. Levhari and Samuelson published a paper which began, 'We wish to make it clear for the record that the nonreswitching theorem associated with us is definitely false. We are grateful to Dr. Pasinetti...' (Levhari and Samuelson 1966). Leland Yeager and I jointly published a note acknowledging his earlier error and attempting to resolve the conflict between our theoretical perspectives. (Burmeister and Yeager, 1978).

However, the damage had been done, and Cambridge, UK, 'declared victory': Levhari was wrong, Samuelson was wrong, Solow was wrong, MIT was wrong and therefore neoclassical economics was wrong. As a result there are some groups of economists who have abandoned neoclassical economics for their own refinements of classical economics. In the United States, on the other hand, mainstream economics goes on as if the controversy had never occurred. Macroeconomics textbooks discuss 'capital' as if it were a well-defined concept - which it is not, except in a very special one-capital-good world (or under other unrealistically restrictive conditions). The problems of heterogeneous capital goods have also been ignored in the 'rational expectations revolution' and in virtually all econometric work." (Burmeister 2000)

RGC -> RGC... , February 21, 2017 at 12:29 PM
Wow.
yuan -> libezkova... , February 21, 2017 at 12:17 PM

Too uninformed and angry to realize that Stiglitz has focused on inequality and criticized the use of GDP to measure societal economic activity.


https://www.theguardian.com/commentisfree/2009/sep/13/economics-economic-growth-and-recession-global-economy

I also strongly recommend Stiglitz's book:

http://www.goodreads.com/book/show/16685439-the-price-of-inequality

Jesse -> RGC... , February 21, 2017 at 07:58 AM

Well stated, and that is what it would take to achieve 'party unity.'

In other words, put the people and principles first, and then the health and growth of the party will fall into place.

Party first is power first. And that allure for money and power is what wrecked the Democratic party as it had been-- although that failure was a long time coming.

Peter K. -> Jesse... , February 21, 2017 at 09:51 AM
https://www.jacobinmag.com/2017/02/trump-election-hillary-clinton-racism-democratic-party/

Good interview with Doug Henwood:

The Confusion Candidate

The Democrats' central weakness comes from being a party of business but having to pretend otherwise.

by Katie Halper & Doug Henwood

Since Donald Trump was inaugurated as the president of the United States, things have been moving so quickly it's hard to pause and take stock of our surroundings - let alone evaluate how we arrived at this nightmarish place.

And the liberal commentariat hasn't helped, arguing that the autopsies on Hillary Clinton's failed campaign do nothing but sabotage the "unity" needed to fight Trump. But if we don't want round two against the Right to resemble round one, we need to know what went wrong and how to fix it.

..."

yuan -> RGC... , February 21, 2017 at 12:23 PM
"I don't trust the Democratic party."

Ironically, both Stiglitz and Sanders have declared themselves to be democrats:

I don't trust Sanders or Stiglitz but am somewhat encouraged that both have shown modest support for anti-capitalist reforms.

RGC -> yuan... , February 21, 2017 at 12:51 PM
'Ironically, both Stiglitz and Sanders have declared themselves to be democrats"

I was a Democrat before and would be again. But, that would require that the neocons and neoliberals would be replaced by progressives.

RGC -> RGC... , February 21, 2017 at 01:08 PM
Shumer was elected Senate minority leader and that is a bad sign to me. He is sponsored by both neocons and neoliberals.

I want to see if Ellison is elected chair of the DNC.

Peter K. -> yuan... , February 21, 2017 at 01:36 PM
"I don't trust Sanders or Stiglitz but am somewhat encouraged that both have shown modest support for anti-capitalist reforms."

You're a lunatic troll. No wonder PGL likes you.

Peter K. -> RGC... , February 21, 2017 at 08:16 AM
why didn't "Joe" back Bernie Sanders?

Inquiring minds want to know.

RGC -> Peter K.... , February 21, 2017 at 09:14 AM
Joe wants to be allowed to speak his piece. If he irritates the plutocrats too much they will cut off his access to media.

He is a bit too timid for my taste.

[Feb 21, 2017] People like Summers, DeLong, PGL and Krugman have been saying this for 30 years ever since NAFTA was passed. The voters no longer believe them. Theyre like the boy who cried wolf

Feb 21, 2017 | economistsview.typepad.com
Peter K. -> Peter K.... February 20, 2017 at 08:13 AM

, 2017 at 08:13 AM
https://www.ft.com/content/cd4e8576-e934-11e6-967b-c88452263daf

Revoking trade deals will not help American middle classes

The advent of global supply chains has changed production patterns in the US

by Larry Summers
FEBRUARY 5, 2017

Trade agreements have been central to American politics for some years. The idea that renegotiating trade agreements will "make America great again" by substantially increasing job creation and economic growth swept Donald Trump into office.

More broadly, the idea that past trade agreements have damaged the American middle class and that the prospective Trans-Pacific Partnership would do further damage is now widely accepted in both major US political parties.

As Senator Daniel Patrick Moynihan once observed, participants in political debate are entitled to their own opinions but not their own facts. The reality is that the impact of trade and globalisation on wages is debatable and could be substantial. But the idea that the US trade agreements of the past generation have impoverished to any significant extent is absurd.

There is a debate to be had about the impact of globalisation on middle class wages and inequality. Increased imports have displaced jobs. Companies have been able to drive harder bargains with workers, particularly in unionised sectors, because of the threat they can outsource. The advent of global supply chains has changed production patterns in the US.

My judgment is that these effects are considerably smaller than the impacts of technological progress. This is based on a variety of economic studies, experience in hypercompetitive Germany and the observation that the proportion of American workers in manufacturing has been steadily declining for 75 years. That said I acknowledge that global trends and new studies show that the impact of trade on wages is much more pronounced than a decade ago.

But an assessment of the impact of trade on wages is very different than an assessment of trade agreements. It is inconceivable that multilateral trade agreements, such as the North American Free Trade Agreement, have had a meaningful impact on US wages and jobs for the simple reason that the US market was almost completely open 40 years ago before entering into any of the controversial agreements.

American tariffs on Mexican goods, for example, averaged about 4 per cent before Nafta came into force. China had what was then called "most favoured nation" trading status with the US before its accession to the World Trade Organization and received the same access as other countries. Before the Korea Free Trade Agreement, US tariffs on Korea averaged a paltry 2.8 per cent.

The irrelevance of trade agreements to import competition becomes obvious when one listens to the main arguments against trade agreements. They rarely, if ever, take the form of saying we are inappropriately taking down US trade barriers.

Rather the naysayers argue that different demands should be made on other countries during negotiations - on issues including intellectual property, labour standards, dispute resolution or exchange rate manipulation. I am sympathetic to the criticisms of TPP, but even if they were all correct they do not justify the conclusion that signing the deal would increase the challenges facing the American middle class.

The reason for the rise in US imports is not reduced trade barriers. Rather it is that emerging markets are indeed emerging. They are growing in their economic potential because of successful economic reforms and greater global integration.

These developments would have occurred with or without US trade pacts, though the agreements have usually been an impetus to reform. Indeed, since the US does very little to reduce trade barriers in our agreements, the impetus to reform is most of what foreign policymakers value in them along with political connection to the US.

The truth too often denied by both sides in this debate is that incremental agreements like TPP have been largely irrelevant to the fate of middle class workers. The real strategic choice Americans face is whether the objective of their policies is to see the economies of the rest of the world grow and prosper. Or, does the US want to keep the rest of the world from threatening it by slowing global growth and walling off products and people?

Framed this way the solution appears obvious. A strategy of returning to the protectionism of the past and seeking to thwart the growth of other nations is untenable and would likely lead to a downward spiral in the global economy. The right approach is to maintain openness while finding ways to help workers at home who are displaced by technical progress, trade or other challenges.

Peter K. -> Peter K.... , February 20, 2017 at 08:16 AM
" The right approach is to maintain openness while finding ways to help workers at home who are displaced by technical progress, trade or other challenges."

People like Summers, DeLong, PGL and Krugman have been saying this for 30 years ever since NAFTA was passed.

The voters no longer believe them. They're like the boy who cried wolf.

cm -> Peter K.... , February 20, 2017 at 01:05 PM
I would actually agree with the stance in general, if there would be an actuall intention to help the affected people/populations, but there is none. Retraining for yet another job that doesn't exist (in sufficient volume so you can realistically get it) is not help. It is just cover for victim blaming - see we forgive you for choosing an incorrect career, here is your next chance, don't blow that one too (which we know "you will" as there are not enough jobs there either).
Peter K. -> Peter K.... , February 20, 2017 at 08:14 AM
http://www.bradford-delong.com/2017/02/must-read-four-things-are-going-on-technology-globalization-macro-policy-trade-agreements-lawrence-summ.html

DeLong Feb. 20, 2017

Must-Read: Five things are going on with respect to America's blue-, pink-, and--increasingly--white lower-middle and middle-middle working classes. Three of them are real, and two of them are fake:

Technology: It has--worldwide--greatly amplified manufacturing labor productivity, accompanied by limited demand for manufactured goods: few of us want more than one full-sized refrigerator, and very very few of us want more than two. That means that if you are hoping to be relatively high up in the wage distribution by virtue of your position as a hard-to-replace cog on a manufacturing assembly line, you are increasingly out of luck. If you are hoping for high blue-collar wages to lift your own via competition, you are increasingly out of luck.

Legal and institutional bargaining power: The fact that bargaining power has flowed to finance and the executive suite and away from the shop- and assembly-floor is the second biggest deal here. It could have been otherwise--this is, primarily, a thing that has happened in English-speaking countries. It has happened much less elsewhere. It could have happened much less here.

Macro policy: Yes, the consequences of the Reagan deficits were to cream midwestern manufacturing and destroy worker bargaining power in export and import-competing industries. Yes, the low-pressure economies of Volcker, late Greenspan, and Bernanke wreaked immense damage. Any more questions?

Globalization: Globalization deepens the division of labor, and does so in a way that is not harmful to high-paying manufacturing jobs in the global north. The high-paying manufacturing jobs that require skills and expertise (as opposed to the lower-paying ones that just require being in the right place at the right time with some market power) are easier to create and hold on to if you can be part of a globalized value chain than otherwise. This is largely fake.

Trade agreements: This is a nothingburger: completely fake.

As somebody who strongly believes that supply curves slope up--are neither horizontal nor vertical--and that demand curves slope down--are neither horizontal nor vertical--I think that Larry Summers is misguided here when he talks about how "companies have been able to drive harder bargains with workers, particularly in unionised sectors, because of the threat they can outsource." This was certainly true since the 1950s with the move of American manufacturing to the south, and the rise of deceptively-named "right-to-work" laws. But the threat to outsource is zero-sum on a national level: the balance of payments balances. Individual sectors lose--and manufacturing workers have been big losers. But that is, I think, only because of our macro policies. If we were a normal global North manufacturing power--a Germany or a Japan--exporting capital and running a currency policy that did not privilege finance, he would not be talking a out how "companies have been able to drive harder bargains with workers, particularly in unionised sectors, because of the threat they can outsource." He would be talking about how the opportunity to participate in global value chains increases the productivity of semi-skilled and skilled manufacturing workers in the U.S.

Thus I think Larry conceded too much here. Blame macro policy. Blame technology. Blame the conflict between the market society's requirements that only property rights matter and that everything pass a profitability test against people's strong beliefs that even if they have no property rights they have rights to stable communities, stable industries, and stable occupations. But, to channel Pascal Lamy, look not at the finger but at the moon here.

However, Larry is right on his main point: NAFTA really ain't the problem:

Lawrence Summers: Revoking Trade Deals Will Not Help American Middle Classes: "There is a debate to be had about the impact of globalisation on middle class wages and inequality...

Tom aka Rusty -> Peter K.... , February 20, 2017 at 09:27 AM
For Delong to be right on trade, thousands of rust belt politicians, journalists, and business leaders and a few hundred thousand workers would have to be delusional.

He is right in the sense that it is too late to revoke NAFTA, the damage is done.

[Feb 21, 2017] The rise in income inequality was promoted by the Reagan revolution. That in many ways was its purpose. It is also the agenda of Paul Ryan and his A Better Way .

Notable quotes:
"... Democrats sold out 35 years ago. ..."
"... Yes it's more profitable to have a non-unionized workforce. ..."
"... Doesn't mean we should. Doesn't mean we should get rid of environmental or safety regulations. ..."
Feb 21, 2017 | economistsview.typepad.com
pgl :  , -1

"it is never good to pass up an opportunity to remind readers that the rise in inequality since 1980 has been something that those who made the Reagan Revolution hoped to accomplish and are proud of.

Bargaining power has flowed to finance and the executive suite and away from the shop- and assembly-floor. Top tax rates have come way down. It could have been otherwise--this is, primarily, a thing that has happened in English-speaking countries. It has happened much less elsewhere. It could have happened much less here."

The rise in income inequality was promoted by the Reagan revolution. That in many ways was its purpose. It is also the agenda of Paul Ryan and his "A Better Way".

We used to know how to lower trade barriers and welcome new technology and have the benefits accrue to all. We lost our political will some 35 years ago. And electing Trump has not exactly regained our old mojo.

Peter K. -> pgl... February 20, 2017 at 12:24 PM , 2017 at 12:24 PM
"We lost our political will some 35 years ago. "

Who is this we kemosabe?

Democrats sold out 35 years ago. And you keep defending them.

libezkova -> Peter K.... , February 20, 2017 at 05:41 PM
"Democrats sold out 35 years ago."

True. Bill Clinton was elected in 1982. He essentially sold the Party to Wall Street, although first signs appeared under Carter...

Peter K. -> Sanjait... , February 20, 2017 at 03:39 PM
Yes it's more profitable to have a non-unionized workforce.

Doesn't mean we should. Doesn't mean we should get rid of environmental or safety regulations.

libezkova -> Peter K.... , February 20, 2017 at 05:44 PM
"it's more profitable to have a non-unionized workforce"

And that was partially accomplished by moving manufacturing South.

[Feb 21, 2017] Does the Chicago Bears quarterback really need 126 million for seven years -- up from to top NFL paid Joe Namath's 600K a couple of generations back?

Feb 21, 2017 | economistsview.typepad.com
Denis Drew : February 20, 2017 at 02:10 PM , 2017 at 02:10 PM
Manufacturing, manufacturing, manufacturing. Everybody misses the BRONTOSAURUS in the room. 4% of jobs gone from automation and trade - half and half -- true. But, 50% of employees have lost 10% of overall income -- out of the 20% of a couple of generations back.

(This reminds me of comparing EITC's 1/2 1% redistribution with 45% of workers earning less than $15 an hour.)

Could 50% of the workforce squeeze 10% of income back out of the 49% who take 70% (14% of their earnings!)? They sure could if they could collectively agree not to show up for work otherwise. Could if the 49% in turn could squeeze 10% out of the 1% (the infamous one percent) who lately take 20% of overall income -- up from 10% a couple of generations back.

(Does the Chicago Bears quarterback really need $126 million for seven years -- up from to top NFL paid Joe Namath's $600,000 [adjusted truly] a couple of generations back?)

Mechanism? Ask Germany (ask Jimmy Hoffa).

* * * * * *

In case nobody thought about it -- I never thought about until Trump -- it goes like this. The NLRA(a) was written in 1935 leaving blank the use criminal sanctions for muscling the labor market. Even if it did specify jail time for union busting it is extremely arguable that state penalties for muscling ANY persons seeking to collectively bargain (not just union organizers and joiners following fed procedure) would overlap, not violate federal preemption.

It seems inarguable -- under long established First Amendment right to organize collective bargaining -- that federal preemption cannot force employees down an organizing road that is unarguably impassable, because unenforceable.

Upshot: states may make union busting a felony -- hopefully backed by RICO for persistent violators.

6% union density is like 20/10 blood pressure. It starves every other healthy process.

RC AKA Darryl, Ron -> Denis Drew ... , February 20, 2017 at 02:14 PM
Understood. Lost manufacturing jobs was a big hit to union employment aside from the longshoremen.
ken melvin -> RC AKA Darryl, Ron... , February 20, 2017 at 02:37 PM
In 1967-68 was working the waterfront in SF. Saw the crews of Stevedores and Longshoremen load the ships; on the docks, down in the holds, using boom winches, forklifts, and muscle (dangerous work). By 1970, containerization had replaced 90% of them. And, it continues with computerization of storage and loading of containers (something I worked on in 1975). Remember the nephew in the 'Wire'? One day a week if he was lucky. David Simon knew of what he wrote.
cm -> RC AKA Darryl, Ron... , February 20, 2017 at 05:02 PM
One of the Michael Moore movies (probably but not sure whether about Flint) made the point rather explicitly - former manufacturing workers retrained as law enforcement or prison officers perhaps for employment in other states or "dealing with" their former colleagues driven to crime or at least into the arms of the law enforcement system.

[Feb 21, 2017] Debt slavery and high unemployment are two the most direct method of keeping wages low

Feb 21, 2017 | economistsview.typepad.com
J ohnH -> New Deal democrat... February 20, 2017 at 07:31 AM , 2017 at 07:31 AM
I expect that if you look at the pre-bellum South, there will be plenty of examples of stagnant wages, low interest rates...

In Mexico, wages never rose regardless of monetary policy.

The point that I've been making for a while: despite a few progressive economists delusions for rapid economic growth to tighten wages, it won't happen for the following reasons.

1) most employers will just say 'no,' probably encouraged centrally by the US Chamber of Commerce and other industry associations. Collusion? You bet.

2) employers will just move jobs abroad, where there's plenty of slack. Flexible labor markets has been one of the big goals of globalization, promoted by the usual suspects including 'librul' economists like Krugman.

3) immigration, which will be temporarily constrained as Trump deports people, but will ultimately be resumed as employers demand cheap, malleable labor.

New Deal democrat -> JohnH... , February 20, 2017 at 07:35 AM
If what we get is easy money, no inflation, and stagnant wages, then that is the Coolidge bubble. We know how that ends.
Peter K. -> JohnH... , February 20, 2017 at 07:36 AM
I disagree. It happened in late 90s. The ideas you mention are factors, including the decline of unions.

What has happened in recent decades is that asset bubbles - like the dot.com and housing bubbles - have popped sending a high pressure economy into a low pressure one with higher unemployment.

Neoliberal economists often talk about "flexible labor markets" as desirable but I don't think Krugman ever has. Maybe he has in a roundabout, indirect way.

JohnH -> Peter K.... , February 20, 2017 at 07:58 AM
Peter K still insists on propagating the myth that the 1990s was a period of easy money that led to increasing wages. Not so:
https://fred.stlouisfed.org/series/FEDFUNDS

Fed funds rates were consistently about double the rate of inflation.

The fact that the economy boomed and wages increased was due to the tech boom--an unrepeatable anomaly. The Fed and Clinton administration unsuccessfully attempted to stifle it with high rates and budget balancing.

To make sure that wages never rose again, Clinton signed China PNTR, granting China access to WTO, ushering in the great sucking sound of jobs going to China. Krugman cheered.

Peter K. -> JohnH... , February 20, 2017 at 08:28 AM
Again I just disagree with you.

"Fed funds rates were consistently about double the rate of inflation."

That doesn't matter. What matters is if they were tightening or loosening. Where they reducing access to credit or expanding it.

The real history is that Democrats on the FOMC wanted to raise rates - as Dean Baker has discussed.

Greenspan decided not to raise rates for various reasons and unemployment stayed low at around 4 percent with wages sharing in productivity gains until the Dot.com stock bubble popped.

I see no reason why you should believe labor markets will never get tight again and that even if they do it won't lead to increased worker bargaining power and higher wages.

Your reasoning and logic isn't sound.

Peter K. -> Peter K.... , February 20, 2017 at 08:30 AM
Some people were afraid of inflation but it never came. But wages did share in productivity gains.
JohnH -> Peter K.... , February 20, 2017 at 03:17 PM
There are numerous reasons why wages won't increase even if labor markets tighten...you just don't want to acknowledge the nefarious consequences of neoliberal policies: business collusion, offshoring, immigration, and the tax system's preference for returns of returns to capital over wages, which preferences technology.
pgl -> JohnH... , February 20, 2017 at 10:36 AM
The real interest rate was around 2.5% per your own argument which was a lot lower than real rates in the 1980's. So by any reasonable standard - we did have easy money.
JohnH -> pgl... , February 20, 2017 at 01:35 PM
lol!!! 2.5% real Fed funds rates as cheap money? Who are you kidding???

If pgl is good at anything, it's producing nonsense!

Julio -> JohnH... , February 20, 2017 at 08:35 AM
Another round of tax and regulatory giveaways can create a short-term boom and keeping jobs at home.

Of course, with the giveaways they're hitting the zero lower bound...

JohnH -> Julio ... , February 20, 2017 at 03:21 PM
"Another round of tax and regulatory giveaways can create a short-term boom," as part of the race to the bottom for wages...IOW Republicans and their Democratic allies will have succeeded when American wages are about the same as wages in China or Mexico. But, per their logic, then jobs will be plentiful because there will be no need to off-shore.
pgl -> JohnH... , February 20, 2017 at 09:11 AM
"the pre-bellum South"? You mean slavery. Yeah - wages were incredibly low.
JohnH -> pgl... , February 20, 2017 at 01:37 PM
Yep...slavery is the most direct method of keeping wages low. The policies I outlined--monopsony, offshoring, and immigration--are all a fall back, to be used when industry can't use their best policy.
libezkova -> JohnH... , February 20, 2017 at 12:02 PM
If the neoliberal elite can't part with at least a small part of their privileges, the political destabilization will continue and they might lose everything.

"People of privilege will always risk their complete destruction rather than surrender any material part of their advantage." -- John Kenneth Galbraith

ilsm -> libezkova... , February 20, 2017 at 12:53 PM
You may know that JK Galbraith served on the US' evaluation of strategic bombings effect in WW II.

He is one of the minority whose opinion was suppressed by the military industry complex which concluded outside the A bomb no relation to bombing and victory was proven, including both industry output and energy production in Germany.

Allied bombing did kill a lot of civilians, which if Germans or Japan had won bomber commanders would have been hanged.

Julio -> libezkova... , February 20, 2017 at 05:44 PM
"...the political destabilization will continue and they might lose everything."

Or they might find a way to end the political destabilization. You know, we're not arresting you, we just want to know, in the war on Muslim terrorists and Mexican criminals, are you with us or against us? You'd be surprised (or maybe you wouldn't!) how the question is enough to quiet everybody down.

Julio -> Julio ... , February 20, 2017 at 05:46 PM
Just heard an interview clip with candidate Trump defending his Muslim ban as being the same as the Japanese interment, and saying we're in a war.

[Feb 20, 2017] Tech Jobs Took a Big Hit Last Year

Feb 20, 2017 | tech.slashdot.org

Barb Darrow, writing for Fortune: Tech jobs took it on the chin last year. Layoffs at computer, electronics, and telecommunications companies were up 21 percent to 96,017 jobs cut in 2016 , compared to 79,315 the prior year. Tech layoffs accounted for 18 percent of the total 526,915 U.S. job cuts announced in 2016, according to Challenger, Gray & Christmas, a global outplacement firm based in Chicago. Of the 2016 total, some 66,821 of the layoffs came from computer companies, up 7% year over year. Challenger attributed much of that increase to cuts made by Dell Technologies, the entity formed by the $63 billion convergence of Dell and EMC. In preparation for that combination, layoffs were instituted across EMC and its constituent companies, including VMware.

[Feb 20, 2017] People like Summers, DeLong, PGL and Krugman have been saying this for 30 years ever since NAFTA was passed. The voters no longer believe them. They're like the boy who

Feb 20, 2017 | economistsview.typepad.com
Peter K. -> Peter K.... February 20, 2017 at 08:13 AM , 2017 at 08:13 AM
https://www.ft.com/content/cd4e8576-e934-11e6-967b-c88452263daf

Revoking trade deals will not help American middle classes

The advent of global supply chains has changed production patterns in the US

by Larry Summers
FEBRUARY 5, 2017

Trade agreements have been central to American politics for some years. The idea that renegotiating trade agreements will "make America great again" by substantially increasing job creation and economic growth swept Donald Trump into office.

More broadly, the idea that past trade agreements have damaged the American middle class and that the prospective Trans-Pacific Partnership would do further damage is now widely accepted in both major US political parties.

As Senator Daniel Patrick Moynihan once observed, participants in political debate are entitled to their own opinions but not their own facts. The reality is that the impact of trade and globalisation on wages is debatable and could be substantial. But the idea that the US trade agreements of the past generation have impoverished to any significant extent is absurd.

There is a debate to be had about the impact of globalisation on middle class wages and inequality. Increased imports have displaced jobs. Companies have been able to drive harder bargains with workers, particularly in unionised sectors, because of the threat they can outsource. The advent of global supply chains has changed production patterns in the US.

My judgment is that these effects are considerably smaller than the impacts of technological progress. This is based on a variety of economic studies, experience in hypercompetitive Germany and the observation that the proportion of American workers in manufacturing has been steadily declining for 75 years. That said I acknowledge that global trends and new studies show that the impact of trade on wages is much more pronounced than a decade ago.

But an assessment of the impact of trade on wages is very different than an assessment of trade agreements. It is inconceivable that multilateral trade agreements, such as the North American Free Trade Agreement, have had a meaningful impact on US wages and jobs for the simple reason that the US market was almost completely open 40 years ago before entering into any of the controversial agreements.

American tariffs on Mexican goods, for example, averaged about 4 per cent before Nafta came into force. China had what was then called "most favoured nation" trading status with the US before its accession to the World Trade Organization and received the same access as other countries. Before the Korea Free Trade Agreement, US tariffs on Korea averaged a paltry 2.8 per cent.

The irrelevance of trade agreements to import competition becomes obvious when one listens to the main arguments against trade agreements. They rarely, if ever, take the form of saying we are inappropriately taking down US trade barriers.

Rather the naysayers argue that different demands should be made on other countries during negotiations - on issues including intellectual property, labour standards, dispute resolution or exchange rate manipulation. I am sympathetic to the criticisms of TPP, but even if they were all correct they do not justify the conclusion that signing the deal would increase the challenges facing the American middle class.

The reason for the rise in US imports is not reduced trade barriers. Rather it is that emerging markets are indeed emerging. They are growing in their economic potential because of successful economic reforms and greater global integration.

These developments would have occurred with or without US trade pacts, though the agreements have usually been an impetus to reform. Indeed, since the US does very little to reduce trade barriers in our agreements, the impetus to reform is most of what foreign policymakers value in them along with political connection to the US.

The truth too often denied by both sides in this debate is that incremental agreements like TPP have been largely irrelevant to the fate of middle class workers. The real strategic choice Americans face is whether the objective of their policies is to see the economies of the rest of the world grow and prosper. Or, does the US want to keep the rest of the world from threatening it by slowing global growth and walling off products and people?

Framed this way the solution appears obvious. A strategy of returning to the protectionism of the past and seeking to thwart the growth of other nations is untenable and would likely lead to a downward spiral in the global economy. The right approach is to maintain openness while finding ways to help workers at home who are displaced by technical progress, trade or other challenges.

Peter K. -> Peter K.... , February 20, 2017 at 08:16 AM
" The right approach is to maintain openness while finding ways to help workers at home who are displaced by technical progress, trade or other challenges."

People like Summers, DeLong, PGL and Krugman have been saying this for 30 years ever since NAFTA was passed.

The voters no longer believe them. They're like the boy who cried wolf.

[Feb 20, 2017] With high unemployment rate employers can more broadly discriminate

Feb 20, 2017 | economistsview.typepad.com
Peter K. : Reply Monday, February 20, 2017 at 10:35 AM , February 20, 2017 at 10:35 AM
PGL says "reverse hysteresis" is fair dust.

More trolling from out neoliberal friend?

https://economix.blogs.nytimes.com/2014/03/03/undoing-the-structural-damage-to-potential-growth/?_r=0

Economix - Explaining the Science of Everyday Life

Undoing the Structural Damage to Potential Growth
By JARED BERNSTEIN MARCH 3, 2014 11:00 AM

What follows is macroeconomics, but I'll start with the micro - a microcosm, in fact, of the larger idea I'm hoping to get at here.

I think it was around 1998, and I was on a tram between terminals at O'Hare Airport in Chicago. Two young men, who clearly worked for the airport (they had a bunch of badges dangling around their necks) were trying to figure out how they knew each other, while I eavesdropped. Turned out they had met each other in prison.

At the time, I was beginning a research project on the benefits of full employment, and my first thought was, "Aha - another example of how tight labor markets pull in the hard-to-employ." This was also the era of work-based welfare reform, and while analysts worried that employers would avoid those with welfare histories, strong demand turned out to an antidote to such preferences.

Basically, profiling based on gender, race and experience is a luxury that employers can't afford when the job market is really tight. That is not to imply, of course, that employers broadly discriminate, but there is strong evidence that many do, most recently against the long-term unemployed. In tight markets, however, they face a choice of indulging their preferences or leaving profits on the table, and profits usually win.

Now, put this story aside for a second and let's turn to the macro. A few months ago, I reported on a study by a few Federal Reserve economists with pretty striking results of the damage done to the economy's future growth rate by the deep and protracted downturn known as the Great Recession. The Congressional Budget Office just published a similar analysis, resulting in the chart below showing growth in gross domestic product as projected in 2007, before the recession, and a revised projection from this year. By 2017, the budget office predicts that the new and decidedly not-improved level of G.D.P. will be 7.3 percent below the old projection.

What does 7.3 percent of lost gross domestic product actually mean? Well, last year G.D.P. amounted to about $16.8 trillion, and 7.3 percent of that comes to around $1.2 trillion. Conventional estimates translate that into more than 10 million jobs.

It would be very good to avoid that fate. The thing is, both the Fed economists and the Congressional Budget Office basically argue that while their estimates are admittedly uncertain, that fate cannot be avoided - it's baked into the economic cake by the assumption that once your trend growth rate slows as ours has, it does not come back barring some positive, unforeseen shock. Here is how the Fed guys put it:

Policy makers cannot undo labor market damage once it has occurred, but must instead wait for it to fade away on its own accord; in other words, there is no special advantage, given this specification, to running a high-pressure economy.

I disagree! I think the damage can be at least partly reversed precisely by running "a high-pressure economy." I saw it myself that day in the airport.

Technically, I'm talking about "reverse hysteresis." When a cyclical problem morphs into a structural one, economists invoke the concept of hysteresis. When this phenomenon takes hold, the rate at which key economic inputs like labor supply and capital investment enter the economy undergoes a downshift that lasts through the downturn and well into the expansion, reducing the economy's speed limit. But what I'm suggesting here is that by running the economy well below conventional estimates of the lowest unemployment rate consistent with stable inflation, and doing so for a while, we can pull workers back in, raise their career trajectories, improve their pay and their living standards, and turn that downshift to an upshift that raises the level and growth rate of G.D.P.

Won't that be inflationary? Three points. First, if anything, the current economy is suffering from inflation that is too low (same with Europe), so near-term growth-oriented policy seems clearly safe in this regard. Second, the precise relationship between full employment and inflation is poorly understood. When that latter-1990s story above was taking place, economists frequently and incorrectly warned that full employment would dangerously juice inflation. Third, the correlation between these two variables - inflation and labor market tightness - has become far weaker in recent years (i.e., the Phillips Curve has flattened, for those who like the jargon).

How do we reverse the hysteresis process (which is to ask: How do we get back to very tight labor markets)? In earlier posts, I've suggested a number of policies that would help, including investment in public goods, direct job creation, reducing the trade deficit and work-sharing. Still, you may well be wondering, "Wait a minute - this dude wants us to go with him down this path because of a conversation he overheard 16 years ago?"

O.K., I'll admit that the economic journals are not busting with evidence in support of reverse hysteresis. But those of us who closely monitored full-employment economies have observed and documented significantly positive labor supply and investment outcomes. (True, a lot of that investment has flowed into bubbles; I'm not saying this idea solves every problem.)

The employment rates for young African-American adults, like the guys I saw in the airport, averaged around 70 percent in the 1970s and '80s, but hit 80 percent in the late 1990s; they are in the mid-60s now. The employment rates for single mothers also hit new highs in those years. The labor force participation rate, itself an important victim of hysteresis right now, hit its all-time high at the end of the 1990s expansion. In other words, full employment pulled a lot of new people into the job market.

As part of the full-employment project I'm running at the Center on Budget and Policy Priorities (and have written about before on this blog), a number of top economists are looking into the relationships between fiscal policy, and hysteresis and reverse hysteresis. They are coming up with some compelling findings, which I'll share once they are ready. For now, allow me to assert the following: We have shown we can do a lot of economic damage. With the political will, sorely lacking these days, it can also be undone.

Peter K. -> Peter K.... , February 20, 2017 at 10:38 AM
"What does 7.3 percent of lost gross domestic product actually mean? Well, last year G.D.P. amounted to about $16.8 trillion, and 7.3 percent of that comes to around $1.2 trillion. Conventional estimates translate that into more than 10 million jobs."

https://www.bloomberg.com/view/articles/2016-04-28/president-obama-s-economic-disappointment

Obama's Economic Disappointment by Narayana Kocherlakota

In January 2009, at the beginning of Obama's first term, the nonpartisan Congressional Budget Office issued a 10-year forecast for the U.S. economy, including such indicators as unemployment, gross domestic product, the budget deficit, government debt and interest rates. Here's a table comparing the CBO's expectations for the year 2015 to what has actually happened:

NGDP forecast to grow 33 percent, actually grew 22 percent.

Real GDP, forecast 20 percent, actual 10.

----------------

Peter K. -> Peter K.... , February 20, 2017 at 10:42 AM
https://www.federalreserve.gov/newsevents/speech/yellen20150327a.htm

Yellen

"A final argument for gradually adjusting policy relates to the desirability of achieving a prompt return of inflation to the FOMC's 2 percent goal, an objective that would be advanced by allowing the unemployment rate to decline for a time somewhat below estimates of its longer-run sustainable level. To a limited degree, such an outcome is envisioned in many participants' most recent SEP projections. A tight labor market may also work to reverse some of the adverse supply-side developments resulting from the financial crisis. The deep recession and slow recovery likely have held back investment in physical and human capital, restrained the rate of new business formation, prompted discouraged workers to leave the labor force, and eroded the skills of the long-term unemployed.15 Some of these effects might be reversed in a tight labor market, yielding long-term benefits associated with a more productive economy. That said, the quantitative importance of these supply-side mechanisms are difficult to establish, and the relevant research on this point is quite limited."

[Feb 20, 2017] Why Extreme Inequality Causes Economic Collapse naked capitalism

Notable quotes:
"... Fig. 3a Income Share of U.S. Top 1% (Reich, 2013) & 3b Reich notes that the two peaks look like a suspension bridge, with highs followed by precipitous drops. (Original Source: Piketty & Saez, 2003) ..."
"... Paying for policy favors ..."
"... Removing constraints on dangerous behavior ..."
"... Increasing the public's vulnerability ..."
"... Increasing their own intake ..."
"... financial intermediaries. ..."
"... Or Ben Bernanke in his book "The Courage to Act": "Money is fungible. One dollar is like any other". ..."
"... "I adapted this general idea to show how, by affecting banks' loanable funds, monetary policy could influence the supply of intermediated ..."
"... no longer depend exclusively on insured deposits for funding, nondeposit sources of funding are likely to be relatively more expensive than deposits" ..."
"... The first channel worked through the banking system By developing expertise in gathering relevant information, as well as by maintaining ongoing relationships with customers, banks and similar intermediaries ..."
"... and thus hurt borrowers" (Bernanke [1983b]). ..."
"... A herding started by William McChesney Martin Jr, that thought "banks actually pick up savings and pass them out the window, that they are intermediaries ..."
"... obviously not so in any human activity. ..."
"... We believe Regenerative Economics can provide a unifying framework capable of galvanizing a wide array of reform groups by clarifying the picture of what makes societies healthy. But, this framework will only serve if it is backed by accurate theory and effective measures and practice. This soundness is part of what Capital Institute and RARE are trying to develop. ..."
"... haha, unfortunately it's the apex predator species that is in danger of sudden extinction as its prey declines. Of course the Darwinian analogy doesn't hold up well because Darwinian selection works on all individuals of a species without distinction. A much better analogy is a rigged game. ..."
Feb 20, 2017 | www.nakedcapitalism.com
According to a recent study by Oxfam International, in 2010 the top 388 richest people owned as much wealth as the poorest half of the world's population– a whopping 3.6 billion people. By 2014, this number was down to 85 people. Oxfam claims that, if this trend continues, by the end of 2016 the top 1% will own more wealth than everyone else in the world combined. At the same time, according to Oxfam, the extremely wealthy are also extremely efficient in dodging taxes, now hiding an estimated $7.6 trillion in offshore tax-havens.[3]

Why should we care about such gross economic inequality?[4] After all, isn't it natural? The science of flow says: yes, some degree of inequality is natural, but extreme inequality violates two core principles of systemic health: circulation and balance.

Circulation represents the lifeblood of all flow-systems, be they economies, ecosystems, or living organisms. In living organisms, poor circulation of blood causes necrosis that can kill. In the biosphere, poor circulation of carbon, oxygen, nitrogen, etc. strangles life and would cause every living system, from bacteria to the biosphere, to collapse. Similarly, poor circulation of money, goods, resources, and services leads to economic necrosis – the dying off of large swaths of economic tissue that ultimately undermines the health of the economy as a whole.

In flow systems, balance is not simply a nice way to be, but a set of complementary factors – such as big and little; efficiency and resilience; flexibility and constraint – whose optimal balance is critical to maintaining circulation across scales. For example, the familiar branching structure seen in lungs, trees, circulatory systems, river deltas, and banking systems (Fig. 1) connects a geometrically constant ratio of a few large, a few more medium-sized, and a great many small entities. This arrangement, which mathematicians call a fractal, is extremely common because it's particular balance of small, medium, and large helps optimize circulation across different levels of the whole. Just as too many large animals and too few small ones creates an unstable ecosystem, so financial systems with too many big banks and too few small ones tend towards poor circulation, poor health, and high instability.

In his documentary film, Inequality for All, Robert Reich uses virtuous cycles to clarify how robust circulation of money serves systemic health. In virtuous cycles, each step of money movement makes things better. For example, when wages go up, workers have more money to buy things, which should increase demand, expand the economy, stimulate hiring, and boost tax revenues. In theory, government will then spend more money on education which will increase worker skills, productivity and hopefully wages. This stimulates even more circulation, which starts the virtuous cycle over again. In flow terms, all of this represents robust constructive flow, the kind that develops human and network capital and enhances well-being for all.

Of course, economies also sometimes exhibit vicious cycles, in which weaker circulation makes everything go downhill – i.e., falling wages, consumption, demand, hiring, tax revenues, government spending, etc. These are destructive flows, ones that erode system health.

Both vicious and virtuous cycles have occurred in various economies at various times and under various economic theories and policy pressures. But, for the last 30 years, the global economy in general and the American economy in particular has witnessed a strange combination pattern in which prosperity is booming for CEOs and Wall Street speculators, while the rest of the economy – particularly workers, the middle class, and small businesses – have undergone a particularly vicious cycle. Productivity has grown massively, but wages have stagnated. Consumption has remained reasonably high because, in an effort to maintain their standard of living, working people have: 1) added hours, becoming two-income families, often with two and even three jobs per person; and 2) increased household debt. Inequality has skyrocketed because effective tax rates on the 1% have dropped (notwithstanding a partial reversal under Obama), while their income and profits have risen steeply.

We should care about this kind of inequality because history shows that too much concentration of wealth at the top, and too much stagnation everywhere else indicate an economy nearing collapse. For example, as Reich shows (Figure 1a & b), both the crashes of 1928 and 2007 followed on the heels of peaks in which the top 1% owned 25% of the country's total wealth.

Fig. 3a Income Share of U.S. Top 1% (Reich, 2013) & 3b Reich notes that the two peaks look like a suspension bridge, with highs followed by precipitous drops. (Original Source: Piketty & Saez, 2003)

What accounts for this strange mix of increasing concentration at the top and increasing malaise everywhere else? Putting aside the parallels to 1929 for a moment, most common explanations for today's situation include: the rise of technology which makes many jobs obsolete; and globalization which puts incredible pressures on companies to lower wages and outsource jobs to compete against low-wage workers around the world.

But, while technology and globalization are clearly creating transformative pressures, neither of these factors completely explains our current situation. Yes, technology makes many jobs obsolete, but it also creates many new jobs. Yet, where the German, South Korean and Norwegian governments invest in educating their workforce to fill those new jobs, the American government has been cutting back on education for decades. A similar thought holds for globalization. Yes, high-volume industrialism – that is, head-to-head competition over price of mass-produced, uniform goods – leads to a race to the bottom; that's been known for a long time. But in The Work of Nations (2010), Robert Reich also points out that the companies that are flourishing through globalization and technology are ones pursuing what he calls high-value capitalism, the high-quality customization of goods and services that can't be duplicated by mass-produced uniformity at cheap places around the world.

So, while the impacts of globalization and technology are profound, the real explanation for inequality lies primarily with an economic belief that, intentionally or not, serves to concentrate wealth at the top by extracting it from everywhere else. This belief system is called variously neoliberalism, Reaganomics, the Chicago School, and trickle-down economics. It is easily recognized by its signature ideas: deregulation; privatization; cut taxes on the rich; roll back environmental protections; eliminate unions; and impose austerity on the public. The idea was that liberating market forces would cause a rising tide that lifted all boats, but the only boat that actually rose was that of the .01%. Meanwhile, instability has grown.

The impact this belief system has had on the American economy and its capacities can be seen in American education. Trickle-down theories are all about cutting taxes on the wealthy, which means less money for public education, more young people burdened with huge college debt, and fewer American workers who can fill the new high-tech jobs.

To be fair, this process is not just about greed. Most of the people who participate in this economic debacle do not realize its danger because they believed what they were told by the saints and sages of economics, and many are rewarded for following its principles. So, what really causes the kind of inequality that drives economies toward collapse? The basic answer from the science of flow is: economic necrosis. But, let me flesh out the story.

Institutional economists talk about two main types of economic strategies: extractive and solution-seeking. (Hopefully, these names are self-explanatory.) Most economies contain both. But, if the extractive forces become too powerful, they begin to use their power to rig the rules of the economic game to favor themselves. This creates what scientists call a positive feedback loop, one in which "the more you have, the more you get." Seen in many kinds of systems, this loop creates a powerful pull that sucks resources to the top, and drains it away from the rest of the system causing necrosis. For example, chemical runoff into the Gulf of Mexico accelerates algae growth. This creates an escalating, "the more you have, the more you get" process, in which massive algae growth sucks up all the oxygen in the surrounding area, killing all of the nearby sea life (fish, shrimp, etc.) and creating a large "dead zone."

Neoliberal economics set up a parallel situation by allowing the wealthy to use their money to extract ever more money from the overall economy. The uber-wealthy grow wealthier by:

All of these processes help the already rich concentrate more, and circulate less. In flow terms, therefore, gross inequality indicates a system that has: 1) too much concentration and too little circulation; and 2) an imbalance of wealth and power that is likely to create ever more extraction, concentration, unaccountability, and abuse. This process accelerates until the underlying human network becomes exhausted and/or the ongoing necrosis reaches a point of collapse. When this point is reached, the society will have three choices: learn, regress, or collapse.

What then shall we do? Obviously, we need to improve our "solution seeking" behavior in realms from business and finance to politics and media. Much of this is already taking place. From socially-responsible business and alternative forms of ownership, to democratic reform groups, alternative media, and the new economy movement – reforms are arising on all sides.

But, the solutions we need are also often blocked by the forces we are trying to overcome, and impeded by the massive merry-go-round momentum of "business as usual." Today's reforms also lack power because they are taking place piecemeal, in a million separate spots with very little cross-group unity.

How do we overcome these obstacles? The science of flow offers not so much a specific strategy, as an empowering change of perspective. In essence, it provides a more effective way to think about the processes we see every day.

The dynamics explained above are very well known; they are basic physics, just like the law of gravity. Applying them to today's economic debates can be extremely helpful because the latter have devolved into ideological debates devoid of any scientific foundation.

We believe Regenerative Economics can provide a unifying framework capable of galvanizing a wide array of reform groups by clarifying the picture of what makes societies healthy. But, this framework will only serve if it is backed by accurate theory and effective measures and practice. This soundness is part of what Capital Institute and RARE are trying to develop.

55 0 0 3 11 This entry was posted in Banana republic , CEO compensation , Doomsday scenarios , Economic fundamentals , Guest Post , Income disparity , The destruction of the middle class on February 18, 2017 by Yves Smith . Subscribe to Post Comments 69 comments Disturbed Voter , February 18, 2017 at 6:18 am

System Dynamics of Steve Keene is clearly more useful than equilibrium dogma. He predicted the 2008 crash, though I think he was only lucky .. modeling is always only good for interpolation, never for extrapolation, unless you are lucky enough to only be dealing with linear changes over time.

Spencer , February 18, 2017 at 7:02 am

POSTED: Dec 13 2007 06:55 PM |
The Commerce Department said retail sales in Oct 2007 increased by 1.2% over Oct 2006, & up a huge 6.3% from Nov 2006.
10/1/2007,,,,,,,-0.47,,,,,,, -0.22 * temporary bottom
11/1/2007,,,,,,, 0.14,,,,,,, -0.18
12/1/2007,,,,,,, 0.44,,,,,,,-0.23
1/1/2008,,,,,,, 0.59,,,,,,, 0.06
2/1/2008,,,,,,, 0.45,,,,,,, 0.10
3/1/2008,,,,,,, 0.06,,,,,,, 0.04
4/1/2008,,,,,,, 0.04,,,,,,, 0.02
5/1/2008,,,,,,, 0.09,,,,,,, 0.04
6/1/2008,,,,,,, 0.20,,,,,,, 0.05
7/1/2008,,,,,,, 0.32,,,,,,, 0.10
8/1/2008,,,,,,, 0.15,,,,,,, 0.05
9/1/2008,,,,,,, 0.00,,,,,,, 0.13
10/1/2008,,,,,,, -0.20,,,,,,, 0.10 * possible recession
11/1/2008,,,,,,, -0.10,,,,,,, 0.00 * possible recession
12/1/2008,,,,,,, 0.10,,,,,,, -0.06 * possible recession
Trajectory as predicted:
BERNANKE SHOULD HAVE SEEN THIS COMING. IN DEC. 2007 I COULD.

Disturbed Voter , February 18, 2017 at 10:39 am

With a simple spreadsheet projection of flows one can see a lot, without fancy mathematics, using just simple difference equation models, even models that display cyclical behavior. For example, with any internal software development, the quantity of legacy applications increase as they are created, unless retirement of legacy applications is more rapid.

More often replacement occurs, rather than actual retirement. But retirement of legacy applications is harder than you might think, because of real dependency one can't retire them by fiat. The cost of maintaining legacy applications, isn't zero. So with a fixed software development/maintenance budget, the percentage of expenditures to legacy applications approaches saturation, even without figuring in the cost of replacement (similar to the rolling over of loans vs retiring of loans). Short term maintenance using patches, can only continue for so long, eventually wholesale replacement is necessary.

Usually the only way to retire a legacy application is to produce a newer and more expensive application, that itself has higher maintenance costs. We dig the problem well deeper. Thus the exponential decay of funds available for new development, or replacement development, not only strangles new initiatives, but even strangles the ability to maintain operations long term. That is why there are still millions of lines of Cobol still working every day.

There is no free lunch, entropy reigns unless countered by new forms of initiative. Usually the end result is an extension and dilution of the problem, which then resumes decay on a larger scale. This is what happens with the attempt to allay insurance costs by ever larger pools, but there is a limit to the size of the pool, once that limit is reached, the gambit no longer works. Long term problems overwhelm short term solutions.

Generalfeldmarschall von Hindenburg , February 18, 2017 at 1:28 pm

That's Joseph Tainters rap if I remember it right.

Disturbed Voter , February 18, 2017 at 1:33 pm

An exponentially increasing real economy covers all sins. In absence of that, an exponentially increasing debt economy covers all sins, temporarily because interest has a way of catching up with you. See Greece.

Mattski , February 18, 2017 at 6:38 pm

"An exponentially increasing real economy covers all sins." Not if you're Mother Nature–or maybe only for another 10-40 years.

kimsarah , February 18, 2017 at 9:17 pm

Banks turned off the money spigot to developers by the start of '07, if I recall. Developers and policy makers knew then there was a recession, but the public was kept in the dark. After the market crash, the consumers were punished instead of the Wall Street looters.

John , February 19, 2017 at 7:23 am

The only people who predicted the crisis were a handful of post-Keynesians and Marxists. I'm more familiar with the work of the latter, but for them it wasn't luck. They identified structural problems with the economy that could not be fixed by simply utilizing stabilizers (fiscal/monetary policy) and knew a massive crisis would occur once the bubbles popped and exposed the real economy's underlying weakness. Some believed that this crisis was the result of the tendency of the rate of profit to fall and simultaneous downturns in the business cycle and the profit cycle. I think the more convincing view is that low profit rates in the manufacturing sector caused by a global crisis of overproduction/under-utilization of capacity has meant that the real economy has been weak since the 70's and that growth since then has come from asset bubbles (Japanese real estate in the 80's, US stock market in the 90's, US real estate in the 00's). These are problems that no amount of fiscal stimulus can fix in the long run.

Spencer , February 18, 2017 at 6:58 am

The author briefly touched on it. It's ALL about the circular flow of savings. And the flow's stopped beginning in 1981, though really in 1966 (also Larry Summer's start of secular strangulation). That's why N-gDp decelerated and there was a 35 year bull market in bonds.

You have to retain the capacity, like Albert Einstein, to hold two thoughts in your mind simultaneously – "to be puzzled when they conflicted, and to marvel when he could smell an underlying unity". "People like you and me never grow old", he wrote a friend later in life. "We never cease to stand like curious children before the great mystery into which we were born".

The smartest man to walk on earth was Leland Pritchard, Ph.D. Chicago, 1933, Economics, MS, Syracuse, statistics.

All bank-held savings originate, and are impounded and ensconced, within the commercial banking system. Say what? Yes, the CBs do not loan out existing deposits, saved or otherwise. The CBs always create new money whenever they lend/invest (loans + investments = deposits). Thus bank-held savings are un-used and un-spent. They are lost to both consumption and investment. From the standpoint of an individual bank, the institution is an intermediary (micro-economics), however, from the standpoint of the collective system of member banks (macro-economics), the institution is a deposit taking, money creating, financial institution, DFI.

The upshot is profound. The welfare of the CBs is dependent upon the welfare of the non-banks (the CB's customers). I.e., money (savings) flowing through the NBs never leaves the CB system. Consequently the expansion of "saved" deposits, in whatever deposit classification, adds nothing to a total commercial bank's liabilities, assets, or earning assets (nor the forms of these earning assets). And the cost of maintaining interest-bearing deposit accounts is greater, dollar for dollar, than the cost of maintaining non-interest-bearing demand deposits. Interest collectively for the commercial banking system, is its' largest expense item (and thus its' size isn't necessarily synonymous with its profitability).

This is the source of the pervasive error (and our social unrest, e.g., higher murder rates), that characterizes the sui generis Keynesian economics (the Gurley-Shaw thesis), that there is no difference between money and liquid assets.

Spencer , February 18, 2017 at 7:34 am

The CBs & NBs have a symbiotic relationship. And so do the have's and have not's. Unless the upper quintile's savings are expeditiously activated, a corrosive degenerative economic impact is subsequently fostered.

The Golden Era in U.S. economics (Les trente glorieuses) was where democratized pooled savings were expeditiously activated (put back to work) and matched with real-investment, non-inflationary, outlets by the thrifts, MSBs, CUs, and S&Ls (principally investments in long-term residential mortgages). And in the good ol days, we had gov't incentivized, FSLIC safety nets for non-bank conduits. Now we only have FDIC safety nets for the commercial bank clientele (which further retards savings velocity).

I.e., "risk on" is not higher FDIC insurance coverage (the FDIC formally modified the assessment base in 2011 to include all bank liabilities – which along with the LCR, contracted the E-$ market), not increased Basel bank capital adequacy provisioning (which literally destroys the money stock), not an increased FDIC assessment fee on 1/1/2007, or 4/1/2009, or 4/1/2011, or an increased churn in speculative stock purchases (the transfer of ownership in existing assets).

digi_owl , February 18, 2017 at 7:39 am

"uses recent scientific advances – specifically, the physics of flow[2″

Ye deities

craazyman , February 18, 2017 at 7:53 am

This post laudably critiques wealth inequality, but it suffers from the "Newtonia Delusion" that confuses economic thought in general through metaphorical malapropism.

Physcial systems possess a determinism and time-invariant structure that enables mathematical modelling. Economic systems are cultural artificacts that are not time-invariant. Money is a cultural construct, a form of social imagination and lacks any sort of deterministic attributes. Newtonian metaphors of flow and accumulation restrict analytical illlumination even though they enable quick and simple calculation.

Money is only one form of a "coordinate system" that enables the measurement of forms of social interaction and cooperation. And it's one-dimensional. This makes it useful given its parsimonious simplicity but it badly restricts complete explanatory power. Physicists know the choice of a coordinate systems influences measurements of phenomenon, and they developed math techniques to neutralize that influence - I think use of tensors in relativity is one example. Economics relies on "money" and resultant ideas of "growth" or 'recessionn" because that's all it knows how to do.

First, what does "collapse" mean in the context of the post. The word is vague, undefined and subject to a multitude of interpretations - that's not "scientific" at all. "Wealth" is also vague. Presumably it means possession of assets that can be converted into money, so in effect is uses "money" as a sole coordinate basis, and that's reasonable as a form of dimensional reduction, but it fails to measure the implied asset value of any sort of social safety net available to those without assets. That's no rationale for inequality - and anybody wants a job more than a safety net - but it's a logical flaw. Third, the nature of economic structures and cultural relations isn't easily quantifiable or translateable into money; living in a just, fair and inclusive society has an intrinsic value that defies easy measurement through the "money basis". Measuring relies instead on application of a sense of justice and honest sensibility.

It would be bettter to start analysis with a non-monetary vision of the social rights any citizen of a community should have access to. This form of thinking in fact was the normal and dominant form over most of human history, when people lived in non-monetary tribal structures. And what their implied responsibilities are to gain that accesss. Use that as a time-invariant basis and then introduce money but only as one method of measurement of economic change, there could be other social indicators that might be used as coordinate systems too; use of these could result in very different measurements of ecoonomic phenomeenon than result with the money basiis. That would force the sort of thinking that's required for analytical clarity and ompleteness, but that doesn't exist in economics

(See I can bang out a comment that doesn't mention jungle boogie butts or hot women! Calling women hot isn't bad, as long as it's respectful and flattering and inclusive. Women in general are hot! What do you want? to live in a world full of gay guys or what? Hahaha. Sorry I can't help it.)

Steve H. , February 18, 2017 at 11:46 am

Turchin has been working on proxies, to get some measures of well-being and political instability. One measure of social rights could be the right to live, so life expectancy could be used. Dead is dead and is a hard number. Chicago police historically have a different criteria of what my rights are than I do, so the ecological measures can avoid such definitional fuzziness.

Another Turchin point relevant to the post is that in-group variance is only meaningful used as a multiplier of in-group selection, and in context of other groups. Extreme inequality does not necessarily cause economic collapse, and coherent elites consistently crush popular revolts. The "the more you have, the more you get" feedback loop can also be seen as a consolidation and success of a certain trait ("rich"), and a re-sort of within-group dynamics (national citizenry) to between-group dynamics (haves & nots).

(Also, economics does not concern itself with ompleteness, as rational actors cannot be omplete, and an agent who is omplete often withdraws from economic systems.)

Vedant Desai , February 18, 2017 at 1:03 pm

I believe that biggest problem in economics is not the dogma created by money(though its a problem of Course) , but rather biggest problem is lack of a clearly defined goal. "Economic development" ,which is generally termed as goal of economics , is very ambiguous and this ambiguity is creating problems.

susan the other , February 18, 2017 at 1:51 pm

Thanks Craazy – that was very coherent. more please.

UserFriendly , February 18, 2017 at 2:28 pm

Physcial systems possess a determinism and time-invariant structure that enables mathematical modelling. Economic systems are cultural artificacts that are not time-invariant.

Very, very few physical systems involve time invariant modeling. Almost every physical system represented by a mathematical model describes how that system changes with time. Otherwise it wouldn't be a very useful model. Few things can be said to be at steady state and even when they are it is usually a simplification, not an outgrowth of time invariance. For example a chemical reaction A + B-> C at rate k1 and C -> A + B at rate k2 is said to be at equilibrium (steady state) when k1=-k2. Even at steady state the reaction is proceeding in both directions and can be thrown out of equilibrium by a change in concentration, temperature, volume, or any host of other factors. After the shock the system will again tend towards an equilibrium but there is no requirement that the new equilibrium be the same as the last one. And all the equations that describe how we went from equilibrium 1 to 2 all involve time. Neoclassical morons obsessed with equilibrium seam to be confused by this and assume time is irrelevant and that full employment will always return.

Economists are pretty much the only people I see that try to use time invariant models. I think it is a great step forward that economists like Keen have been trying to use the full spectrum of time variant models. The fact that the models are relatable to models of other physical systems is more an outgrowth of calculous than anything else.

craazyman , February 18, 2017 at 3:06 pm

I actually was out today doing stuff & plan to go star gazing tonite!

What I meant is the equations that map the movement of the moon and planets or heat diffusion or chemical reactions or sound propagation worked in November 1887 the same way they'll work in July 2020.

Of course experimental measurements change through time, depending on the phenomenon being measured. But the natural phenomenon modeled by the equations themselves are time invariant as are the equations, or science wouldn't work. That's why they're called natural laws.

UserFriendly , February 18, 2017 at 4:17 pm

Ah. You mean Frame Invariant , not time invariant.

craazyman , February 18, 2017 at 4:55 pm

Timeframe invariant! :-)

H. Alexander Ivey , February 19, 2017 at 3:25 am

Now wait a minute here. While I appreciate getting my terms correct and such – frame invariant, yeah, that's what I need to know – craazyman is a gift not to be distracted or encouraged wrongly. Yes, his posting clarified the great lie of most economic theory and its teaching and modeling, but his calling is greater than that. "jungle boogie butts or hot women" are rare on this site and should not be lightly diverted. Not that I'm implying that our hostess or commentators of the female persuasion aren't "hot women" or that jungle boogie butts aren't finance, economics, politics, or power, but based on past personal history, if I tried a craazyman, or even a craazyboy, posting, I would be forever marked as hopeless.

Ruben , February 19, 2017 at 12:36 am

Physical systems can be time-variant in that way too, it's called a regime shift. We have observed that in several real natural systems. In some cases apparent randomness actually is very complicated but fully deterministic dynamics. Look up "bifurcation diagram". Mathematical analysis can deal with that too.

Instead of the monetary system and flow, the analysis of human populations, including the production and exchange of the fruits of their labour, should start with the amount of cooperation as the driving variable (or coordinate as you prefer to say)?

Thanks for the thought-provoking post.

Sam F , February 18, 2017 at 8:01 am

Odd that education investment is shown in the article as part of the loop between employment and consumer spending. That is a very slow regenerative path compared with the direct effect of employment, spending, and labor demand.

The article wastes time extolling circulation merely because it resembles that in natural systems such as tigers, but these do not necessarily serve human interests. It benefits most people simply because they need the inputs and outputs.

oho , February 18, 2017 at 9:10 am

>>> But this sounds an awful lot like a new improved version of system dynamics,

One of the board members from Capital Institute (sounds like the "Human Fund") is from Soros-backed the Institute for New Economic Thinking.

And Soros loves reflexivity, which is basically repackaged system dynamics.

not being aluminum foil-y. just interesting how Soros has his fingers in so many pots.

http://capitalinstitute.org/board/

oho , February 18, 2017 at 9:12 am

just institute a progressive tax on bank assets above-say-$700 billion. would literally only affect a handful of banks and do much to rein in the seize of the megabanks.

oh wait, all these banks are blue state banks (JPM, C, WFC, BAC) and friends w/Schumer, Pelosi and Uncle Warren owns big chunks in WFC and AXP.

Sound of the Suburbs , February 18, 2017 at 9:41 am

Capitalism is a balance between supply and demand but we only put in half a system.

1) Money at the top is mainly investment capital as those at the top can already meet every need, want or whim. It is supply side capital.

2) Money at bottom is mainly consumption capital and it will be spent on goods and services. It is
demand side capital.

Marx noted the class struggle between the two sides that neither can win, to do so destroys the system, either supply or demand will cease to exist.

The balance has yet to be recognised and we flick between the two sides until everything crashes into the end stops.

Before the 1930s – Supply Side, Neoclassical Economics

By the 1920s, productivity has reached a stage where supply exceeds demand and extensive advertising is required to manufacture the demand for the excess supply.

Taxes are lowered on the wealthy and there is an excess of investment capital which pours into the US stock market. The banks get in on the act and use margin lending to fuel this boom in US stocks.

There is a shortage of consumption capital and the necessary consumption can only be maintained with debt.

1929 – Wall Street Crash

The investment capital was used to blow an asset bubble and not for productive investment, it all ends in tears. The Great Depression is the debt deflation that follows from an economy saturated with debt.

After the 1930s – Demand Side, Keynesian Economics

The New Deal starts the turnaround of the US economy and after the Second World War there is the Golden Age of the 1950s and 1960s. Redistributive capitalism looks after the demand side of the equation.

With the target of full employment, the unions start to abuse their power and by the 1970s we enter into stagflation. There is a shortage of investment capital and demand exceeds supply leading to inflation, there is not enough investment capital to redress the balance.

After the 1980s – Supply Side, Neoclassical Economics

Taxes are lowered on the wealthy and there is an excess of investment capital which pours into various different asset classes and the first round of crashes occur in the late 1980s. Leading to an early 1990s recession.

There is a shortage of consumption capital and the necessary consumption can only be maintained with debt.

After the early 1990s recession the speculative, investment capital look for another bubble to blow and finds the new dot.com companies.

Housing booms take off around the world, a speculative bubble for everyone to get involved with and the UK and Japan have already been through their first boom/bust by 1989.

Wall Street get's into 1920s mode and leverages up the speculative bubble that is occurring there.

2008 – Wall Street Crash

The West is laid low and growth is concentrated in the East but they start to use debt to keep things running.

Even with the Central Banker's best efforts the global economy falls into the new normal of secular stagnation, the debt repayments are a constant drag on the global economy.

2017 – World's eight richest people have same wealth as poorest 50%

All that investment capital with almost nowhere to invest due to the lack of demand.

We just swing from the supply side, to the demand side and back again until we crash into the end stops.

We could recognise the system requires a balance between supply and demand.

Jabawocky , February 18, 2017 at 1:58 pm

An interesting idea, which adds economics itself to the dynamics of the economic system.

susan the other , February 18, 2017 at 2:14 pm

a balance in real time, not over decades with crashes and booms harder to do globally than nationally which is prolly why nationalism is rising it was China imploding c. 2008 that brought the growth of the global economy to a stop, I read somewhere .anyway the growth-forever premise of globalism was nuts. Not even the push for austerity by the neoliberals could make the required adjustments – and not for lack of trying. Yes a new balance (good shoes ;-) is what we need. One that understands the old saying 'form follows function' and create a functioning economy, the scaffold of a new sustainable human society. One in which banking actually follows the economy.

Sound of the Suburbs , February 18, 2017 at 5:39 pm

Bankers should be servants of the real economy and nothing more.

flow5 , February 19, 2017 at 11:28 am

It's not a math error, it's an accounting error. It wasn't precipitated as Alan Greenspan pontificated in his book "The Map and the Territory", viz., FDR's Social Security Act. It wasn't Nixon who introduced "indexing". It wasn't because from 1959 to 1966 the federal gov'ts net savings was in a rare surplus. It wasn't because between 1965 & 2012 total gross domestic savings (as a percent of gDp) declined from 22% to 13% (9 percentage points).

No, the New York Times sobriquet, the "Three-Card Maestro's" error, like all other Keynesian economists, is the macro-economic persuasion that maintains a commercial bank is a financial intermediary (conduit between savers and borrowers matching savings with investment):

Greenspan: "Much later came the evolution of finance, an increasingly sophisticated system that enabled savers to hold liquid claims (deposits) with banks and other financial intermediaries. Those claims could be invested by banks in in financial instruments that, in turn, represented the net claims against the productivity enhancing tools of a complex economy. Financial intermediation was born"

Or Ben Bernanke in his book "The Courage to Act": "Money is fungible. One dollar is like any other".

"I adapted this general idea to show how, by affecting banks' loanable funds, monetary policy could influence the supply of intermediated credit" (Bernanke and Blinder, 1988)."

For example, although banks and other intermediaries no longer depend exclusively on insured deposits for funding, nondeposit sources of funding are likely to be relatively more expensive than deposits"

The first channel worked through the banking system By developing expertise in gathering relevant information, as well as by maintaining ongoing relationships with customers, banks and similar intermediaries develop "informational capital."

"that the failure of financial institutions in the Great Depression increased the cost of financial intermediation and thus hurt borrowers" (Bernanke [1983b]).

A herding started by William McChesney Martin Jr, that thought "banks actually pick up savings and pass them out the window, that they are intermediaries in the true sense of the word."

From the standpoint of an individual bank (micro-economics), a bank is an intermediary, however, from the standpoint of the entire economy, the system process (macro-economics), a bank is a deposit taking, money creating, financial institution.

The promulgation of commercial bank interest rate deregulation (banks introducing liability management, buying their liquidity, instead of following the old fashioned practice of storing their liquidity), i.e., the removal of Reg. Q ceilings (the non-banks were already deregulated until 1966), by the oligarch – the ABA, (public enemy #1), or an increasing proportion of time to transaction deposits liabilities within the DFIs, metastasized stagflation and secular strangulation. Remunerating IBDDs exacerbates this phenomenon (as subpar R-gDp illustrates).

I.e., every time a commercial bank buys securities from, or makes loans to, the non-bank public it creates new money – deposit liabilities, somewhere in the system. I.e., deposits are the result of lending, and not the other way around. Bank-held savings are un-used and un-spent. They are lost to both consumption and investment. Unless savings are expeditiously activated outside of the system (and all savings originate within the payment's system), thru non-bank conduits, said savings exert a dampening economic impact (destroying saving's velocity & thus AD). I.e., savings flowing thru the non-banks, never leaves the CB system.

LT , February 19, 2017 at 12:28 am

I've never believed a country joining the casino economy was a sign of strength.

Sound of the Suburbs , February 19, 2017 at 5:36 am

Debt based consumption is always unsustainable, people max. out on debt.

Greece was happy with debt based consumption until it maxed. out on debt.

Anything that relies on debt based consumption in the long term can only fail.

Neoliberalism relies on debt based consumption, it works until it doesn't.

witters , February 18, 2017 at 5:36 pm

"With the target of full employment, the unions start to abuse their power."

Yeah, sure.

Actually full employment is experienced by capital as an abuse of its power.

Here is Kalecki in 1943 explaining beforehand how this generates neoliberalism.

http://delong.typepad.com/kalecki43.pdf

tongorad , February 18, 2017 at 6:18 pm

Yes, I'd like to see what this abuse of union power looked like. Any evidence of this?
Landlords and bosses were reduced to beggars?

PhilM , February 18, 2017 at 10:13 am

Craazyman says it all, but I have to say it too, just for my own mental health.

How often do social "scientists" have to make this same mistake? Biology is not physics, and human society is biology, and economics is not even close to accurately describing human society, not even the economics part of it.

Equilibria are achieved, and thermodynamic laws obeyed, on much greater and on much smaller scales than an economy, which is not even a system, per se. Life is anti-entropic, but the universe, the solar system, is not. Communities are not "social networks." Terry Pratchett as usual brings common sense to bear on metaphors like this. Metaphor, you know, using words to convey something like the truth, but not exactly: "Oh, so it's a lie, then."

Vedant Desai , February 18, 2017 at 12:50 pm

How economy is not a system?

Jabawocky , February 18, 2017 at 2:07 pm

You have just lost me. Of course economics is a complex system but it is a system nonetheless. Wynne Godley's sectoral balance model is an excellent example of a systems approach to economics, and it's precisely the systems peoperties that attract me to it. MMT is a systems approach by design and easily approached mathematically in that way if desired. I have often considered how I would do it but no doubt there is someone more able to do it than me.

The bonus of a systems approach would be the possibility of a multitude of possible equilibrium states, some could be fixed, some oscillatory if they include feedback with delay.

The author could also consider adding futile cycles to her list of cycles, long recognised by biochemists.

PhilM , February 19, 2017 at 4:10 am

Craazyman says it above. A "system of pulleys" is a system. A "solar system" is a system. A galaxy, a liter of sodium bicarbonate solution under defined temperature and pressure conditions, these are systems. How is "economics" a system? What is it even a system of? Can you define the parameters of even one of the aspects of economics in some way that does not "leak energy" through every other aspect of human activity, which is not accounted for in some way by the "system" of economics? You can try, but you can't do it. That is why economics is scientific just like astrology: it describes and explains everything, but its only prediction is more jobs for its practitioners.

Foppe , February 19, 2017 at 6:28 am

There are "closed" and "open" systems. The behavior of the former can be modeled and understood; the latter, less so (possible only to some extent, and heavily dependent on the intellectual framework that you bring to the table).

Jabawocky , February 19, 2017 at 7:24 am

My experience is opposite. Usually in systems approaches most of the detail can be ignored until it becomes important. They do not require knowing the details of the system, instead they try to simplify as far as is practical. Systems approaches attempt to infer micro from gross macro behaviour. This is fundentally opposite to orthodox economics. Godley's model illustrates this well. You don't need to know details about every transaction because parameters for aggregated transactions can be inferred from macro data. You don't need to assume anything about motivations of individuals or firms, but if necessary you could try to infer them.

PhilM , February 19, 2017 at 12:28 pm

I clearly need to go and do reading on open systems, because understanding them makes for a richer intellectual life, like poetry, or skimming rocks. For me, the chafing starts when people try to apply a rigorous, mathematically based scientifically accepted reproducible set of theories like those of fluid dynamics (itself by no means fully elaborated) to a field where the described system cannot be even be defined by consensus.

What, for instance, exactly constitutes an "economic system," or a "system of economics," or an "economy"? Where is the universally accepted definition of something even as basic as money, a definition with scientific reliability, like the definition of an atom in 1930? They just aren't there. You can tell me yours, but it will not be the same as his, or hers. If real scientists behaved that way, there could be no breakthroughs: without a definition, there is nothing even solid enough to break through.

And by scientific, I just have to fall back on Popper, however old-fashioned that may seem. The propositions of economics, like those of astrology and sociology, and also of human nutrition, and so many other fields flogged by their practitioners, remain unaccompanied by experimental methodologies that result in reliable predictions of reproducible results. They are therefore prolific with unfalsifiable claims. They are, therefore, fraudulent at worst and noisy at best, at a time where the direction of the public discourse is increasingly controlled by central authorities with agendas. A signal among the noise is harder and harder to distinguish without the further impediment of additional publish-or-perish verbiage which will be, more often than not, weaponized by an interest group, if that was not actually the reason for its creation to begin with.

Systematizers of non-scientific systems are either virtuous "pre-scientists" or frauds. What they claim as the wider social value of their work is the discriminating test. Alchemy and astrology of yore ultimately evolved into chemistry and astronomy, without actually contributing much information as such: but without the need to make magic or gold from powders, alembics, crucibles, and retorts, those tools moved into hands directed by serious, patient minds, where they produced useful and reliable information. (Not that circus entertainment, handwaving, and noise were not great disseminators and motivators of science, and remain so today!)

Until the dynamics of human society and psychology have been fully described by anthropology, there will not be a "fundamental atomic theory" for Economics to use to underpin its scientific pretensions. It still rests completely on demonstrably untrue assumptions, rules that can be proven not to apply to human behavior. Most recently, the use of the "normal curve" as generally applicable to economic "systems," because of its near-universal employment in statistics, had catastrophic results. This was easily predicted by anyone who has worked with the normal curve; the Central Limit Theorem that underpins the normal curve assumes that the assembled variables are independent, not related functions of each other; and this is obviously not so in any human activity. So much of the use of the normal curve is nothing more than hand-waving hocus-pocus.

No serious reputable historian would claim any longer to be a scientist, and if he did, he would be no true Scotsman, either. But then, despite what I seem to be doing on these forums, neither would a professionally trained historian think to dictate public policy by appealing to the systematic rigor of his craft.

Economists today should modestly retreat from their claims to exercise any influence on public policy and direct their efforts elaborating a true science. I believe that may never happen; and I personally fear the unintended consequences that will result from the political use of the kind of knowledge about human motivations and collective activity that will be required to bring it about; maybe less, however, than I fear nuclear war or planetary desolation through aggressive environmental destruction, which may be the alternative outcomes to that kind of advance.

Bam_Man , February 18, 2017 at 10:16 am

"Flow Dynamics" of Money Supply are a BIG tell.
Velocity of MZM Money Supply (Money of Zero Maturity) is falling like a rock and at an ALL-TIME low.

flow5 , February 19, 2017 at 12:43 pm

Money velocity falls because more and more savings are impounded and ensconced within the payment's system. This started in 1981 with the plateau in deposit financial innovation, the widespread introduction of ATS, NOW, and MMDA accounts. Thus money velocity, formally a monetary offset, started decelerating dropping N-gDp with it (and producing the 35 year bull market in bonds).

This should be evident with the remuneration of IBDDs beginning in Oct. 2008. I.e., the 1966 S&L credit crunch is the economic paradigm and precursor (lack of funds, not their cost). The "complete evaporation of liquidity" on 8/9/2007 for BNP Paribas, "runs on ABCP money funds", "shortage of safe, liquid, assets", "the funding crunch forced fire sales", "efforts to replace funding that had evaporated in the panic", i.e., non-bank dis-intermediation (an outflow of funds or negative cash flow).

"Our goal was to increase the supply of short-term funding to the shadow banking system"
Ben Bernanke, August 10, 2007:

"Our goal is to provide liquidity not to support asset prices per se in any way. My understanding of the market's problem is that price discovery has been inhibited by the illiquidity of the subprime-related assets that are not trading, and nobody knows what they're worth, and so there's a general freeze-up. The market is not operating in a normal way. The idea of providing liquidity is essentially to give the market some ability to do the appropriate repricing it needs to do and to begin to operate more normally. So it's a question of market functioning, not a question of bailing anybody out."

I.e., Bankrupt u Bernanke doesn't know a credit from a debit. Bad Ben was solely responsible for the world-wide GR. My "market zinger" forecast of Dec. 2012 foretold of the expiration of unlimited transaction deposit insurance (putting savings back to work), not a "taper tantrum, not budget "sequestration".

Jesper , February 18, 2017 at 10:17 am

Seems like a sales-pitch to the 1% trying to convince the 1% that sharing would be good .. I have my doubts about that strategy, the 1% respects power and care very little (if anything at all) for the common good. Use the power of the many in an democracy and force through the needed changes.

Disturbed Voter , February 18, 2017 at 10:45 am

Continuing the model of a firm that requires software to function. If the executives of the firm keep taking expensive vacations at the expense of the firm, starving the software development/maintenance department of resources .. then even if there were no other systemic problems, the firm will fail (unless bailed out by a greater entity, as happened in 2008/2009). But in the end, who will be big enough, after we have extended the risk pool to the entire planet, to bail out the planet, from foolish management? I would suggest that the Roman Empire failed because it was unable to overcome either long term systemic trends, nor irresponsible management.

Robert NYC , February 18, 2017 at 11:11 am

Inequality is directly correlated to corruption and the U.S. has an exceeding corrupt political economy, hence the extreme inequality. Germany and Japan, to take two prime examples, are part of the same global system and are subject to the same forces, technology, corporate tax arbitrage strategies, etc but neither of them have any where near the inequality of the U.S. It's also worth noting they don't have financial grifters like Mitt Romney and Steven Schwarzman amongst their most esteemed citizens.

So yes, it is all pretty complicated but at the end of the day the U.S. is one of the most corrupt countries on Earth, certainly the most corrupt of the Western democracies so our problems are no surprise. All this talk about globalization, tax policy, education and technology are all distractions. And that doesn't even begin to touch on the subject of our monetary system which is at the root of the corruption.

Dick Burkhart , February 18, 2017 at 1:03 pm

Right on! – And the corruption is permitted, even encouraged, by the "greed is good" philosophical basis of mainstream economics, and the concentration of both media ownership and campaign finance and lobbying in the hands of the wealthy.

David , February 18, 2017 at 11:15 am

Yes, this does deserve some kind of award for expressing a simple idea in a pointlessly complicated way. When I was studying economics in the paleolithic era, we were taught about the "propensity to consume" – in other words the idea that the poorer you were the more of any extra income you would spend as opposed to save. So if you give everyone on the minimum wage 20% more, then they will probably put it straight back into the economy. If you give billionaires 20% more they probably won't. The more widely wealth is spread, the more of it will be spent. This isn't a scientific law, but it's an observation borne out by common sense.

Gman , February 19, 2017 at 4:06 am

Hallelujah!

Even Henry Ford, not exactly known for his altruism or philanthropy, knew it made sense to give his workers a significant rise so that they could afford the cars they were building for him.

Denis Drew , February 18, 2017 at 11:22 am

I can't read this whole post this morning - but - my one note tune: 6% labor union density in non-gov work is like 20/10 blood pressure : it starves every other healthy process - even while starving the employee herself.

Easy way back: if the 1935 Congress had intended (they didn't) to leave any criminal enforcement of NLRA prohibited union busting to individual states - Congress would not have had to change one word of the NLRA. States in fact were left to make any form of collective bargaining (NLRA connected or not) muscling an economic felony. There is no problem of federal preemption when the area has been left blank.

Nor may the fed force local labor down an impassable road to union organizing - because rules of road unenforceable and unenforced - when a First Amendment protected right is at stake. To state that clearly: the First Amendment is violated when government insists on a mode of action that dismembers freedom of economic association before it starts.

JEHR , February 18, 2017 at 12:07 pm

Sometimes metaphors bring clarity to a vision and sometimes metaphors befuddle: I am befuddled.

heresy101 , February 18, 2017 at 1:27 pm

I'll second that. He is either a scab and Pinkerton employee or provides a confused argument in support of unions?

Grebo , February 18, 2017 at 5:00 pm

I think he's saying more unions are needed, but the Federal Government left it up to the states to stop the union busting, which they have declined to do. The Feds can't enforce union membership or collective bargaining as that would violate the first amendment right to free association.

Denis Drew , February 18, 2017 at 8:50 pm

Let's try again - maybe it was too compressed

[cut-and-paste]
America should feel perfectly free to rebuild labor union density one state at a time - making union busting a felony. Republicans will have no place to hide.

Suppose the 1935 Congress passed the NLRA(a) intending to leave any criminal sanctions for obstructing union organizing to the states. Might have been because NLRB(b) conducted union elections take place local by local (not nationwide) and Congress could have opined states would deal more efficiently with home conditions - or whatever. What extra words might Congress have needed to add to today's actual bill? Actually, today's identical NLRA wording would have sufficed perfectly.

Suppose, again, that under the RLA (Railroad Labor Act - covers railroads and airlines, FedEx) - wherein elections are conducted nationally - that Congress desired to forbid states criminalizing the firing of organizers - how could Congress have worded such a preemption (assuming it was constitutionally valid)? Shouldn't matter to us. Congress did not!

Dick Burkhart , February 18, 2017 at 1:19 pm

"Renewable energy" is obviously the foundation of Regenerative Economics, simply because energy itself is the foundation of all economics (as well as of all life and of the "active" part of the universe). Yet all the focus on renewable energy in recent years has done little or nothing to stop escalating economic inequality.

I think a big thing missing from RARE is a theory and program for power. What we need are institutional values and structures that will keep greed under control without much effort. This means not just getting the incentives right, but also the "political revolution" that will be needed to implement them.

So I think not just about limits-to-growth but about the need for partial universal ownership of all the major sources of wealth, combined with limited stakeholder ownership (fossil fuels, large corporations, etc).

susan the other , February 18, 2017 at 2:39 pm

flow is entropy

HotFlash , February 18, 2017 at 3:26 pm

We believe Regenerative Economics can provide a unifying framework capable of galvanizing a wide array of reform groups by clarifying the picture of what makes societies healthy. But, this framework will only serve if it is backed by accurate theory and effective measures and practice. This soundness is part of what Capital Institute and RARE are trying to develop.

Accuracy of analytical method aside, who will implement it? Who can? Not those 8 dudes with 1/2 the world's wealth.

Hilario , February 18, 2017 at 5:01 pm

And what does extreme economic equality lead to?

witters , February 18, 2017 at 5:40 pm

Give me all your income and wealth and let us find out

Steve Roth , February 19, 2017 at 4:42 am

Not really a salient issue for us at the moment, is it?

Carla , February 19, 2017 at 2:40 pm

Equality–economic or any other kind–cannot be extreme. Equality exists, or it does not.

Temporarily Sane , February 19, 2017 at 8:02 pm

That depends on what kind of inequality you're talking about. Men being paid $10/hr and women $8/hr to perform the same task is an example of "binary" inequality. Either everyone is paid the same wage (before the first performance review anyway) or they are not.

Income inequality is a bit different. If a CEO takes home 20 x more per year than the lowest paid worker in the company income equality is low (way lower than in any modern capitalist economy) if the CEO makes 300 x as much as the lowest paid worker, it is high. Income equality – everyone being paid the same wage regardless of what they're doing to earn it – is not the goal. Rather, it is reducing the gap between the lowest and highest paid members of society.

Scott , February 18, 2017 at 6:31 pm

Only jet settesr get the advantages of civilization at its heights. My own partial solution has been an airport nation that advances flying literacy and availability.
There is an amorphous factor arising out of the defined structure and standard rights afforded travelers & businesses based on a separate airport nation. (I admit this amorphous factor which causes me some presentation problems.)
No human system will function without a common committed belief in it.
Airport movement of people & parcels is simpler to make comprehensive.
For example I have difficulty in attempting to expand passenger service in NC because the corporation Norfolk Southern was given power to inhibit it while getting the advantages of state responsibilities created with a buyout of a rail company state company where it was controlled by shareholders.
A trick was done on us with the collusion of legislators.
We can simply say the RR as analogous is a matured industry to the point of immaturity compared to an international airport accommodating both freighters & passenger airliners.
These things will not directly make an economic theory, but are about economic activity as enabled from basic port theory & the sociology of ports.
For instance I advise women in nations prone to put them at a disadvantage to put business offices on international airports which tend to be more culturally neutral.

Chauncey Gardiner , February 19, 2017 at 12:12 am

Appreciated the author's thought-provoking observations about the effects of extreme concentration of wealth, with its enormous feedback loops and low circulation of money that materially reduce the overall debt servicing capacity of the private sector. But I also felt that she understated the roles that private sector debt growth, central bank monetary policy, asset price speculation and manipulation, and financial fraud have historically played in causing economic collapse.

Gman , February 19, 2017 at 8:38 am

Playing Devil's Advocate I suppose you could argue that there is something Darwinian about the way things are nowadays.

Apex predators are indeed flourishing and in a curious way they are searching further afield and adapting to new 'food sources' as those closer to home become less appealing, less nourishing and less worth the effort of expending the energy trying to exploit, particularly when other tastier morsels are so plentiful and readily available elsewhere.

Maybe we should just all get with the programme, know our places in the grand scheme of things and resign ourselves to our evolutionary fate?

;-)

LT , February 19, 2017 at 12:10 pm

If it's Darwinian, it's an example of artificial selection – nothing natural about it.

Gman , February 19, 2017 at 3:47 pm

'Life is like a box of chocolates. More and more people know what they're gonna git'

Darwin's artificial selection.

St Jacques , February 19, 2017 at 5:20 pm

haha, unfortunately it's the apex predator species that is in danger of sudden extinction as its prey declines. Of course the Darwinian analogy doesn't hold up well because Darwinian selection works on all individuals of a species without distinction. A much better analogy is a rigged game.

Altandmain , February 19, 2017 at 10:09 am

We basically have an economic system where the very rich steal the productive capacity of the rest of us and add it to their own wealth.

That is the dirty not so secret truth. As the Spirit Level demonstrates, inequality is as bad for the rich at times as it can be for the rest of us.

There is also this:
https://www.theatlantic.com/magazine/archive/2011/04/secret-fears-of-the-super-rich/308419/

Our problem is that the rich really suck. They are greedy and I would not be surprised if many were psychologically diagnosed with anti social personality disorder. They are without integrity and would fight tooth and nail for their pilfered money.

But the status quo is like the Congo under Mobut Sese Seko. It is a society build on kleotocracy. Like any such society, it is inherently unstable with money going to a few.

The late 1960s had problems. The costs of the Vietnamese War, the excess deficit spending, and the dependence on Middle Eastern oil all lead to problems in the 1970s.

Ruben , February 19, 2017 at 12:24 pm

"As Paul Samuelson stressed, that assumption [propensity to equilibrium] is necessary for economics to be science, as in mathed up, and the dominance that economists have achieved is due to their scientific appearances and the fact that their mathematical exposition enables them to dismiss lay critics."

Why? Non-equilibrium is accessible to maths.

In branching systems such the one imagined for monetary flow in this article, growth in the number of nodes at the terminals (and thus necrosis of excess of nodes) is controlled/limited by the number of terminals of the branching, let's call these capillaries, that can be accommodated inside the volume of the whole versus the number of nodes than can be accommodated inside the whole. Since the total number of capillaries grow at a lower rate than the number of nodes as the volume of the whole increases, growth is limited and excess growth in times of higher volume of the whole suffers necrosis when the volume of the whole shrinks.

IHTH

[Feb 19, 2017] International science collaboration growing at astonishing rate: Cross-border studies more than doubled in 15 years

Feb 19, 2017 | economistsview.typepad.com
Peter K. : Reply Saturday, February 18, 2017 at 07:11 AM , February 18, 2017 at 07:11 AM
https://www.eurekalert.org/pub_releases/2017-02/osu-isc021417.php

PUBLIC RELEASE: 17-FEB-2017

International science collaboration growing at astonishing rate: Cross-border studies more than doubled in 15 years

OHIO STATE UNIVERSITY

BOSTON - Even those who follow science may be surprised by how quickly international collaboration in scientific studies is growing, according to new research.

The number of multiple-author scientific papers with collaborators from more than one country more than doubled from 1990 to 2015, from 10 to 25 percent, one study found. And 58 more countries participated in international research in 2015 than did so in 1990.

"Those are astonishing numbers," said Caroline Wagner, associate professor in the John Glenn College of Public Affairs at The Ohio State University, who helped conduct these studies.

"In the 20th century, we had national systems for conducting research. In this century, we increasingly have a global system."

Wagner presented her research Feb. 17 in Boston at the annual meeting of the American Association for the Advancement of Science.

Even though Wagner has studied international collaboration in science for years, the way it has grown so quickly and widely has surprised even her.

One unexpected finding was that international collaboration has grown in all fields she has studied. One would expect more cooperation in fields like physics, where expensive equipment (think supercolliders) encourages support from many countries. But in mathematics?

"You would think that researchers in math wouldn't have a need to collaborate internationally - but I found they do work together, and at an increasing rate," Wagner said.

"The methods of doing research don't determine patterns of collaboration. No matter how scientists do their work, they are collaborating more across borders."

In a study published online last month in the journal Scientometrics, Wagner and two co-authors (who are both from The Netherlands) examined the growth in international collaboration in six fields: astrophysics, mathematical logic, polymer science, seismology, soil science and virology.

Their findings showed that all six specialties added between 18 and 60 new nations to the list of collaborating partners between 1990 and 2013. In two of those fields, the number of participating nations doubled or more.

The researchers expected astrophysics would grow the most in collaboration, given the need to use expensive equipment. But it was soil science that grew the most, with a 550 percent increase in the links between research groups in different countries in that time period.

"We certainly didn't expect to see soil science have the fastest growth," she said.

"But we saw strong increases in all areas. It appears that all the fields of science that we studied are converging toward similar levels of international activity."

The study found that virology had the highest rate of collaboration, with the most countries involved. "They aren't working together because they need to share expensive equipment. They're collaborating because issues like HIV/AIDS, Ebola and Zika are all international problems and they need to share information across borders to make progress."

Wagner has started a new line of research that attempts to determine how much nations benefit from their scientific work with other countries. For this work, she is looking at all the scientific articles that a nation's scientists published with international collaborators in 2013. She is looking at each article's "impact factor" - a score that measures how much other scientists mentioned that study in their own work.

"How much recognition a study gets from other scientists is a way to measure its importance," Wagner said.

She compared each nation's combined impact factor for its international collaborations to how much money the same country spent on scientific research. This is a way to determine how much benefit in terms of impact each nation gets for the money it spends.

The United States has the highest overall spending and shows proportional returns. However, smaller, scientifically advanced nations are far outperforming the United States in the relationship between spending and impact. Switzerland, the Netherlands and Finland outperform other countries in high-quality science compared to their investment. China is significantly underperforming its investment.

Wagner said this isn't the only way to measure how a country is benefiting from international science collaboration. But it can be one way to determine how efficiently a country is using its science dollars.

In any case, Wagner said her findings show that international science collaboration is becoming the way research gets done in nearly all scientific fields.

"Science is a global enterprise now," Wagner said.

Peter K. -> Peter K.... , February 18, 2017 at 07:24 AM
This is the kind of globalization I endorse.

Certain center-left Hillary fanboys like yuan, EMichael etc will point out that exit polls show how the poor voted for Hillary (as if that somehow proves that she's great for the poor. PGL would always point to how the poor blacks of the south were voting for Hillary in the primary.) Probably has something to do with the large populations of poor and working poor in metro areas. And Republicans aren't great for the poor.

But exit polls said Hillary did much better with the educated. The more educated voted for her, the less educated voted for Trump.

Also Hillary won the "high-output" counties, not the poor counties:

"Last week, as my colleague Sifan Liu and I were gnawing on some questions asked by Jim Tankersley of The Washington Post, we happened upon a revealing aspect of the election outcome. While looking at number of influences on the presidential vote outcome, we found that in a year of massive divides, one particular economic split stands out.

Our observation: The less-than-500 counties that Hillary Clinton carried nationwide encompassed a massive 64 percent of America's economic activity as measured by total output in 2015. By contrast, the more-than-2,600 counties that Donald Trump won generated just 36 percent of the country's output-just a little more than one-third of the nation's economic activity."

https://www.brookings.edu/blog/the-avenue/2016/11/29/another-clinton-trump-divide-high-output-america-vs-low-output-america/

The high-output and educated will continue with globalization thanks in part to the Internet and globalization while the religious and less-educated turn inwards and try to turn back the clock.

We need fair trade and for globalization to mean shared prosperity and progress not corporate rule for the one percent.

There needs to be an International of the Sanders supporters, and the supporters of Corbyn and Benoit Hamon.

Those wallowing in the center-left need to decide whether they support barbarism or socialism. Which is the lesser evil?

Peter K. -> Peter K.... , February 18, 2017 at 07:41 AM
Hillary says we are not Denmark!

[Feb 12, 2017] What The Jobs Report DIDNT Tell You Last Week

Notable quotes:
"... First of all, the unemployment rate in the USA actually increased from 4.7% to 4.8%, despite the job growth. ..."
"... Simply put, due to the way the Bureau of Labour Statistics is gathering its data, almost 700,000 people have been 'removed' from the civilian population. The total size of the civilian population is rebalanced on a yearly basis, in January. ..."
"... The smaller size of the civilian population caused the labor force participation rate to increase by 0.2%, and this by itself caused the unemployment rate to increase as well, despite the job creation number. ..."
"... But perhaps even more important is the extremely disappointing update on the average hourly earnings ('AHE') . The AHE increase fell to just 0.1% in January on a month/month comparison, but the real catch is in the details. ..."
Feb 12, 2017 | www.zerohedge.com

Ever since the gold report was published, the gold price moved up. This caught several investors by surprise, as some of them even continued to dump gold, scared by what appeared to be a good jobs report.

'Appeared to be', because?

Yes, 227,000 new jobs were created , and we can't deny that's a positive evolution. However, the increased job number is also the only positive thing in the jobs report, and there are two other issues that haven't really been highlighted.

Two issues that could, and probably will, have an impact on the interest rate decisions later this year.

First of all, the unemployment rate in the USA actually increased from 4.7% to 4.8%, despite the job growth.

How is that possible?

Simply put, due to the way the Bureau of Labour Statistics is gathering its data, almost 700,000 people have been 'removed' from the civilian population. The total size of the civilian population is rebalanced on a yearly basis, in January.

Source: Bureau of Labor Statistics

The smaller size of the civilian population caused the labor force participation rate to increase by 0.2%, and this by itself caused the unemployment rate to increase as well, despite the job creation number.

And as the unemployment rate is one of the key factors the Federal Reserve is looking at to determine whether or not a rate hike is appropriate, this small increase could have an impact on the decision making process. And keep in mind this is the second consecutive increase in the unemployment rate as the December unemployment rate also came in higher than the unemployment rate in November (and this did not include any population rebalancing exercise).

But perhaps even more important is the extremely disappointing update on the average hourly earnings ('AHE') . The AHE increase fell to just 0.1% in January on a month/month comparison, but the real catch is in the details.

Exactly because the 0.1% increase is focusing on a monthly update, the revision of the wage increase in December is actually telling you something more serious is going on. The December wages have been revised down by 0.2%, so if that would NOT have happened, the average hourly wage would have DECREASED in January.

... ... ...

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[Feb 11, 2017] Welfare is assumed to be based upon real income and not relative income with ones group

Feb 01, 2017 | economistsview.typepad.com

Robert C Shelburne : January 23, 2017 at 09:10 AM

Another good article by Rodrik but a weakness of his analysis is that welfare is assumed to be based upon real income and not relative income with ones "group".

Most analyses of welfare find that relative income is quite important. Obviously if one assumes that one's reference group is the world, then the problem goes away; but empirically this is not the case.

Assuming that welfare is strongly affected by relative income with a group which is smaller than the world, then global equality is no longer welfare maximizing.

Those interested in these issues might be interested in Robert Shelburne, A Utilitarian Welfare Analysis of Trade Liberalization , available as a UN working paper.

[Feb 08, 2017] How Universities Are Increasingly Choosing Capitalism Over Education naked capitalism

Notable quotes:
"... By Henry Heller, a professor of history at the University of Manitoba, Canada and the author of The Capitalist University. Cross posted from Alternet ..."
"... The following is an excerpt from the new book ..."
"... by Henry Heller (Pluto Press, December 2016): ..."
"... Inside Higher Education ..."
"... The University, State and Market: The Political Economy of Globalization in the Americas ..."
"... New Left Review ..."
"... The Field of Cultural Production: Essays on Art and Literature ..."
"... Letters from the Deutsch-Französische Jahrbücher ..."
"... Anti-Communism in Twentieth-Century America ..."
"... Marxism is still regarded with suspicion in the United States. ..."
"... As if on cue, sociology, psychology, literature, political science, and anthropology all took sides by explicitly rejecting Marxism and putting forward viewpoints opposed to it. History itself stressed American exceptionalism, justified U.S. expansionism, minimized class conflict, and warned against revolution. ..."
Feb 08, 2017 | www.nakedcapitalism.com
How Universities Are Increasingly Choosing Capitalism Over Education Posted on February 7, 2017 by Yves Smith Yves here. Some further observations. First, the author neglects to mention the role of MBAs in the reorientation of higher education institutions. When I went to school, the administrative layer of universities was lean and not all that well paid. Those roles were typically inhabited by alumni who enjoyed the prestige and being able to hang around the campus. But t he growth of MBAs has meant they've all had to find jobs, and colonizing not-for-profits like universities has helped keep them off the street.

Second, this post focuses on non-elite universities, but the same general pattern is in play, although the specific outcomes are different. Universities with large endowments are increasingly hedge funds with an educational unit attached.

By Henry Heller, a professor of history at the University of Manitoba, Canada and the author of The Capitalist University. Cross posted from Alternet

The following is an excerpt from the new book The Capitalist University: The Transformations of Higher Education in the United States since 1945 by Henry Heller (Pluto Press, December 2016):

The fact that today there are over 4,000 colleges and universities in the United States represents an unparalleled educational, scientific, and cultural endowment. These institutions occupy a central place in American economic and cultural life. Certification from one of them is critical to the career hopes of most young people in the United States. The research produced in these establishments is likewise crucial to the economic and political future of the American state. Institutions of higher learning are of course of varying quality, with only 600 offering master's degrees and only 260 classified as research institutions. Of these only 87 account for the majority of the 56,000 doctoral degrees granted annually. Moreover, the number of really top-notch institutions based on the quality of their faculty and the size of their endowments is no more than 20 or 30. But still, the existence of thousands of universities and colleges offering humanistic, scientific, and vocational education, to say nothing of religious training, represents a considerable achievement. Moreover, the breakthroughs in research that have taken place during the last two generations in the humanities and social sciences, not to speak of the natural sciences, have been spectacular.

But the future of these institutions is today imperiled. Except for a relatively few well-endowed universities, most are in serious financial difficulty. A notable reason for this has been the decline in public financial support for higher education since the 1980s, a decline due to a crisis in federal and state finances but also to the triumph of right-wing politics based on continuing austerity toward public institutions. The response of most colleges and universities has been to dramatically increase tuition fees, forcing students to take on heavy debt and putting into question access to higher education for young people from low- and middle-income families. This situation casts a shadow on the implicit post-war contract between families and the state which promised upward mobility for their children based on higher education. This impasse is but part of the general predicament of the majority of the American population, which has seen its income fall and its employment opportunities shrink since the Reagan era. These problems have intensified since the financial collapse of 2008 and the onset of depression or the start of a generalized capitalist crisis.

Mounting student debt and fading job prospects are reflected in stagnating enrollments in higher education, intensifying the financial difficulties of universities and indeed exacerbating the overall economic malaise.[1] The growing cost of universities has led recently to the emergence of Massive Online Open Courses whose upfront costs to students are nil, which further puts into doubt the future of traditional colleges and universities. These so-called MOOCs, delivered via the internet, hold out the possibility, or embody the threat, of doing away with much of the expensive labor and fixed capital costs embodied in existing university campuses. Clearly the future of higher education hangs in the balance with important implications for both American politics and economic life.

The deteriorating situation of the universities has its own internal logic as well. In response to the decline in funding, but also to the prevalence of neoliberal ideology, universities-or rather the presidents, administrators, and boards of trustees who control them-are increasingly moving away from their ostensible mission of serving the public good to that of becoming as far as possible like private enterprises. In doing so, most of the teachers in these universities are being reduced to the status of wage labor, and indeed precarious wage labor. The wages of the non-tenured faculty who now constitute the majority of teachers in higher education are low, they have no job security and receive few benefits. Although salaried and historically enjoying a certain autonomy, tenured faculty are losing the vestiges of their independence as well. Similarly, the influence of students in university affairs-a result of concessions made by administrators during the upheavals of the 1960s and 1970s-has effectively been neutered. These changes reflect a decisive shift of power toward university managers whose numbers and remuneration have expanded prodigiously. The objective of these bureaucrats is to transform universities as much as possible to approximate private and profit-making corporations, regarded as models of efficient organization based on the discipline of the market. Indeed, scores of universities, Phoenix University for example, have been created explicitly as for-profit businesses and currently enroll millions of students.

Modern universities have always had a close relationship with private business, but whereas in the past faculty labor served capital by producing educated managers, highly skilled workers, and new knowledge as a largely free good, strenuous efforts are now underway to transform academic employment into directly productive, i.e., profitable, labor. The knowledge engendered by academic work is accordingly being privatized as a commodity through patenting, licensing, and copyrighting to the immediate benefit of universities and the private businesses to which universities are increasingly linked. Meanwhile, through the imposition of administrative standards laid down in accord with neoliberal principles, faculty are being subjected to unprecedented scrutiny through continuous quantified evaluation of teaching and research in which the ability to generate outside funding has become the ultimate measure of scholarly worth. At the same time, universities have become part of global ranking systems like the Shanghai Index or the Times Higher Education World University Rankings in which their standing in the hierarchy has become all important to their prestige and funding.

Several intertwined questions emerge from this state of affairs. In the first place, given the rising expense and debt that attendance at university imposes and declining employment prospects especially for young people, will there continue to be a mass market for higher education? Is the model of the university or college traditionally centered on the humanities and the sciences with a commitment to the pursuit of truth compatible with the movement toward converting the universities into quasi- or fully private business corporations? Finally, what are the implications of changes in the neoliberal direction for the future production of objective knowledge, not to speak of critical understanding?

Universities during the Cold War produced an impressive amount of new positive knowledge, not only in the sciences, engineering, and agriculture but also in the social sciences and humanities. In the case of the humanities and social sciences such knowledge, however real, was largely instrumental or tainted by ideological rationalizations. It was not sufficiently critical in the sense of getting to the root of the matter, especially on questions of social class or on the motives of American foreign policy. Too much of it was used to control and manipulate ordinary people within and without the United States in behalf of the American state and the maintenance of the capitalist order. There were scholars who continued to search for critical understanding even at the height of the Cold War, but they largely labored in obscurity. This state of affairs was disrupted in the 1960s with the sudden burgeoning of Marxist scholarship made possible by the upsurge of campus radicalism attendant on the anti-war, civil rights, and black liberation struggles. But the decline of radicalism in the 1970s saw the onset of postmodernism, neoliberalism, and the cultural turn. Postmodernism represented an unwarranted and untenable skepticism, while neoliberal economics was a crude and overstated scientism. The cultural turn deserves more respect, but whatever intellectual interest there may be in it there is little doubt that the net effect of all three was to delink the humanities and social sciences from the revolutionary politics that marked the 1960s. The ongoing presence in many universities of radicals who took refuge in academe under Nixon and Reagan ensured the survival of Marxist ideas if only in an academic guise. Be that as it may, the crisis in American society and the concomitant crisis of the universities has become extremely grave over the last decade. It is a central contention of this work that, as a result of the crisis, universities will likely prove to be a key location for ideological and class struggle, signaled already by the growing interest in unionization of faculty both tenured and non-tenured, the revival of Marxist scholarship, the Occupy Movement, the growing importance of the Boycott, Divestment, and Sanctions movement, and heightening conflicts over academic freedom and the corporatization of university governance.

The approach of this work is to examine the recent history of American universities from the perspective of Marxism, a method which can be used to study these institutions critically as part of the capitalist economic and political system. Despite ongoing apologetics that view universities as sites for the pursuit of disinterested truth, we contend that a critical perspective involving an understanding of universities as institutions based on the contradictions of class inequality, the ultimate unity of the disciplines rooted in the master narrative of historical materialism, and a consciousness of history makes more sense as a method of analysis. All the more so, this mode of investigation is justified by the increasing and explicit promotion of academic capitalism by university managers trying to turn universities into for-profit corporations. In response to these policies scholars have in fact begun to move toward the reintegration of political economy with the study of higher education. This represents a turn away from the previous dominance in this field of postmodernism and cultural studies and, indeed, represents a break from the hegemonic outlook of neoliberalism.[2] On the other hand, most of this new scholarship is orientated toward studying the effects of neoliberalism on the contemporary university, whereas the present work takes a longer view. Marxist political economy demands a historical perspective in which the present condition of universities emerged from the crystallization of certain previous trends. It therefore looks at the evolution of the university from the beginning of the twentieth century, sketching its evolution from a preserve of the upper-middle class in which research played almost no role into a site of mass education and burgeoning research, and, by the 1960s, a vital element in the political economy of the United States.

In contrast to their original commitment to independence with respect to the state up to World War II, most if by no means all universities and colleges defined their post-war goals in terms of the pursuit of the public good and were partially absorbed into the state apparatus by becoming financially dependent on government. But from start to finish twentieth-century higher education also had an intimate and ongoing relationship with private business. In the neoliberal period universities are taking this a step further, aspiring to turn themselves into quasi- or actual business corporations. But this represents the conclusion of a long-evolving process. The encroachment of private business into the university is in fact but part of the penetration of the state by private enterprise and the partial privatization of the state. On the surface this invasion of the public sphere by the market may appear beneficial to private business. We regard it, on the contrary, as a symptom of economic weakness and a weakening of civil society.

The American system of higher education, with its prestigious private institutions, great public universities, private colleges and junior colleges, was a major achievement of a triumphant American republic. It provided the U.S. state with the intellectual, scientific, and technical means to strengthen significantly its post-1945 power. The current neoliberal phase reflects an America struggling economically and politically to adapt to the growing challenges to its global dominance and to the crisis of capitalism itself. The shift of universities toward the private corporate model is part of this struggle. Capitalism in its strongest periods not only separated the state from the private sector, it kept the private sector at arm's length from the state. The role of the state in ensuring a level playing field and providing support for the market was clearly understood. The current attempt by universities to mimic the private sector is a form of economic and ideological desperation on the part of short-sighted and opportunistic university administrators as well as politicians and businessmen. In our view, this aping of the private sector is misguided, full of contradictions, and ultimately vain if not disastrous. Indeed, it is a symptom of crisis and decline.

The current overwhelming influence of private business on universities grew out of pre-existing tendencies. There is already an existing corporate nature of university governance both private and public, as well as an influence of business on universities in the first part of the twentieth century. In reaction there developed the concept of academic freedom as well as the establishment of the system of tenure and the development of a rather timid faculty trade unionism. This underscores the importance of private foundations in controlling the development of the curriculum and research in both the sciences and humanities. In their teaching, universities were mainly purveyors of the dominant capitalist ideology. Humanities and social science professors imparted mainly liberal ideology and taught laissez-faire economics which justified the political and economic status quo. The development of specialized departments reinforced the fragmentation of knowledge and discouraged the emergence of a systemic overview and critique of American culture and society. There were, as noted earlier, a few Marxist scholars, some of considerable distinction, who became prominent particularly in the wake of the Depression, the development of the influence of the Communist Party, and the brief period of Soviet-American cooperation during World War II. But the teaching of Marxism was frowned upon and attacked even prior to the Cold War.

The post-1945 university was a creation of the Cold War. Its expansion, which sprang directly out of war, was based on the idea of education as a vehicle of social mobility, which was seen as an alternative to the equality and democracy promoted by the populism of the New Deal. Its elitist and technocratic style of governance was patterned after that of the large private corporation and the American federal state during the 1950s. Its enormously successful research programs were mainly underwritten by appropriations from the military and the CIA. The CIA itself was largely created by recruiting patriotic faculty from the universities. Much of the research in the social sciences was directed at fighting Soviet and revolutionary influence and advancing American imperialism abroad. Marxist professors and teaching programs were purged from the campuses.

Dating from medieval times, the curriculum of the universities was based on a common set of subjects including language, philosophy, and natural science premised on the idea of a unitary truth. Although the subject matter changed over the centuries higher education continued to impart the hegemonic ideology of the times. Of course the notion of unitary truth was fraying at the seams by the beginning of the twentieth century with the development of departmental specialization and the increasingly contested nature of truth, especially in the social sciences in the face of growing class struggle in America. However, the notion of the idea of the unity of knowledge as purveyed by the university was still ideologically important as a rationale for the existence of universities. Moreover, as we shall demonstrate, it was remarkable how similarly, despite differences in subject matter and method, the main disciplines in the humanities and social sciences responded to the challenge of Marxism during the Cold War. They all developed paradigms which opposed or offered alternatives to Marxism while rationalizing continued loyalty to liberalism and capitalism. As if on cue, sociology, psychology, literature, political science, and anthropology all took sides by explicitly rejecting Marxism and putting forward viewpoints opposed to it. History itself stressed American exceptionalism, justified U.S. expansionism, minimized class conflict, and warned against revolution. Indeed, this work will focus on these disciplines because they defended the capitalist status quo at a deeper cultural and intellectual level than the ubiquitous mass media. As Louis Althusser pointed out, the teaching received by students from professors at universities was the strategic focal point for the ideological defense of the dominant class system. That was as true of the United States as it was of France, where institutions of higher learning trained those who would later train or manage labor. Criticizing the recent history of these disciplines is thus an indispensable step to developing an alternative knowledge and indeed culture that will help to undermine liberal capitalist hegemony.[3]

The approach of this work is to critically analyze these core academic subjects from a perspective informed by Pierre Bourdieu and Karl Marx. Bourdieu points out that the deep involvement of the social sciences (and the humanities) with powerful social interests makes it difficult to free their study from ideological presuppositions and thereby achieve a truly socially and psychologically reflexive understanding.[4] But such reflexive knowledge was precisely what Marx had in mind more than a century earlier. Leaving a Germany still under the thrall of feudalism and absolutism for Paris in 1843, the young Marx wrote to his friend Arnold Ruge that

reason has always existed, but not always in a reasonable form but, if constructing the future and settling everything for all times are not our affair, it is all the more clear what we have to accomplish at present: I am referring to ruthless criticism of all that exists, ruthless both in the sense of not being afraid of the results it arrives at and in the sense of being just as little afraid of conflict with the powers that be.[5]

His task as he saw it was to criticize the existing body of knowledge so as to make it as reasonable as possible, i.e., to undermine its illusory and ideological character and substitute knowledge which was both true and helped advance communism. Such a project entailed deconstructing the existing body of knowledge through rational criticism, exposing its ideological foundations and advancing an alternative based on a sense of contradiction, social totality, and a historical and materialist understanding. It is our ambition in surveying and studying the humanities and social sciences in the period after 1945 to pursue our investigation in the same spirit. Indeed, it is our view that a self-reflexive approach to contemporary knowledge, while woefully lacking, is an indispensable complement to the development of a serious ideological critique of the crisis-ridden capitalist society of today.

Marxism is still regarded with suspicion in the United States. As a matter of fact, anti-Marxism in American universities was not merely a defensive response to McCarthyism as some allege. Anti-communism was bred in the bone of many Americans and was one of the strongest forces that affected U.S. society in the twentieth century, including the faculty members of its universities. An idée fixe rather than an articulated ideology, it was compounded out of deeply embedded albeit parochial notions of Americanism, American exceptionalism and anti-radicalism.[6] The latter was rooted in the bitter resistance of the still large American middle or capitalist class to the industrial unrest which marked the late nineteenth and early twentieth centuries and which had a strong bed of support among the immigrant working class. Nativism then was an important tool in the hands of this class in fighting a militant if ethnically divided working class. Moreover, the anti-intellectual prejudices of American society in general and the provincialism of its universities were ideal terrain for fending off subversive ideas from abroad like Marxism. Later, this anti-communism and hostility to Marxism became the rationale for the extension of American imperialism overseas particularly after 1945. The social origins of the professoriate among the lower middle class, furthermore, and its role as indentured if indirect servants of capital, strengthened its position as inimical to Marxism. Just as careers could be lost for favoring Marxism, smart and adroit academics could make careers by advancing some new intellectual angle in the fight against Marxism. And this was not merely a passing feature of the height of the Cold War: from the 1980s onward, postmodernism, identity politics, and the cultural turn were invoked to disarm the revolutionary Marxist politics that had developed in the 1960s. Whatever possible role identity politics and culture might have in deepening an understanding of class their immediate effect was to undermine a sense of class and strengthen a sense of liberal social inclusiveness while stressing the cultural obstacles to the development of revolutionary class consciousness.

This overall picture of conformity and repression was, however, offset by the remarkable upsurge of student radicalism that marked the 1960s, challenging the intellectual and social orthodoxies of the Cold War. In reaction to racism and political and social repression at home and the Vietnam War abroad, students rebelled against the oppressive character of university governance and by extension the power structure of American society. Overwhelmingly the ideology through which this revolt was refracted was the foreign and until then largely un-American doctrine of Marxism. Imported into the universities largely by students, Marxism then inspired a new generation of radical and groundbreaking scholarship. Meanwhile it is important to note that the student revolt itself was largely initiated by the southern civil rights movement, an important bastion of which were the historically black colleges of the South. It was from the struggle of racially oppressed black students in the American South as well as the growing understanding of the anti-colonial revolutionaries of Vietnam that the protest movement in American colleges and universities was born. Equally important was the Free Speech Movement at Berkeley. Indeed, it is the contention of this work that the issues raised at Berkeley over democracy in the universities and the free expression of ideas not only shaped the student movement of that time but are still with us, and indeed are central to the future of universities and intellectual life today.

At the heart of the Berkeley protest lay a rejection of the idea of a university as a hierarchical corporation producing exchange values including the production of trained workers and ideas convertible into commodities. Instead the students asserted the vision of a democratic university which produced knowledge as a use value serving the common good. It is our view that this issue raised at Berkeley in the 1960s anticipated the class conflict that is increasingly coming to the fore over so-called knowledge capitalism. Both within the increasingly corporate neoliberal university and in business at large, the role of knowledge and knowledge workers is becoming a key point of class struggle. This is especially true on university campuses where the proletarianization of both teaching and research staff is in process and where the imposition of neoliberal work rules is increasingly experienced as tyrannical. The skilled work of these knowledge producers, the necessarily interconnected nature of their work, and the fundamentally contradictory notion of trying to privatize and commodify knowledge, have the potential to develop into a fundamental challenge to capitalism.

Notes:

1. Paul Fain, "'Nearing the Bottom': Inside Higher Education," Inside Higher Education , May 15, 2014.

2. Raymond A. Morrow, "Critical Theory and Higher Education: Political Economy and the Cul-de-Sac of the Postmodernist Turn," in The University, State and Market: The Political Economy of Globalization in the Americas , ed. Robert A. Rhoads and Carlos Alberto Torres, Stanford: Stanford University Press, 2006, pp. xvii‒xxxiii.

3. Perry Anderson, "Components of the National Culture," New Left Review , No. 50, July‒August, 1968, pp. 3–4.

4. Pierre Bourdieu, The Field of Cultural Production: Essays on Art and Literature , New York: Columbia University Press, 1993, pp. 86–7.

5. Karl Marx, Letter to Arnold Ruge, Kreuznach, September 1843, Letters from the Deutsch-Französische Jahrbücher , at https://www.marxists.org/archive/marx/works/1843/letters/43_09.htm

6. Larry Ceplair, Anti-Communism in Twentieth-Century America , Santa Barbara: Clio, 2011, pp. 1–2, 12.

0 0 30 1 1 This entry was posted in Banana republic , Free markets and their discontents , Guest Post , Politics , Social policy , Social values on February 7, 2017 by Yves Smith . Subscribe to Post Comments 31 comments Jim , February 7, 2017 at 1:57 am

Capitalism requires that total strangers be on the hook for student loans? And if this is Capitalism then why didn't this trend emerge 100+ years ago? Why now?

Trout Creek , February 7, 2017 at 3:18 pm

It is a function of the adaption of NeoLiberalism as a governing principle which you can basically start around the time of Reagan.

Steve Sewall , February 7, 2017 at 5:09 pm

Because a) the market for a college degree is vastly bigger today than it was 100+ years ago b) tuitions were affordable so there was no way for high-interest lenders ("total strangers") to game the system as they do today.

Plus I wonder if the legal system or tax code would have let them get away with anything like what they get away with today.

schultzzz , February 7, 2017 at 1:58 am

I agree with everything dude says, but the way he says it is so deathly dull and needlessly technical . . .

it's a shame that someone so openly critical of the university system and culture nonetheless unquestioningly obeys the tradition of: "serious writing has to turn off 99% of the people that might be otherwise interested in the subject."

Arizona Slim , February 7, 2017 at 8:57 am

And here I thought I was the only one

John Wright , February 7, 2017 at 9:59 am

Yes, his writing caused this reader to do a MEDGO ("my eyes doth gloss over")

It was technical in its assertions, but has few metrics to quantify the trends such as inflation adjusted administrative cost or inflation adjusted government college funding now vs then.

There is a mention that the USA government has touted the "upward mobility" or excess value, AKA "consumer surplus", of a college degree to students and their families for years.

The US government further encouraged the student loan industry with guarantees and bankruptcy relief de-facto prohibited.

The current system may illustrate that colleges raised their prices to capture more of this alleged consumer surplus, a surplus that may no longer be there..

If one looks at the USA's current political/economic/infrastructure condition, and asserts that the leaders and government officials of the USA were trained, overwhelmingly, over the last 40 years, in the USA's system of higher education, perhaps this is an indication USA higher education has not served the general public well for a long time.

The author mentions this important point "These so-called MOOCs, delivered via the internet, hold out the possibility, or embody the threat, of doing away with much of the expensive labor and fixed capital costs embodied in existing university campuses. Clearly the future of higher education hangs in the balance with important implications for both American politics and economic life."

Maybe the MOOCs are the low cost future as the 4 year degree loses economic value and the USA moves to a life-long continuous education model?

Arizona Slim , February 7, 2017 at 11:06 am

ISTR reading that the completion rate for MOOCs is pretty low. As in, 10% of the students who start the course end up finishing it.

Pete , February 7, 2017 at 1:58 pm

And that rate doesn't even mention what scores they achieved. MOOCs are hopeless especially since college is now less about getting an education and more about a statement about a young person's lifestyle or identity.

http://akinokure.blogspot.com/2015/10/college-as-part-of-lifestyle.html

JustAnObserver , February 7, 2017 at 2:18 pm

Now sure about the `now' bit. I maybe a bit cynical but I've always thought, even when I was at one, that colleges/universities major function was as a middle-class finishing school for those unable to afford the real deal in Switzerland.

julia , February 7, 2017 at 10:31 am

I do not agree and it is deathly dull and needlessly technical. In fact it remains me off the marxistic education I enjoyed growing up in East Germany.
Maybe it is time to rethink after school education. Physical Labor should loose its stain of being for loosers and stupid people. A whole lot of professions could be better taught through apprentiships and technical college mix.( many younge people would maybe enjoy being able to start qualified work after only 3 additional years of education).
And do we really need 12 years of standard school education? There are so many kids that do not function well in school.
Universities should be for the really eager and talented who want to spend a big part of
their youth learning.
I guess we need a lot of new ideas to get away from the old paradigma ( anti- marxist or marxist)

John Wright , February 7, 2017 at 4:00 pm

I took a couple of classes at the local junior college in automotive smog testing and machining.

One of the instructors told me the JC administration viewed this Junior College as having two parts, College Prep + vocational education.

He suggested the administration looked down on the vocational education portion, saying "But we get the jobs".

Steve , February 7, 2017 at 4:17 pm

I don't know how you read other works from academics if you think that this was dull.

Do you or anyone thinking this was "dull" have any examples of academic essays or books that contain useful knowledge but also consider them "shiny?"

Personally, I thought this was a very good essay as it explains some things I've been thinking about American higher education and quite a few things about my personal university education at a tier-1 research school.

Altandmain , February 7, 2017 at 2:10 am

Basically universities have become a cog in the machine of neoliberalism.

Rather than anything resembling an institution for the public good, it has taken on the worst aspects of corporate America (and Canada). You can see this in the way they push now for endowment money, the highly paid senior management contrasted with poorly paid adjuncts, and how research is controlled these days. Blue skies research is cut, while most research is geared towards short-term corporate profit, from which they will no doubt milk society with.

I tremble when I think about what all of this means:
1. Students won't be getting a good education when they are taught by adjuncts being paid poverty wages.
2. Corporations will profit in the short run.
3. The wealthy and corporations due to endowment money have a huge sway.
4. Blue skies research will fall and over time, US leadership in hard sciences.
5. The productivity of future workers will be suppressed and with it, their earning potential.
6. Related to that, inequality will increase dramatically as universities worsen the situation.
7. There will be many "left behind" students and graduates with high debt, along with bleak job prospects.
8. State governments, starving for tax money will make further cuts, worsening these trends.
9. Anything hostile to the corporate state (as the article notes) will be suppressed.
10. With it, academic freedom and ultimately democracy will be much reduced.

What it means is decline in US technological power, productivity gains, and with it, declining living standards.

All of these trends already are happening. They will worsen.

I'd agree that a more readable version of this should be made for the general public.

James McFadden , February 7, 2017 at 1:23 pm

Well said.

But your description suggests an inevitable bleak dystopic future – a self-fulfilling prophesy. The future is not written – we can help determine its course. It starts with grass roots movement building in your neighborhood and community. And I can't think of a more rewarding task then creating a better future for our children.

But perhaps my farmer's work ethic, my inclination to side with the underdog and stand up to the bully capitalists, are notions that most Americans no longer possess. Perhaps Cornel West is correct when he states: "The oppressive effect of the prevailing market moralities leads to a form of sleepwalking from womb to tomb, with the majority of citizens content to focus on private careers and be distracted with stimulating amusements. They have given up any real hope of shaping the collective destiny of the nation. Sour cynicism, political apathy, and cultural escapism become the pervasive options."

However, it is my observation that Trump's election has woken this sleepwalking giant, and that his bizarre behavior continues to energize people to resist. So why not rebel and help bring down the neoliberal fascists. Is there any cause more worthy? And for those who won't try because they don't think they can win, consider the words of Chris Hedges: "I do not fight fascists because I will win. I fight fascists because they are fascists."

Jason , February 7, 2017 at 2:14 am

I'm going to complain about your headline. A lot of stuff on this blog is obviously relevant only to the USA, and when it's obvious it doesn't need to be mentioned in the headline. But it's not at all obvious that this topic is only about the USA (or North America, since the author is in Canada?), so maybe you could edit the headline to reflect that it is in fact only about the USA?

My observation of Australian universities is that they have similar problems, although maybe to a lesser extent. But I doubt the same things happen in all countries. I'd be interested to know more about mainland European universities, and ex-Soviet-bloc universities, and Chinese universities, and Third World universities.

As for "Universities with large endowments are increasingly hedge funds with an educational unit attached", I think the rich universities in the UK (i.e. the richer residential Oxbridge colleges, if you count them as universities – Oxford and Cambridge Universities themselves are not particularly rich – plus maybe Imperial College?) have very little invested in hedge funds and a lot in property. Can anyone confirm or deny that?

Colonel Smithers , February 7, 2017 at 4:30 am

Thank you, Jason.

In the past two decades, the UK's top universities, often called the Russell Group after the Russell Hotel in Russell Square where they met to form a sort of lobby group, have made money and started hiring rock star academics. I don't know how much these academics teach, but they often pontificate in the media.

Big business, oligarchs and former alumni (often oligarchs) donate money, allowing them to build up their coffers. Imperial is developing an area of west London.

Oxbridge colleges own a lot of property. Much of the land between Cambridge and London is owned by Cambridge colleges. This goes back to when they were religious institutions and despite Henry VIII's dissolution of the monasteries.

London Business School has expanded from its Regent's Park base to Marylebone as the number of students, especially from Asia, grow. I have spoken to students from there and Oxford's Said Business School and know people who have guest lectured there. They were not impressed. Plutonium Kun has written about that below.

Colonel Smithers , February 7, 2017 at 4:38 am

Correction: number of students grows :-)

bmeisen , February 7, 2017 at 12:35 pm

Oxford and Cambridge are British state universities as I understand it. The Russell Group consists primarily of state institutions that have assumed / been given / been restored to an elite role in the British system of higher education, which is overwhelmingly public. Oxford and Cambridge are at the peak of a relatively flat hierarchy of elite public higher education. Higher ed's role in the constitution of British elites is characterized by 3 features: association with an institutional reputation and thereby access to a network, a financial hurdle, and a meritocratic process of selection. Of these the financial hurdle is the least problematic – tuition is still peanuts compared to that at American elite institutions.

Things have gotten better – you no longer have to be a male member of the church of England to get in – and the system is more democratic than the French system of elite public higher ed, i.e. the ruling elite in the UK can be penetrated by working people, e.g. Corbyn.

Winston Smith , February 7, 2017 at 3:07 am

My son is half Japanese and half American and holds a passport with both countries, he is still in elementary school, but my wife and I are encouraging him to go to school in Japan or to Germany (ancestral home) and seek his fortunes outside of the US as the crapification of the US roller coasters out of control.

Japanese universities are still affordable compared to the US and it's administrative layer, modestly paid, isn't run by MBAs, corporate hacks and neoliberal apologists and others who would better serve the public by decorating a lamp post somewhere with piano wire tightly wrapped around their necks!

My niece attended Kyoto University, one of the best schools in Japan and it cost her and her parents about 7500.00 a year. She commuted from Nara City and Finished her degree in just under three years and had a job waiting for her in the middle of her third year.

Now, I agree that Japanese universities have their fare share of problems and insanity, but the thought of dealing with US universities nauseates my wife and me.

The only school in the US that I would want my son to attend would be Caltech, if he could ever successfully get accepted. They still do great science there, much of it blue sky research. LIGO is still running!
https://eands.caltech.edu/random-walk-3/

* disclaimer, I used to be a Caltech employee.

Colonel Smithers , February 7, 2017 at 4:35 am

An increasing number of British students are going to the Netherlands and, to a lesser extent, Germany for courses taught in English and for under EUR2000 per annum. Leiden and Maastricht are particularly favoured. Apparently, some Spanish universities are cottoning on to that market.

Half a dozen years ago, a clown masquerading as a BBC breakfast news reporter went to have a look and condescend. Her concluding remark was, "The question is are continental universities as good as British ones."

Arizona Slim , February 7, 2017 at 9:00 am

I have studied at a Spanish university. The courses were excellent.

Jake , February 7, 2017 at 8:04 am

But but Japan has sooooo much government debt and must cut cut cut unless it implodes!

Out of curiosity, may I ask you to elaborate on what you mean when you say japanese universities have 'their fare share of problems and insanity'?

schultzzz , February 7, 2017 at 2:40 pm

re: japanese universities.

The university system is not set up for education. it's a reward to the conformists who studied 12 hours a day all through jr high/highschool to pass the university entrance exams (which notoriously don't test for any useful knowledge). The idea being that if you waste your whole childhood studying for a phoney test, you won't dare question the system once you're in the workforce, as it would mean admitting your whole childhood was wasted!

Since college is viewed as a reward, rather than a challenge, there's very little learning going on. it's about developing relationships (and drinking problems) with future members of this elite class.

So most Japanese corporations wind up having to teach the grads everything on the job anyway.

A Japanese degree doesn't mean 'i know things' it means 'i have already by age 20 sacrificed so much that i don't dare ever rock the boat', which is exactly how the corporations and govt bureaucracies want it.

You might say "oh but science! Japanese are good at that!"

But my wife, a nurse, says that it's considered rude to flunk an incompetent student, providing she/he's respectful of the professor. There are doctors who routinely botch surgeries, but firing them would be rude. These doctors would have flunked out of regular (i.e. non-Japanese) universities.

End rant!

PlutoniumKun , February 7, 2017 at 3:55 am

Having on more than one occasion suffered through management restructuring organised by MBA's which did nothing other than reduce productivity in favour of meaningless metrics and increase the power of managers who had no idea how to actually do the job, I'm increasingly coming to the conclusion that the MBA was a clever invention by an anarchist determined to create a virus to undermine capitalism from within. At least, thats the only possible theory that makes sense to me.

templar555510 , February 7, 2017 at 2:20 pm

I agree . Putting it more bluntly the MBA is a clever con to get would-be students to sign up in the belief it'll teach them something that can't be taught – how to make money. I've said this on this blog before – the ability to make money is a knack ; it doesn't matter what the field is it's all akin to someone selling cheap goods on a market stall .

Colonel Smithers , February 7, 2017 at 4:19 am

Thank you, Yves, for posting.

Some observations from the UK:

Many UK universities are targeting foreign, especially Asian, students for the purpose of profit, not education. Some universities refer to students as clients.

Some provincial universities are opening campuses in London as foreign students only want to study in London.

There are many Chinese would be students in London this week. Some universities have open days at the moment. When the youngsters and their parents are not attending such days, they go shopping at Bicester Village, just north of Oxford. It's odd to see commuters arriving from Buckinghamshire at Marylebone for work and Chinese and Arab tourists going shopping in the opposite direction, and the reverse in the evening.

The targeting of rich Asian students, often not up to academic standard, has led to a secondary school in mid-Buckinghamshire, where selective education prevails at secondary / high school, to take Chinese students for the summer term and house them with well to do (only) local parents. The experiment went well for the "grammar" school, i.e. it made money. As for the families who housed the kids, not so much. There were complaints that the children could speak little or no English, which is not what they expected, so the host families could barely interact with the visitors. The school wants to repeat the programme and expand it to a full year. That is the thin end of a wedge as the school will scale back the numbers of local children admitted and probably expand the programme to the entire phase of secondary / high school. It's like running a boarding school by stealth. The school is now an "academy", so no longer under government control and similar to charter schools, and can do what it wants.

David Barrera , February 7, 2017 at 6:20 am

Yves Smith,
I like your introduction to the article. "Universities with large endowments are increasingly hedge funds with an educational unit attached" A recent and very simple but eye opener interview on the subject-Richard Wolff-http://www.rdwolff.com/rttv_boom_bust_for_profit_schools_are_making_money_but_failing_the_grade

As Henry Heller mentions Bourdieu, I can not find among his bibliography much on the specific increasing dominance of the "free market" over learning institutions. The Field of Cultural Production focuses mainly on the opposition market/art,cultural field and the rules of art. Some of his other works elaborate very well on the transformed reproduction of social agents with different economic and cultural capital weights. His major works on higher learning are The State Nobility and Academic Discourse, which are about the homologies between the hierarchy of higher learning centers and the market position occupiers which the latter produce. All of it within the French context. The great late Bourdieu certainly denounced the increasing free market ideology presence and dominance on "everything human"(i.e Free Exchange, Against the Tyranny of the Market and elsewhere); yet not much in that regard-to my knowledge-on the centers with the granted power to issue higher learning degrees. I guess my point is that Heller's reference to Bourdieu strikes me as a bit odd here.
Nevertheless, I like Heller's article. Just as incidental evidence: my town's community college President is a CPA and MBA title holder, the Economics 101 class taught does not deviate the slightest from economic orthodoxy doctrine and I must add that, despite-or because of- a 75% tutoring fee increase in the last eight years, the center has consistently generated a surplus aided by the low wages from the vastly non-tenured teachers.

Colonel Smithers , February 7, 2017 at 6:38 am

The students from China, Singapore and the Middle East often live in the upscale areas of London, often at home rather than rent. Parents are often in tow. They also drive big and expensive cars.

It's amazing to see what is driven and by whom around University, Imperial and King's colleges and the London School of Economics in central London. This was remarked upon by US readers a couple of years ago. Parking is not cheap, either.

A friend and former colleague was planning to rent at Canary Wharf where he was a contractor. He put his name down and was getting ready to move in. The landlord got in touch to say sorry, a family from Singapore was coming and paying more. Apparently, Singaporeans reserve well in advance, even before the students know their exam results.

A golf course was put up for sale near home. The local authority tipped off some upscale estate agents / realtors from London. A Chinese buyer has acquired the thirty odd acre property. Without planning (construction) permission, the property is worth Ł1.5m. With planning permission, it's worth Ł1m per acre. A gated community / rural retreat for the Chinese student community is planned. Oxford, London, Shakespeare Country, Clooney Country and Heathrow are an hour or less away.

Left in Wisconsin , February 7, 2017 at 10:45 am

My favorite line:
Marxism is still regarded with suspicion in the United States.

I love a good Marxist and I know that a totalizing perspective such as Marxism requires a certain amount of generalization, but I found more to criticize in this post than to recommend it. Apparently entire disciplines have agency ( As if on cue, sociology, psychology, literature, political science, and anthropology all took sides by explicitly rejecting Marxism and putting forward viewpoints opposed to it. History itself stressed American exceptionalism, justified U.S. expansionism, minimized class conflict, and warned against revolution. ).

It is clearly true that the modern university is overly focused on money-making – both the university enterprise itself and the selling of higher ed to students – but, from my long experience with one big Tier One and lesser knowledge of several others, it is wrong to say that the modern university looks to operate as a business. Indeed, the top heaviness of bureaucratic administration in the modern university is not very business-like.

IMO what declining public funding has done is allow/force the modern university to aim it's giant vacuum sucker in any and every direction. By the way, if Wisconsin is any example, there are enough Chinese students interested in American university degrees to keep it in business for quite a long time.

But my biggest complaint is with the history. After first laying out an ideal (but not very) historical vision of the utopian university, in contrast with today's money grubber, he later admits that the mid-century university was not all that open to leftism. Then the miracle of the 1960s, which seems to spring from social protest alone. The real story of the 1960s was the huge expansion of higher ed in the U.S., which led to considerable faculty hiring, which allowed a lot of leftists to get hired in the 1960s and early 1970s (often at second or third-tier schools) when they would not have in the 1950s. This was always going to be a one-time event.

The author also seems to suggest that universities owe it to Marxists to hire them if their analysis is good. This is a weird argument for a Marxist to make, seemingly entirely oblivious to the overall political economy he otherwise emphasizes. It ends up sounding more than a bit self-serving. I'm not sure lecturing in History on the public dime is Marx's idea of praxis.

cojo , February 7, 2017 at 11:52 am

The same can be said about administrative costs in medicine. Seems the parasitic infection is everywhere!

[Feb 08, 2017] The U.S. Tax Code Actually Doesn't 'Soak the Rich'

Feb 08, 2017 | economistsview.typepad.com
The U.S. Tax Code Actually Doesn't "Soak the Rich" : In 2012, Republican presidential candidate Mitt Romney famously commented that 47 percent of Americans were "dependent on government" because they didn't pay any federal income taxes. He went on to explain that his job was "not to worry about those people."
Journalists and other public figures often claim that only the rich pay taxes, supporting this with the argument that the rich pay the vast majority of federal income taxes. However, federal income taxes are just one part of the broader tax code. When we consider other types of federal taxes as well as state and local taxes, it becomes clear that the overall tax code isn't extremely progressive – in other words, it doesn't "soak the rich," and it certainly doesn't let the poor off the hook. ...

pgl : February 08, 2017 at 01:11 PM

"Journalists and other public figures often claim that only the rich pay taxes, supporting this with the argument that the rich pay the vast majority of federal income taxes. However, federal income taxes are just one part of the broader tax code. When we consider other types of federal taxes as well as state and local taxes, it becomes clear that the overall tax code isn't extremely progressive – in other words, it doesn't "soak the rich," and it certainly doesn't let the poor off the hook."

Great detail. Mankiw is particularly bad in terms of citing only Federal taxes as if state and local taxation did not exist. He used to have a comment section where a few of us would remind him of the above. I hear that is why he turned off his comment section.

Peter K. -> pgl... , February 08, 2017 at 01:54 PM
So you've ruined more than one comment section. Was that the plan or can you just not help yourself?
Sanjait -> Peter K.... , February 08, 2017 at 02:39 PM
Look in the mirror, bro.
pgl -> Sanjait... , February 08, 2017 at 04:23 PM
He is actually defending Mankiw now? I guess pointing out facts is being rude in PeterK's world.
Peter K. -> pgl... , February 08, 2017 at 05:47 PM
Just pointing out how you shut down Mankiw's comment section and are currently trying to shut down Thoma's.

What do you have against dialogue and debate?

Jay -> pgl... , February 08, 2017 at 05:13 PM
And corporations pay no taxes. Well, PGL is only considering federal corporate income taxes when making such a ridiculous statement. Guess what, corporations pay other taxes too!
Sanjait : , February 08, 2017 at 02:41 PM
A point that should be well known by now, but worth repeating because many remain unaware. Federal income taxes are but a progressive subset of all taxes, the rest of which, in aggregate, is actually quite regressive.
pgl -> Sanjait... , February 08, 2017 at 04:24 PM
Yep! Mankiw tries to deny this. And now PeterK is taking Mankiw's side? OK!
DrDick -> Sanjait... , February 08, 2017 at 04:28 PM
And even they are not terribly progressive.
Jay -> Sanjait... , February 08, 2017 at 05:18 PM
That FICA is regressive is pretty meaningless, given you can do much more honest analysis by looking at the ROI. OASDI is simply coerced retirement savings along with forced purchase of various insurance.

But as we saw with ObamaCare, progtards will take every opportunity to include in legislation completely unrelated clauses that act as income redistribution - see the 3% income tax. Then again, to some morons (PGL, DrDonk and EMichael included) 100% of you income is owned by the government and there is a certain percentage that they leave you have. Looking at it from a "tax rate" perspective is wrong-headed and backwards.

Sanjait -> Jay... , February 08, 2017 at 05:29 PM
That is a great example ... of the borderline incoherent and histrionic way conservatives often talk about policy issues when they are trying to act intellectual.
JF : , February 08, 2017 at 03:59 PM
I commented on Dean Baker's blog and on this CEPR article too.

The gust is to get people to discuss public finance in net worth terms and not just by income taxation type or just by the transactional flows in a 12 month period.

The headline they chose fir this article would have been more informative.

Just think, looking at the top 1percent, what is their contribution to public finance compared to their net worth. Compare this to the medium, or just about any other strata and I think many might be better educated.

DrDick : , February 08, 2017 at 04:30 PM
More shocking news that has been available for decades, but which conservatives and the media (redundant?) studiously ignore.

[Feb 07, 2017] Don't Side With Neoliberalism in Opposing Trump

Notable quotes:
"... By Les Leopold, the director of the Labor Institute, who is currently working with unions and community organizations to build the educational infrastructure for a new anti-Wall Street movement. His new book Runaway Inequality: An Activist's Guide to Economic Justice serves as a text for this campaign. All proceeds go to support these educational efforts. Originally published at Alternet ..."
"... Thin Reed? Authoritarian rule for the oligarchs ..."
"... Most manufacturing jobs are lost via automation, not outsourcing. ..."
"... wasn't ..."
Feb 07, 2017 | www.nakedcapitalism.com
Posted on February 6, 2017 by Yves Smith Yves here. As reader John Z pointed out, the policy program described in this post is very much in synch with the recommendations Lambert has been making. One small point of divergence is that Leopold reinforces the idea that taxes fund Federal spending. Taxes serve to create incentives, and since income inequality is highly correlated with many bad social outcomes, including more violence and shorter lifespans even for the rich, progressive taxation is key to having a society function well. However, he does get right (as very few do) that the purpose of a transaction tax is to discourage the activity being taxed, rather than raise money (aside from the MMT issue, the tax would shrink the level of transactions in question, making it not very productive in apparent revenue terms).

By Les Leopold, the director of the Labor Institute, who is currently working with unions and community organizations to build the educational infrastructure for a new anti-Wall Street movement. His new book Runaway Inequality: An Activist's Guide to Economic Justice serves as a text for this campaign. All proceeds go to support these educational efforts. Originally published at Alternet

During the Bernie Sanders campaign I heard a high-level official give a powerful speech blasting the Trans-Pacific Partnership Act for the harm it would bring to workers, environmentalists and to all who cared about protecting democracy.

Donald Trump now has signed an executive order pulling out of the TPP negotiations.

Is this a victory or a defeat for the tens of thousands of progressives who campaigned to kill the TPP?

On the same day Trump killed the TPP, he met with corporate executives saying he would cut taxes and regulations to spur business development. But he also warned that "a company that wants to fire all of the people in the United States and build some factories someplace else and think the product is going to flow across the border, that is not going to happen." He said he would use "a substantial border tax" to stop those practices.

Is this a victory or a defeat for workers and unions who for three decades have been begging politicians to stop the outsourcing of decent middle-class jobs?

Breaking the Spell of Neoliberalism

Our answers may be clouded by four decades of the neoliberal catechism-tax cuts on the wealthy, Wall Street deregulation, privatization of public services and "free" trade. Politicians, pundits and overpaid economists long ago concluded that such policies will encourage a "better business climate," which in turn will lead to all boats rising. Instead those very same policies led to a massive financial crash, runaway inequality and a revolt against neoliberalism which fueled both the Sanders and Trump insurgencies. (See enough facts to make you nauseous.)

This ideology is so pervasive that today no one is shocked or surprised to see Democratic governors on TV ads trying to lure business to their states by promising decades of tax holidays. No one gags when politicians lavish enormous tax gifts on corporations-even hedge funds-in order to keep jobs from leaving their states .

Similarly, we have grown accustomed to the neoliberal notion that we should go deeply into debt in order to gain access to higher education. Free higher education, which was the norm in New York and California until the 1970s, was "unrealistic" until Sanders rekindled the idea.

More troubling still, elites propagated the idea that public goods should not be free and available to all via progressive taxation. Rather public goods were denigrated and then offered up for privatization. Even civil rights icon Representative John Lewis used the neoliberal framework to attack Bernie Sanders' call for free higher education and universal health care: "I think it's the wrong message to send to any group. There's not anything free in America. We all have to pay for something. Education is not free. Health care is not free. Food is not free. Water is not free. I think it's very misleading to say to the American people, we're going to give you something free."

Obama/Clinton Didn't, Trump did

Ironically, while Lewis is defending neoliberalism, Trump actually is attacking two of its foundational elements-free trade and unlimited capital mobility. Not only is Trump violating neoliberal theory, he also is clashing with the most basic way Wall Street cannibalizes us. Without the free movement of capital, assisted by trade deals, financial elites and their corporate partners would not be able to slash labor costs, destroy unions and siphon off wealth into their own pockets.

In particular, we should be extremely worried about how Trump is approaching the loss of manufacturing jobs. The neoliberal fog should not cause us to miss the obvious: presidents Obama and Clinton did absolutely nothing to stop the hemorrhaging of middle-class manufacturing jobs to low-wage countries. (U.S. manufacturing fell from 20.1 percent of all jobs in 1980 to only 8.8 percent by 2013.) Not only did Obama and Clinton fail to stop even one factory from moving away, but they truly believed that capital mobility and free trade were good for America and the world. In other words they had sipped plenty of the neoliberal Kool-Aid.

Meanwhile, Trump is all in. He is saying that jobs in the U.S. are more important than the long-run benefits of capital mobility and TPP/NAFTA agreements. If he keeps bashing corporations for moving jobs abroad and if he manages to ignite even a mini U.S. manufacturing jobs boom, Trump could be with us for eight long years.

But What About the Poor in Other Countries?

To many progressives, saving American jobs sounds jingoistic and "protectionism" is a bad word. Isn't global trade helping the poor become less so around the world? Isn't it selfish only to protect American jobs? Isn't it more moral to share scarce manufacturing jobs with the poor in Mexico and Asia? After all, even if a plant closes in the Rust Belt, service sector jobs can be found at wages that still are far higher than what the poor can hope for in low-wage countries.

You can be sure corporations will be playing this tune if Trump tightens the screws on capital mobility.

These arguments however have little to do with how the world actually functions.

No, it's not possible to make a credible progressive case for outsourcing your neighbor's job

What Do We Do?

The progressive instinct, and rightfully so, is to trash Trump. If he's for it, we must be against it. When it comes to immigration, civil rights, abortion, freedom of the press and many, many other issues, that's a sound strategy.

But trashing Trump for saving jobs in the U.S. is suicidal.

In opposing Trump, we must not slip into defending neoliberalism. It's not okay for corporations to pack up and leave. We should have some control over our economic lives and not leave all the crucial decisions to Wall Street and their corporate puppets. Trade deals are bad deals unless they enforce the highest health, safety, environmental and labor standards. And those measures must be enforceable by all the parties. The race to the bottom is real and must stop.

In the U.S. We Should Be Mobilizing the Following Areas:

1. Organize the outsourced : We should identify and organize all those at risk from off-shoring. We need to make sure Trump and Congress hear from these actual and potential victims. Trump needs to be reminded each and every day that there are millions of jobs he must protect. At the same time we should be rounding up support for the Sanders bill to stop off-shoring .

2. Resist: Trump has made it clear to corporate America that in exchange for job creation in the U.S. he will cut their taxes and regulations. We should demand that all tax "reforms" include a new financial speculation tax ( Robin Hood Tax ) on Wall Street to slow down their insatiable greed. Also, we need to fight tooth and nail against any weakening of workplace health, safety and environmental regulations. We have to destroy the Faustian bargain where jobs are protected but the workers and the communities are poisoned.

3. Connect: More than 3 million people protested against Trump. But it is doubtful that dislocated workers and those facing outsourcing were involved in these marches. That's because the progressive movement has gotten too comfortable with issue silos that often exclude these kinds of working-class issues. That has to change in a hurry. We need to reach out to all workers in danger of off-shoring-blue and white collar alike.

4. Expand: Many key issues-from having the largest prison population in the world to having one the lowest life-spans-are connected through runaway inequality . Outsourcing is deeply connected to the driving force behind runaway inequality-a rapacious Wall Street and its constant pressure for higher returns. We need to broaden the outsourcing issue to include stock buybacks and the other techniques used by Wall Street to strip-mine our jobs and our communities. It's time for a broad-based common agenda that includes a Robin Hood Tax on Wall Street, free higher education, Medicare for All, an end to outsourcing, fair trade and a guaranteed job at a living wage for all those willing and able.

5. Educate: In order to build a sustained progressive movement we will need to develop a systematic educational campaign to counter neoliberal ideology. We need reading groups, study groups, formal classes, conferences, articles and more to undermine this pernicious ideology. Some of us are fortunate to be part of new train-the-trainer programs all over the country. We need to expand them so that we can field thousands of educators to carry this message.

Yes, all of this is very difficult, especially when it seems like a madman is running the country. It is far easier to resist than to tear apart neoliberalism. But we have to try. We need to recapture the job outsourcing issue and rekindle the flames that ignited Occupy Wall Street and the Sanders campaign.

34 0 191 0 2 Gerard Pierce , February 6, 2017 at 3:28 am

Les Leopold explained some of his beliefs on the Smirking Chimp. I made a comment to that article that I think should be repeated here ==>

At the moment, it's hopeless because we do not have a platform.

Most of the supposed liberals out there cannot defend welfare of any kind, cannot defend Social Security and cannot defend most of what they supposedly stand for in any kind of intelligent way.

There are circumstances where "welfare" is a moral necessity. There are also circumstances where you tell the claimants to get a job. Sometimes you help them to get that job.

It's necessary to be able to tell the difference and to be able to explain the difference.

Too many supposed liberals do not understand how the labor movement became corrupt enough that "right to work" looked good to people who were paying dues and getting little back.

If you do not understand your own "liberal" beliefs, some uneducated red-state buffoon will make you look like the bad guy

You not only need to understand your own beliefs, but you need to be able to debate them with other wanna-be liberals until you have a platform that means something.

flora , February 6, 2017 at 3:41 am

"we do not have a platform ."

The Sanders' campaign platform works for me.

BeliTsari , February 6, 2017 at 6:30 am

Yep, everything Trump will do to bait Liberal "resistance," they will eagerly fall for. It leaves a LOT of wiggle room for a movement to get between DC's Kleptocrats and Trump's supposed constituency (victims? marks?) about to lose their jobs, homes, equity, retirements & kids to imperialistic wars. If there's a Left in this country, it simply HAS to be more than white kids on TV, in black face masks we need to dodge Trump's trolling and fight unremittingly FOR living wages, job safety, healthcare, upwards mobility & AGAINST a predatory FIRE sector, ALEC kleptocracy & their media's 24/7 reality infomercial. For way too long, the whole good cop/ bad cop scam has been Yuppie liberals vs Oligarch's running dogs, we've tried to live off any chunks that'd trickle down through the maelstrom above our heads, to which we were not invited

nycTerrierist , February 6, 2017 at 9:17 am

Same here.

Katharine , February 6, 2017 at 10:04 am

+1

Mel , February 6, 2017 at 12:05 pm

Quite. No reason Sanders' platform can't be used. There's also a 5-point platform right in plain sight at the end of Leopold's article.
Some people seem to have this urge to outsource the platform to somebody else - the Democrat Party, or maybe others. No. No need to go elsewhere. There's two platforms right here. Use them.

b1daly , February 6, 2017 at 5:53 am

The problem is that economic systems are complex, emergent phenomena. They influenced by culture, chance, ideas, tribal instincts, technology (including financial technology), geography, tradition, the environment, human nature, migration, religion, and on and on.

This notion that something as complex as human society can be analyzed under an intellectual construct, whether neo-liberalism, socialism, or Rastafarianism defies common sense. Centuries of intense theorizing by some very smart people have led to an understanding of parts of social systems. But, for example, economists disagree profoundly on basic aspects of macroeconomics.

Neo-liberalism is not even a well defined concept. I don't know of any politician in the US who declare themselves "neo-liberal." Read the Wikipedia article to see just how poorly this concept is defined.

Among some self-imagined progressives it's become a perjorative term to apply to leaders who they disagree with. IMO, politicians do not govern according to abstract concepts. The honest ones are simply trying to govern, in the context of the society they live in. At times, historically unique situations arise, and political leaders are stumped for solutions. At such a time, some kind of think tank might propose their pet theory to be considered as a factor in making decisions (the "neo-cons" had their chance in the build up to the Iraq war).

I want Trumps ability to wreak havoc on the economy and civil infrastructure minimized, and him gone as President as soon as possible. This is not going to be easy. If, at the same time, think you can throw in the reform of global economic structures, and succeed, you're delusional.

FWIW, to the extent that policians like Chuck Shumer or Hilary Clinton are influenced by neo-liberal ideas, it is at the level of ideas. People can change their mind, or have it changed, on things like this. Quickly. In contrast to something like pro-Zionist policies, to which a polician might have a deeper attachment, very resistant to change.

Outis Philalithopoulos , February 6, 2017 at 11:09 am

I was a bit confused by this comment.

The first two paragraphs are making a broad sort of argument, which if taken with its full force seems to mean that any attempt to use theoretical generalizations to understand the world is oversimplifying and therefore questionable.

The third and fourth paragraphs take issue more specifically with the term "neoliberalism."

However, the fifth paragraph seems to imply that anti-neoliberalism involves "reform of global economic structures," and therefore maybe isn't as poorly defined as the previous paragraphs would have led one to assume.

Meanwhile, the sixth paragraph undercuts the fifth. The fifth implies that opposing Trump is so important that we should temporarily abandon any attempt to move the discourse on the overall economic direction of the country or the world. The reason given is that moving said discourse is supposed to be a herculean, nearly impossible task. The sixth paragraph, instead, suggests that Schumer and HRC can have their mind changed "quickly" on these sorts of issues, and so maybe the overall project isn't so infeasible after all.

Vatch , February 6, 2017 at 11:55 am

"FWIW, to the extent that policians like Chuck Shumer or Hilary Clinton are influenced by neo-liberal ideas, it is at the level of ideas."

I'm skeptical about this. Chuck Schumer and Hillary Clinton are influenced by neo-liberal ideas at the level of massive donations to their campaign committees or family foundation.

jrs , February 6, 2017 at 12:20 pm

If you just get Trump gone, another Trump or worse will be produced in a decade or so (never mind Pence in the meantime, that we could endure, I'm focusing longer term). An awful system, that makes everyone poor (mass impoverishment), stupid, and exhausted, produces awful results in terms of governance (money in politics does not help of course).

old flame , February 6, 2017 at 12:46 pm

I always took neo-liberalism to mean world domination by banks FIRE sector and neoconservatism by the military and their suppliers and also oil which greases the military wheels. Farms fall into the latter I guess for the defense of the "landed gentry". Watched the farm reports lately and they are quite upset by the non-passage of the TPP which would have given them higher price supports. All of it is ruled by multi-nationals' money and clout so there is overlap.

flora , February 6, 2017 at 2:22 pm

Don't equate the giant corporate agri-biz sector – Monsanto, ADM, IBP, et al – with small family farms. Factory farms might be for TPP. The small family farm, the independent farmer, not so much.

see, for example:
http://www.sraproject.org/2014/11/unfair-trade-ttp-and-ttip-vs-family-farms/

flora , February 6, 2017 at 2:43 pm

adding: Wall St speculates in grain and farm/food commodities. Wall St isn't happy with the demise of TTP. This from a few years back, but still relevant.

" Futures markets traditionally included two kinds of players. On one side were the farmers, the millers, and the warehousemen, market players who have a real, physical stake in wheat .

"On the other side is the speculator. The speculator neither produces nor consumes corn or soy or wheat, and wouldn't have a place to put the 20 tons of cereal he might buy at any given moment if ever it were delivered. Speculators make money through traditional market behavior, the arbitrage of buying low and selling high. And the physical stakeholders in grain futures have as a general rule welcomed traditional speculators to their market, for their endless stream of buy and sell orders gives the market its liquidity and provides bona fide hedgers a way to manage risk by allowing them to sell and buy just as they pleased.

"But Goldman's index perverted the symmetry of this system. The structure of the GSCI paid no heed to the centuries-old buy-sell/sell-buy patterns. This newfangled derivative product was "long only," which meant the product was constructed to buy commodities, and only buy. At the bottom of this "long-only" strategy lay an intent to transform an investment in commodities (previously the purview of specialists) into something that looked a great deal like an investment in a stock - the kind of asset class wherein anyone could park their money and let it accrue for decades (along the lines of General Electric or Apple). Once the commodity market had been made to look more like the stock market, bankers could expect new influxes of ready cash. But the long-only strategy possessed a flaw, at least for those of us who eat. The GSCI did not include a mechanism to sell or "short" a commodity. "

More neoliberalism in action. It doesn't benefit either the small farmer or the person buying groceries.

flora , February 6, 2017 at 2:46 pm

oh, link:
Foreign Policy
How Goldman Sachs Created the Food Crisis, 2011
http://foreignpolicy.com/2011/04/27/how-goldman-sachs-created-the-food-crisis/

Wall St. certainly wants the TTP.

Brad , February 6, 2017 at 1:20 pm

Either reality is an unknowable fog, or it isn't. I say its knowable, however complex.

PH , February 6, 2017 at 6:11 pm

I agree many people here get caught up in labels. I think there is value in iconoclasm, but ultimately we have to take practical actions if we want to avoid trouble. Or, at least, avoid the worst trouble.

Many who comment do not seem to take seriously the danger of right wing fanaticism. I am not sure what would convince them.

Unfortunately, we may find out someday.

that guy , February 6, 2017 at 7:38 pm

You might be right. I certainly don't take right wing fanaticism seriously. Moreover I don't think it should be taken seriously, and unless things seriously changed recently, I live in a state that, statistically, has a lot of right wing fanatics.

They're not organized, they don't have a message that truly appeals, they don't have messengers with mass appeal, there's nothing there anyone can build on. Moreover, anti-immigrant sentiment comes and goes. In the 1840's we were having riots and people were beating Irishmen in the street because the economy sucked. But when things don't suck so bad economically, that evaporates like the morning fog.

Until right wing fanaticism can look like anything other than some angry guy with too many tattoos shouting angry slogans, or some weird dude who wants to actually create White America that srsly nobody listens to, y'know, until there's some unifying figurehead who can take it further and make it sensible-sounding and mainstream to the folks at home who work a 9-to-5, it's not even worth worrying about. I'm more worried about left wing extremists who show up in huge mobs and cause property damage, personally.

Altandmain , February 6, 2017 at 10:43 am

They are liberals, not left wing people.

By that I mean, they want neoliberal econoimcs with a socially left wing platform. No wonder they hate the left and supported Clinton so much. They want the status quo. Many are safely in the upper middle class, as the comments on the Women's March in Washington DC have revealed. They will never have to deal with the consequences of neoliberalism.

The Sanders base by contrast wants left wing economics and socially.

NotTimothyGeithner , February 6, 2017 at 11:45 am

The neoliberals don't even want left wing social identity progress. They just use it as a tool to capture voters. Team Blue types did jack to advance social issues until they were forced too or were simply bypassed. Obama's "personal endorsement" of gay marriage was covered by his support of state rights.

Allegorio , February 6, 2017 at 12:14 pm

Remember "Don't ask, don't tell."? Oh so socially liberal!

jrs , February 6, 2017 at 12:25 pm

Is anyone all that safely in the middle class these days? Even if they have a nice middle class job, so much that they don't have to worry about age discrimination as they get older? I don't think so. So much that even if they have a nice plum insurance plan at work, they never have to worry about healthcare for themselves or their loved ones? I'm not so sure

But sure it's not as immediate a threat, doesn't have the immediacy of say facing immediate eviction for the lack of a rent payment or something.

Michael Berger , February 6, 2017 at 4:44 am

What appeals to me most is the recognition here (item 3.) of the same concern for visa holders being locked out of entering the country needing to be shown to the laboring class already in the country.

For those laborers, seeing a few hundred (or goodness gracious, a few thousand) people protesting another production line being shipped off is better "messaging" than anything our ruling class will ever manage to conceive.

Seriously, I can think of no better image than social justice warriors standing up for workers desperate enough to vote Trump (or resigned enough to not vote at all).

There are potential friendships – or allyships if you prefer – to be created that could do wonders for much beyond economic concerns.

John Rose , February 6, 2017 at 12:41 pm

This has been my position from the early days of the Tea Party movement when I couldn't understand why the Democratic Party immediately sent organizers to help them with both organization and more importantly consciousness-raising.

Kramer , February 6, 2017 at 5:12 am

My problem is that I'm in a Red state. Democrats don't win elections here. I need a political organization that can give me the best possible republican. This would look like America first economics to protect American jobs (there is a huge appetite for this among the Republican voters I talk to.) It would mean accepting conservative social positions. The democratic party might be able to this but it would require one hell of a make over.

b1daly , February 6, 2017 at 6:08 am

It would, but it might be doable. A lot of the divide in American politics is around "the culture wars." I think people can adopt new ideas, and ways of looking at things, if they get that "tribal sanction."

This is just arm chair theorizing, but one of the big hang ups is that cultural difference is interwoven with historical precedents that operated at a more substantive, fundamental level in the society. For example, the theories of white supremacy were used to justify the appalling institution of slavery in the US. At that time, this enabled the dominant culture to benefit at the expense of the exploited.

But when cultural conditions change, such that economic systems like slavery are no longer operative, the ideas of white supremacy can live on as simply cultural identity.

For all the problems of our society, we have made progress, and the overt, legal racism that existed just 50 years ago has been minimized. So perhaps people interested in social justice can relax the hyper-vigilant, hyper-accusatory attitudes of political correctness, to make common cause with populations they have common interests with.

When social justice activists use the label of "racist" as a badge of shame on someone who transgresses whatever social line, it tends to cause hurt feelings. And accusations of reverse racism. Sigh. It could be different.

Terry Humphrey , February 6, 2017 at 11:07 am

They divide culturally because the social and economic is too complex to put on a sign.

Allegorio , February 6, 2017 at 12:27 pm

The Kulture Wars were specifically designed to put economic and Class issues on the back burner, Divide and Rule. What is the point of Lady Gaga waving her pussy in our faces at the super bowl, but to drive the socially conservative working class into the Republican party. Frankly the issue of who sleeps with who, who marries who and who has a baby, is done , covered by the assertion of privacy protection by the constitution. In any case, economic justice should take precedence. Time to move on from socially divisive issues.

Booqueefius , February 6, 2017 at 4:22 pm

Love your line about Lady Gaga. It is as if the powers that be understand completely the "backfire effect" and deploy it consciously to their advantage.

Steve H. , February 6, 2017 at 8:41 am

I completely disagree. While party organizations in red states may have little impact on those elected from their state, a hostile takeover of a state party can have real impact in terms of control of the national organization.

NotTimothyGeithner , February 6, 2017 at 9:49 am

Democratic Parties in red states especially are interested in keeping their invitations to Inaugural balls and holding Jefferson-Jackson (one would think these would have been renamed by now given how totes woke Team Blue types are, sarc) dinners. Who knows what could happen if they cared about results?

NotTimothyGeithner , February 6, 2017 at 9:34 am

I disagree. "Good Democrats" can win. People respect people who fight for their values or seem to fight for those values more than say a Hillary. The messaging of Hillary as a defender for women and children wasn't an accident.

The problem for the "deplorables" in regards to Team Blue is the neo liberals treat their concerns with contempt and have a recent history of betrayal.

It might take a while, but Virginia's fifth congressional district is the largest district by area east of the Mississippi. It's bigger than New Jersey and a relatively good Democrat (probably not the most pro choice person) won in 2008 against a Republican who won by huge numbers every years. That win didn't start in early 2008. It started in 2001 with a couple of sacrificial lambs to build operations to register voters, making sure the blue precpincts were registered and to go into the precincts that should be blue believed they can win.

I believe people will make good choices when presented with options, but putting up a non entity with cash who bemoans partisanship especially those "tax and spend liberals" is why Democrats fail. How did Alan Grayson get into Congress despite running in a district that went for Bush/Cheney twice while an adjacent district that went for Gore and Kerry keeps sending Republicans to Congress? The answer is people respect when they aren't being pondered too, and that is all Clinton Inc knows how to do.

John Rose , February 6, 2017 at 12:47 pm

This is probably how it needs to be done, district by district. Was this entirely home-grown or was there outside help from move-on or other groups?

NotTimothyGeithner , February 6, 2017 at 2:46 pm

Entirely home grown for all intents and purposes. Lynchburg produced a fair amount of volunteers and money despite not being in the actual district.

Dean's 50th the strategy didn't come from no where. The Internet existed before Facebook, and people have long memories of Democrats that did organization before 1994 (gee, I wonder who was in charge of Team Blue) and the destruction of the then permanent Democratic majority. People discussed this all over. Admittedly, I didn't entirely buy it until Kaine thumped a well liked Republican in 2005 running up the vote tally in areas where people had been organizing.

There is a reason why Clinton Inc is despised by otherwise seemingly, sensible Democratic types. The Clintons under perform because they run childish goldilocks campaigns. In 1992, Bill mustered 43% of the vote against 41 and a guy who basically wanted to bring back prohibition.

Philip Martin , February 6, 2017 at 9:26 pm

Thanks for bringIng up Dr. Dean's 50 state strategy. What the heck happened to that? I'm convinced that the strategy was a good part of Obama's victory in 2008. In Kansas, the Dems took a seat from the Republicans that year, and won Indiana and North Carolina. Lost Missouri by only 4000 votes. We could compete in these states and others (Arizona, Texas, Georgia) if the state Democratic parties would arouse themselves and do a bit of listening to people in their state.

ArkansasAngie , February 6, 2017 at 7:01 am

No more wedgies.

We are so wedged that we cannot form coalitions.

The Fallacy of the false dilemma.

Example we are wedged on refugees. How about we stop bombing Syria so that the urgency of refugees is reduced.

PH , February 6, 2017 at 7:12 am

Not sure study groups are the answer. Couldn't hurt, I suppose.

The article makes it sound like there was nothing but a clash of ideas for 40 years.

Out of the 70's there was a lot of racism and resentment at the stagflation that got channeled into Reagan. The right wing think tanks started an Amen chorus, abortion wars reached a fever pitch, and Dems started scrambling to try to win elections that they used to win on a FDR platform.

Then came the bubble of the 90s, and Wall Street Dems looked like geniuses.

A lot of people were drinking the Koolaid. Not just sold out Dem pols.

New day now. Lessons have been learned. Unfortunately, many people have learned the wrong lessons, nodding to the siren call of fanatical nationalism and Trump.

I am not sure what plan the proprietors of this blog favor, but I hope it includes the Dem party because that thin reed is the only thing between us and authoritarian rule for the billionaires.

Eureka Springs , February 6, 2017 at 8:48 am

Thin Reed? Authoritarian rule for the oligarchs

The Dems are the very embodiment of neoliberalism, representatives of oligarchs and soft sellers of authoritarian rule. Far far on the wrong side of the thin reed.

As the post mentioned – Largest imprisoned, in the world. Lowest life expectancy, for highest expenditures.Allowing millions to be foreclosed upon while further enriching the banksters who rigged the system. That's authoritarian in an extreme and only a few oligarchs benefit. Neoliberalism/Liberalism is authoritarian. Dems are the first to shoot down those who challenge them with so much as polite rhetoric. Feckless as Sanders was he clarified that for anyone who dare look-see, admit it to themselves.

If Dems were the only party in existence we would be where we are today, if not far worse. Just the way they structure and operate their party is more than enough to prove these points.

Love the post title but I would wear a t-shirt which say either of these things:

Don't Side With Neoliberalism in Opposing Trump.

Don't Side With Democrats in Opposing Trump

In fact I would prefer the latter.

PH , February 6, 2017 at 10:51 am

Why do you prefer Trump and the Republicans?

Mel , February 6, 2017 at 12:18 pm

Who said prefer? The thing with siding with the Democrats in opposing Trump is that in four or eight years we're left with nothing but siding with somebody else in opposing the Democrats. How about getting something done, finally? Crazy dream: make the Democrats side with us in opposing Trump.

tegnost , February 6, 2017 at 9:17 am

Naked Capitalism is both a reading and study group hey here's a thought, why don't the dems try to include usians, we're not democrats we're americans, after all, and we don't need them if they're going to continue to play the game as they have been playing it, supporting authoritarianism and heaping favors on billionaires. I don't see lessons having been learned, none of the hillary marchers I know can have a cogent , fact based conversation, it's just omg trump, marching is good, globalization o care what will the poor illegal immgrants do, cheap labor is essential, self driving trucks blah blah blah bail out wall st while fraudulent MERS documents are fabricated to steal peoples homes, remember linda green, remember non dischargeable student loans? Have you noticed all those tents under the bridges? The dems ruled for the 10% but it's a big country and a numbers game. You need to get out more. If the dems wanted to win bernie was the ticket. Instead they chose wall st and war then lost like they deserved to lose. In a representative democracy they are supposed to represent us, we're not supposed to represent the dems. They'll be included when they deserve to be, no one owes them allegiance.

PH , February 6, 2017 at 12:07 pm

I understand you do not like Dem leaders. But ultimately, the politics are not about them. It is about us.

How do we protect our kids, our parents, and our friends.

It involves organizing behind candidates at election time.

And at this point in time (where we are now) that means organizing through the Dems, through the Repubs, or some third party.

None of those options are obvious paths to success.

But we have to pick one, or do nothing.

jrs , February 6, 2017 at 12:34 pm

"And at this point in time (where we are now) that means organizing through the Dems, through the Repubs, or some third party."

Sometimes I figure it may as well be the Repubs (but not of course with their current platform, yea I know people think the Dems is an easier party to take over, but due to LOTE voting I'm not so sure.

beth , February 6, 2017 at 7:46 pm

Maybe you can tell me which is better? Cory Booker voted to prevent importation of Canadian drugs to lower the outrageous rx costs. Ted Cruz voted to import drugs so that we are not held hostage to US companies raising drug costs with impunity. Unless the dems are benefiting citizens why should we support them. Bernie's bill would have passed except for 14 dem senators voted to keep drug costs high . Who should we vote for in the next election?

I hope I am not posting too late. Please delete this if you think I am.

PH , February 6, 2017 at 9:51 pm

Booker is a phony. Cruz is a creep. Not much to cheer for in either case.

I am not suggesting that you owe allegiance to any candidate or party.

I am suggesting that party politics is an avenue for organizing, and Dem party and traditional coalition is the better avenue for action. Not to do the same things, but to work for peace justice and tolerance.

Where to target work for change.

The Repubs are not what some people here imagine. And they will do great harm.

Ulysses , February 6, 2017 at 7:43 am

"That thin reed is the only thing between us and authoritarian rule for the billionaires."

No, that "thin reed" would have continued to obfuscate the existence of authoritarian rule for the billionaires through cynical, insincere manipulation of idpol wedge issues.

The regime change we are witnessing, here in the U.S., is the cutting out of a layer of cynical, professional grifters between the kleptocrats and the people. In other words authoritarian rule for the billionaires is morphing into direct, in-your-face kleptocracy by and for the billionaires.

There was an important discussion earlier, here at NC, that I think is relevant to our current situation, sparked by Kalecki's observation that:

"One of the important functions of fascism, as typified by the Nazi system, was to remove capitalist objections to full employment."

http://www.nakedcapitalism.com/2012/08/kalecki-on-the-political-obstacles-to-achieving-full-employment.html

It is understandable that American workers would find a genuine commitment to full employment, after so many decades of neoliberal job outsourcing, exhilarating.

Yet, smashing unions and "othering" large segments of the population didn't end well for the Germans in the mid-20th century, and there's no reason to believe it would work out any better over here.

PH , February 6, 2017 at 8:16 am

Maybe that was a significant aspect of the rise of Nazi rule, but it seems to me a bit reductionist to see the Nazis through such a narrow lense.

Similarly, I think we should resist the temptation of seeing Trump exclusively through the lenses of our anger at Bluedogs for getting us into this mess. I am angry. And those soulless climbers are still running the show in Congress. I am angry about that too.

But these are dangerous times. We need to organize. We need to win elections. And we do not have ANY easy path that I can see.

In my view, we need to channel our energy into primary challenges in the Dem party.

Gman , February 6, 2017 at 9:53 am

The US Democratic Party has more than a little in common with the British Labour Party sadly.

I wouldn't pin your hopes on their resolve to stand up for the average working voter in the face of big money interests.

Both parties have steadily rendered themselves irrelevant to their erstwhile core voters through a toxic combination of venality, hubris, contempt, obsessive virtue signalling/ political correctness, vacuous ideologies, a reliance on endless empty rhetoric, populism, 'foreign misadventure' and much more besides.

Their currency, in the eyes of swathes of once loyal voters, has been so devalued under the leaderships of flag of convenience crypto-neoliberal politicians like Blair, Brown, the Clintons and Obama that this is going to be a Herculean task to row back from in order to recentre and reconnect with betrayed, bruised voters.

Trump might be a crass out and out shameless, populist, self-serving sociopathic assh#le, but unlike those mentioned above, in the eyes of many of those disenfranchised who backed him, some most likely out of desperation, at least he's currently less of a lying hypocrite and, more importantly, he hasn't let them down badly yet.

Ulysses , February 6, 2017 at 10:56 am

"Both parties have steadily rendered themselves irrelevant to their erstwhile core voters through a toxic combination of venality, hubris, contempt, obsessive virtue signalling/ political correctness, vacuous ideologies, a reliance on endless empty rhetoric, populism, 'foreign misadventure' and much more besides."

Very well said!

Gman , February 6, 2017 at 3:20 pm

Many, many thanks.

Steven Greenberg , February 6, 2017 at 8:37 am

This is not quite right "Trade deals are bad deals unless they enforce the highest health, safety, environmental and labor standards."

Labor in the underdeveloped countries consider some of this to be the developed countries' trick of preventing the people in the underdeveloped countries from getting jobs. There is some truth to this idea. When we negotiate trade deals, we must remember that in a fair negotiation neither side gets everything it wants, but each side must get enough of what it wants to agree to the terms of the negotiation.

The trouble with past trade pacts is that only the corporations on both sides of the deal were represented. In the future, labor and environment on both sides must be represented in the negotiations.

tegnost , February 6, 2017 at 9:25 am

not quite right, the stateless multinationals play both sides off each other. Globalzation deals like TPP with ISDS clauses are designed to limit sovereignty. We have free trade, you can go anywhere in the world and buy whatever you want to, your "fair negotiation" is a canard and misdirection.

John Wright , February 6, 2017 at 9:33 am

One may also refer to USA communities who will accept higher levels of pollution caused by an EPA targeted local industry/plant that provides local jobs where they are in short supply..

This is very similar to a foreign country accepting higher pollution in trade for jobs for their citizens.

When someone is desperate to support their family, compromises are made, and the USA has plenty of examples.

BeliTsari , February 6, 2017 at 10:03 am

That's kind of representative of the basic problem: before the white working class morphed into The Middle Class during Reagan's Miracle, they'd long since abandoned hell with the lid off, for suburbia (the nation's economy was based upon this; unions, political parties, finance all fed off of upward mobility, basically away from the poor, polluted, neglected, heavily policed industrial areas (bottom feeders like Trump's dad or DNC's slumlord super-delegates hardly invented this). EZ Credit, Bail Bonds, Party Stores, doc-in-a-box, PayCheck Loans sucked-up what the politicians' business associates left behind. As Trump moves on from trolling liberal elites to fomenting race war, mass incarceration, etc, as LBJ, Nixon, Reagan & Clinton did with urban renewal, the war on drugs, welfare reform some of us will scrambling to figure out just how we're not just another part of the problem?

BeliTsari , February 6, 2017 at 12:15 pm

PS: The rust belt is a fascinating place just now! http://www.adweek.com/brand-marketing/the-ending-of-84-lumbers-super-bowl-ad-is-a-beautiful-and-provocative-take-on-immigration/

John Rose , February 6, 2017 at 1:04 pm

I wish I was still building houses so I could change suppliers.

jrs , February 6, 2017 at 12:37 pm

U.S. = 3rd world country.

digi_owl , February 6, 2017 at 8:47 am

As best i can tell, the neolibs have hijacked feminism for their own ends

NotTimothyGeithner , February 6, 2017 at 9:19 am

"When fascism comes to America, it will be wrapped in the flag and carrying a cross." -Upton Sinclair

One group of corporate war mongers likes different symbols.

polecat , February 6, 2017 at 3:17 pm

A contemporary version of that Sinclair quote could be stated as such :

"When Neo-fascism comes to America, it will be wrapped in a Lady Gaga p#ssy-gown and carrying a case of birth-control pills . while screaming 'White, Deplorable, F#cker' !!"

Gaylord , February 6, 2017 at 9:44 am

Offshore tax sheltered wealth in the trillions must be reigned in, but nobody in a position of leadership is allowed to touch it, only to make token noises about it like Sen. Warren does.

John Wright , February 6, 2017 at 9:58 am

It appears that Leopold misses another issue that hits American workers, that being the "insourcing" of foreign workers, either legally (H1-B's) or illegally to the USA.

American workers are certainly aware that some jobs can be outsourced via computer/phone networks to other countries, but are also aware that neo-libs have been more than willing to also let jobs that require a physical presence in the USA be wage arbitraged down via increasing the domestic labor supply via immigration.

I don't believe the old assertion that "an immigrant displacing an American worker frees the American to find a better job" gathers much support from American workers/voters, if it ever did.

Trump tapped into this, and the Democrats will ignore this issue at their peril..

Neither political party wants to enforce employer sanctions, via mandatory E-Verify, as that would be frowned on by both party's paymasters.

Sam , February 6, 2017 at 9:59 am

"Trump actually is attacking two of its foundational elements-free trade and unlimited capital mobility. Not only is Trump violating neoliberal theory, he also is clashing with the most basic way Wall Street cannibalizes us. Without the free movement of capital, assisted by trade deals, financial elites and their corporate partners would not be able to slash labor costs, destroy unions and siphon off wealth into their own pockets."

Given the ease with which Trump reverses himself, I wouldn't take these utterances seriously.

Vatch , February 6, 2017 at 10:03 am

At the same time we should be rounding up support for the Sanders bill to stop off-shoring.

I couldn't find "Outsourcing Prevention Act" at Congress.gov. It is possible that the bill hasn't been introduced yet? Or maybe it has another name? I found these possibilities:

H.R.357 – Overseas Outsourcing Accountability Act

H.R.685 – Bring Jobs Home Act

S.234 – A bill to provide incentives for businesses to keep jobs in America.

Carolinian , February 6, 2017 at 10:05 am

Good article but needs an addendum: don't side with Democrats in opposing Trump. There's a case to be made that Trump himself is really an independent even though he has by necessity stuffed his administration with some GOP trogs. Therefore when Trump does something our side likes he should be praised even though it might diminish the chances of the dearly sought Trumpexit. The US public at large increasingly see themselves as independents rather than supporters of the duopoly and the left–including and perhaps especially Sanders–should stop fooling themselves that they will ever reform the Dems. In fact the thing that might do the most to reform the Dems would be some vibrant third party competition that forces them to protect their left flank.

PH , February 6, 2017 at 2:24 pm

Nothing wrong with a third party approach in theory.

In practice, it would likely take many years. It is not culturally accepted, nor do our voting laws favor third parties.

I do not think we have that much time.

joe citizen , February 6, 2017 at 4:05 pm

But we have enough time to hope the Democratic Party who is completely subservient to corporate interests will suddenly decide to forget about all the money they are making and side with the workers, poor, and the environment? Voting in all new people would take many years, not to mention the party structure that cannot be changed by voting. The majority of registered democrats support neo-liberal candidates. How do you propose this quick change of the democratic party to support traditional leftist policy will take place?

paul Tioxon , February 6, 2017 at 10:18 am

Note to self: I will not be bamboozled into self-destructive political adventurism by mindlessly opposing the perfectly legitimate President Trump when ever he happens to do something so swell that helps pay the rent, buys food and keeps a roof over my head. I will stop going to ALL of those protest marches that demands that rowhouse Philadelphia give up their jobs in reparations for neo-colonial and hegemonic neo-liberal bad stuff by sending them to Mexico and the Dominican Republic or even Viet Nam or China. I understand that people in America are people too, and need their jobs and do not have trust funds to live off of when they donate their employment with no hope for a replacement job to prevent a downward spiral into poverty.

I get it, by not focusing on real pocket book issues and major social programs, like the ones we used to get in the afterglow of post WWII economic expansion, we just left the barn door open for all of the wronged white guys in coal mines, all 57,000 of them nationally, to come out in the full force of democracy in action under our definition of democracy, the electoral college. By not recognizing that the iron law of democracy, where the consent of the majority of people is the deciding principle in American politics, and marching after a political loss instead of going out in front of the coal mines and factories and laying down in front of the trucks hauling jobs away, I am a dope. I promise to fete The President Trump in editorial pages, blog sites, graffitti on walls and other public property when he creates jobs as a result, direct or indirect, of his policies. After all, it is axiomatic that if Trump repeatedly fails to do anything of value for our nation, most of us will suffer. If he puts forth an infrastructure financial package with the Japanese and their global investment bank, I will hail as a partnership in progress.

After all, if we can fix up the country's faltering highways and bridges and air ports and sea ports, we will modernized America, give people good paying jobs. And that is a good thing. I am all for it. President Trump is supposed to be all for it. So, when the jobs start pouring in with all of the concrete and rebar, I will not protest. I will publicly applaud him. I will however be organizing behind the scenes to crush him like a bug in the next election. I foresee a bidding war in jobs offered to the forgotten and not so forgotten and I expect to come out on top as the highest bidder.

Left in Wisconsin , February 6, 2017 at 10:31 am

Les Leopold is a smart guy and always has interesting things to say. But in this case, I think he glosses over the biggest issue: people will not organize into unions if they believe that doing so, or trying to do so, risks making their personal employment situation worse, not better.

Anti-union activity by employers is now so routine and expected, and protections for workers trying to organize, either from unions or government, are so weak that the vast majority of working people have come to view trying to organize as insane. (Yes, card check will help in a few situations but is not a game changer.) The purported low unemployment rate does nothing to empower working people because (except for the occasional exception that proves the rule) it is still overwhelming the case that one's current job is better than any likely other job one would have to get if one lost it. And irritating your boss is still the likeliest way to get fired, or get your department outsourced, or get your entire workplace shut down.

And the fact that some public sector workers still have workplaces that make them less likely to get fired or replaced for trying to exercise workplace "rights" just points out how poor things are for most private sector workers, resulting in even less sympathy for those workers.

What Trump gets is that, in this environment, most working people will support the (anti-tax, anti-regulation) platform their boss supports, rather than the (higher-tax, stronger-regulation) one their boss hates, if the (strong union) platform that is good for them that their boss really, really hates is off the table.

Platforms and study groups are well and good but we need much more. As said above, we need a new labor movement, in particular one that can organize in the private export-sensitive sector. There is no such thing as a(n even moderately) successful labor movement without strong unions in the private export-sensitive sector. But there is no way to organize workers in this sector without being able to demonstrate why being in a union is likely to materially improve their well-being. But one can't get such a thing without strong government support to ensure trying to organize doesn't in fact risk resulting in losing your job. Chicken-And-Egg problem.

old flame , February 6, 2017 at 12:20 pm

Employers have so much power over workers now: right-to -work laws, tax incentives, H1B and undocumented workers, Chamber of Commerce and lobbyists. Probably the only way to have any clout would be to have a National Strike and boycotts which would be tough to organize. I know that employers in an area will collude with other companies to set and limit wages and benefits. I had a friend that I worked with in a factory back in the 70s who was promoted to the office in a secretarial position who told me about meetings our company had with other ones in the community where they discussed and made agreements on labor issues. This was back in the 70s. They were always threatening us about unions and I never had heard anyone talk about joining one or any kind of union activity.

TG , February 6, 2017 at 10:32 am

Yes, well said as usual.

As regards the standard of living in third-world countries, it should by now be apparent that the model of 'development' that uses low wages to attract foreign businesses simply can not – and does not – increase general prosperity. How can it? The model is that low wages ('affordable labor costs') are the engine, therefore the wages need to stay low to keep the multinationals in place.

Look at the effects of NAFTA: the United States lost a lot of jobs, Mexico gained jobs, but Mexican wages remain low. The NAFTA model is pulling the United States down and not pulling Mexico up. That is now well established. Nobody need feel any guilt about opposing trade agreements like NAFTA.

Ah, but what about China? Well China is a little different from Mexico – they are more mercantilist. In the long run the established method of creating prosperity is to have a stable or slowly growing population, and slowly but steadily build up endogenous industries and a strong internal market. "Race to the bottom" trade agreements yield exactly what the term suggests.

PQS , February 6, 2017 at 11:08 am

Where do I sign up? I'm ready to go. However, I think one aspect of this transformational mission is missing: MONEY.

The RW has metric tons of billionaires who use their money to propagate their ideologies and build "think tanks" and other institutions to provide the veneer of respectability. I believe it's one of the primary reasons that they've been so successful in pushing their extreme ideas on everybody. They have an ALEC branch in every statehouse writing laws, which I'm sure they don't do for free. They can gerrymander, buy off, and otherwise distort the entire process for little more than walking around money for them.

I know Sanders nearly won with small donors, so perhaps that could be replicated in this scenario, but long term, I think having some serious money to back up these initiatives is going to make the job actually doable. And there are a few actual billionaires who might be amenable to using their wealth for the greater good. Nick Hanauer comes to mind.

JEHR , February 6, 2017 at 11:33 am

During the Depression of the 1930's in the Maritimes, the Antigonish Movement began:

The Antigonish Movement blended adult education, co-operatives, microfinance and rural community development to help small, resource-based communities around Canada's Maritimes improve their economic and social circumstances. A group of priests and educators, including Father Jimmy Tompkins, Father Moses Coady, Rev. Hugh MacPherson and A.B. MacDonald led this movement from a base at the Extension Department at St. Francis Xavier University (St. F.X.) in Antigonish, Nova Scotia.

The credit union systems of Nova Scotia, New Brunswick and PEI owe their origins to the Antigonish Movement, which also had an important influence on other provincial systems across Canada. The Coady International Institute at St. F.X. has been instrumental in developing credit unions and in asset-based community development initiatives in developing countries ever since.

It is noteworthy that the movement began with Adult Education: if people do not understand what has brought them debt and poverty, it will be difficult to counteract them.

I'm sure that in the US during the Depression, there were many such movements which helped people understand and defeat the Depression.

Looking back at what succeeded in the past can help towards a better future. Of course, it will have to be adapted for the present problems, but starting with education is a really positive move.

John Rose , February 6, 2017 at 1:13 pm

How about online adult education drawing on the talents of charismatic teachers and more local face-to-face seminars to provide the core activists we need.

Jack , February 6, 2017 at 11:33 am

Good article which made some good points.
"The progressive instinct, and rightfully so, is to trash Trump. If he's for it, we must be against it."
One instance of this is the huge play the immigration fight is getting. I don't agree with how Trump enacted his immigration "reform" but I agree that immigration needs to be curtailed. Significantly curtailed. H1B visas pretty much need to be done away with, and if you are in this country illegally, you need to leave. And any further immigration needs to be reduced. This outcry against immigration reform by the liberals, what many in this country see as a huge problem, is not winning over any hearts and minds in flyover country. It's like when Bill Clinton first got elected and he wasted a lot of time and political capital on the gays i the military issue. Only this time the Dems are not even in office. Still a waste of political capital. In my mind this whole immigration reform paranoia is just another form of identity politics by the Democrats. What progressives need to focus on is campaign finance reform, jobs, health care reform, education, and increasing taxes on the wealthy and corporations. Those issues resonate with everyone, Republicans and Democrats alike. It is why Trump won. Don't fix these problems and immigration will be the least of our worries as a nation. If things get worse in our economy, immigrants and refugees are going to be in a much worse place than they are right now. People who are going hungry and who are sick with no hope on the horizon have to blame someone. And Americans are not known for the high level of intelligence and knowledge of how the world really works. Anyone who looks "different" will be blamed and there will be blood in the streets. I think we are almost to that point now.

jrs , February 6, 2017 at 12:46 pm

"This outcry against immigration reform by the liberals, what many in this country see as a huge problem, is not winning over any hearts and minds in flyover country. It's like when Bill Clinton first got elected and he wasted a lot of time and political capital on the gays i the military issue. Only this time the Dems are not even in office. Still a waste of political capital. In my mind this whole immigration reform paranoia is just another form of identity politics by the Democrats."

The Dims maybe, but that's not why actual people protest, it's mostly because they know illegals are those who serve their food when they order breakfast, are on the train on the way to work, etc.. I know fly-over just doesn't get it, because they don't live among and with illegals as part of their daily life, but it's hard to see them driven out if one does.

Generalfeldmarschall von Hindenburg , February 6, 2017 at 12:02 pm

re "But What About the Poor in Other Countries?"

All the points made in answer to that need to be memorized, because if you're to the left of Andrew Carnegie or Ayn Rand that's what they'll throw at you. 'Americans consume 99% of all fossil fuels and create 98% of all the trash and blah blah!' We're a little sick of it.

jrs , February 6, 2017 at 12:49 pm

"Americans consume 99% of all fossil fuels and create 98% of all the trash and blah blah!' We're a little sick of it."

It's all true of course.

But yea they rely on left/liberals basic goodness (ok not all liberals have any real goodness (or why don't they oppose the wars more?), most leftists are pretty darn moral though) and they'll use it to enrich themselves, because they are not good at all, but know how to get good people to be subserviant to their own selfish ends.

Wade Riddick , February 6, 2017 at 12:07 pm

Most manufacturing jobs are lost via automation, not outsourcing. What do we plan to do about that?

The cheaper the capital (e.g., low interest rates), the easier it is to substitute capital for labor. Whenever the Fed bails out a bubble via monetization, labor takes another hit.

Solar's more cost-effective and adding more jobs now than the fossil fuel industry – yet official policy now seems hell-bent on ginning up another oil reserve lending bubble.

Plenty of inconsistencies abound

Left in Wisconsin , February 6, 2017 at 12:09 pm

Most manufacturing jobs are lost via automation, not outsourcing.

Do you a citation for that? I have looked for actual evidence/proof of this claim and have not been able to locate any.

Brad , February 6, 2017 at 2:17 pm

Wade is correct. I've posted a chart of the BLS statistics on long term manufacturing employment in absolute and relative terms on this site. Manufacturing employment's relative share of total employment has fallen in a straight and steady diagonal line from upper right to lower left from its peak in the 1950's to the present. Began long before off-shoring was a thing, and off-shoring doesn't even clearly show as an independent variable. Otherwise we'd see a significant bend in the curve. Instead, significant deviations are conjunctural, connected to recessions.

The BLS charts can be easily researched by anybody on this site. I don't want to hear conspiracy theories about how BLS has politically rigged the stats for 60 years as lazy substitute for critical approaches to BLS statistical methods. If you want to refute the evidence, that's what is required.

BTW, as I've also mentioned, there is a "revolutionary left" version of this emphasis on off-shoring over automation/mechanization, "Imperialism in the Twenty-First Century" by John Smith, http://monthlyreview.org/2015/07/01/imperialism-in-the-twenty-first-century/

It fails to assess the real weight of off-shoring vs automation because Smith doesn't base his analysis on the effects of automation, and then move to assess the effects of off-shoring. Therefore Smith can never present a clear quantification of the effects of off-shoring on employment in a metropolitan country like the US.

At root Smith's limitations are found in his Andre G. Frank "development of underdevelopment" bias. This cannot conceive of under- or uneven- development in an "already developed" country like the US. But that is precisely, palpably, what has happened. And it is inevitable under capitalist automation once it reaches a tipping point. As I believe it has, where only some 25% of the total available labor force is required to produce everything we (very wastefully) consume now, today.

As an aside, note that off-shoring is not to include products never produced in the US in the first place, like most of Apples' iProducts. You can't "off-shore" jobs you never worked at, now can you! This represents a different process, the export of *new* capital investment, in this case in a contract relation with Chinese SEZ capitalists, not the transfer of *existing* productive investment overseas. But Smith includes iProducts in his "off-shoring" mix.

The Smith example shows this is a matter of the basic facts about capitalism, not about left or right politics. That is exactly why people gravitate towards off-shoring as a prime-mover in job loss, precisely because something politically can be done about that. Yet if you somehow forced all US corporations to 100% invest production in the US, you will only greatly accelerate the trend of job loss due to automation, as it will be the only lever they have left. Unless you want to halt all human progress in the productivity that has already freed up 75% of our labor time to do something other than maintain the current standard of living.

The real political problem we need to confront is that, despite these real productivity gains, capitalism requires that the whole mob of proles be continuously prodded onto the wage labor market, whether their labor is necessary or not. That's the fundamental program of the Congressional snakepit and its Statehouse auxiliaries. The wage labor social relation is the source of the social power of capitalists, and without it they and their system go Poof.

A good reform proposal would be: a guaranteed *medium* income for all (or alternatively, a guaranteed "job" for all at the same income or greater); a system for equitably circulating the total potential labor pool in and out of the pool of necessary labor. It will require a revolution to achieve such a reform.

pricklyone , February 6, 2017 at 5:31 pm

@Brad
"As an aside, note that off-shoring is not to include products never produced in the US in the first place, like most of Apples' iProducts. You can't "off-shore" jobs you never worked at, now can you! This represents a different process, the export of *new* capital investment, in this case in a contract relation with Chinese SEZ capitalists, not the transfer of *existing* productive investment overseas. But Smith includes iProducts in his "off-shoring" mix."

Doesn't seem like a different process to those needing work to survive. This is why "economists" are being ridiculed and derided among large swathes of the populace. Distinctions without differences which only serve to fit data into precious formulae, based on preconceived ideals. If I develop a new product in the US, and seek only China manufacture (to save myself the labor cost, and evade the external costs of environment, etc.) the result is the same. "New capital investment " is just a matter of timing. Lucky me, I didn't have to go thru the expense of tearing down an existing facility, or relationship, here first.

dragoonspires , February 6, 2017 at 6:37 pm

This seems to me one of the more incisive of the comments. So many are coming at it from the framework of what solutions best get us back to a situation that was better, like one we experienced between the 1950s to the turn of the century. This was a unique period of advantage for the US economically and industry-wise that is unlikely to be repeated, imo, and for awhile seemed to have more easy opportunities for all.

The progressive platform recognizes how the pillars providing for more equality of opportunity have been battered, and I agree with some of its proposals. But just reversing the tax burden shifts and trying to reinstate more affordable healthcare or education still leaves us with the situation where the need for and nature of work may still be changing radically. I have trouble seeing how a conservative half of the country with extremely powerful propaganda outlets, interest groups, and fountains of money will allow some if any of the ideas proposed in this article (hence Brad's claim that it would require a revolution sways me a good deal).

I also do not think that Bernie, basically not subjected to any big negative hits in the primary, would have won the general after the right's smear machine was done with him. Even then, the republican congress would have stopped cold any of his more significant proposals.

Progressives need to get realistic. This agenda will be slow in coming, unless things get so horrible that a true revolution does occur. What that would entail I do not know, but powerful forces are aligned against it. All who spend time theorizing (including me) on keyboards will have to start and sustain the very hard work of getting into the trenches, spreading and fighting for ideas, and most of all, actually winning primaries and elections and helping to get people out to vote. The right wing started doing this methodically over 45 years ago, with patience and persistence.

Trump/RW domination needs to be stopped asap, by whatever plausible if less than ideal tools we have. Protests are getting attention, and I hope more participation and results will come next. Purity tests of progressive ideals is a cancer that will only doom the cause. It will be hard and maybe slow, but we're going to need more than just the faithful to get this turned around. Bernie was a start, but too many are throwing up their hands just because he lost the primary.

I plan to keep working to change the democratic party for the better, at a pace that is realistic. Getting a more progressive tax structure again to fund any of these ideas is critical first. I also can't see a guaranteed income without a required work contribution to address the evolving economy, given this country's attitude towards earning one's keep. A sort of advanced CCC to work on massively fixing and improving our crumbling infrastructure and public spaces, fighting forest fires, etc. using these tax funds is one idea. Subsidizing quick as possible job training as new jobs evolve with the radical changes in the economy is another. More support for local small business and entrepreneurs (perhaps funding employees who they need for awhile in startup phase as part of minimum guaranteed income in exchange for work) until they prove to be an ongoing concern is another thought. Even if these ideas are flawed, we need to rethink the paradigm of work with which we grew up.

Yves Smith , February 6, 2017 at 7:04 pm

I don't agree. Obama could not only have done a Roosevelt 100 days, he literally could have re-implemented many of his policies. This was a window of opportunity that he ignored and bizarrely, the public at large airbrushes out of its memory.

I don't at all buy that the US can't afford this. Did you forget we spend ginormous amounts on our military, and that could instead be be redirected to domestic uses? Japan, a less rich country generally considered to be in decline, is vastly more egalitarian than America and scores way above us and every other country in the world on social indicators. Some of that, sadly, may prove out that ethnically mixed societies don't "do" egalitarianism because some groups don't want to cut less advantaged groups in.

The issue is that the elites (a word used only on sites like Alex Jones before the crisis) are all in for increasing inequality. That means not investing in education for the masses and much heavier policing, since unequal societies are more violent, among other things.

aab , February 6, 2017 at 7:43 pm

I also do not think that Bernie, basically not subjected to any big negative hits in the primary, would have won the general after the right's smear machine was done with him.

Progressives need to get realistic.

Purity tests of progressive ideals is a cancer that will only doom the cause. It will be hard and maybe slow, but we're going to need more than just the faithful to get this turned around.

I have pulled these out of your comments, because they are generally used by tribal Democrats to rationalize the party's incompetent, destructive behavior. I am not saying that's why you're doing it. But I'd like to address them.

I heartily concur with Yves' reply to you, to start.

Second, you mention in other places than the ones I quoted this idea of doing what's "realistic" and being "realistic." What do you mean by that? The neoliberal Democrats had a quarter of a century to demonstrate that their way worked for the citizens of the United States and the Democratic Party. They failed on both counts. More of strategy and policy that has a proven record of failure would be unwise - do you agree?

If you do agree, and you want to reform the Democratic Party, as you state above, then your choice is easy: focus your energies on getting rid of all the entrenched neoliberals and corporate-aligned Democrats, both party functionaries and elected officials. No positive change can occur until that task is completed.

If you do NOT agree that the neoliberal New Democrats must be purged from the party, what is your vision of realistic change, what makes it realistic, and what makes it change?

Also, you are simply incorrect about Bernie and the general election. All data we have demonstrates strongly that he would have won. There's no smear machine in America better than the Clinton machine plus the major corporate media aligned with it. He was smeared constantly with vile falsehoods - one of which you clearly fell for, which is that he wasn't smeared. He would have held the Democratic states unquestionably, and held the Rust Belt, and thus won the election. Tell me what states you imagine he would have lost to Trump?

The realistic approach is get rid of the New Democrats utterly and completely. They have failed catastrophically. That will be a hard task, but that doesn't' make it unrealistic. To leave them in place and think the party will win back governing power or do anything good for the average citizen would be unrealistic.

blucollarAl , February 6, 2017 at 12:29 pm

Can anyone any longer deceive oneself about the primary meaning and purpose of the Democratic Party? The DP, as it has been redefined and transformed since the Nixon-McGovern election of 1972, is a political vehicle that primarily seeks to represent the interests of mainly urban upper-middle suburban well-educated and well-off professionals, managers, educators, and technologists, along with those other racial/ethnic/social groups that happen to be privileged by elite opinion at any given time.

If the quixotic Sanders run taught us anything, it is that there is no interest, no room within the DP for critical economic and social argument. Not just radical class-based neo-Marxist criticism but even the kind of economic issue-framing that became a hallmark of the DP in the FDR regime and persisted with sometimes more, other times less strength until the 70's.

The so-called "resistance" to Trump has only reaffirmed this conclusion. Insofar as it is being led by DP and DP-leaning media and other talking-head pseudo-intelligentsia, it has focused almost entirely on the same social lifestyle and individual empowerment sexual/gender issues that have characterized it over the past 40 years. This inability to think outside of what too often reduces in final analysis to solipsistic "me-isms", for example by framing important political questions like immigration, imperial reach, and deregulation in ways that transcend the usual racial-ethnic-gender identity differences, prevents the DP and its sycophants from suggesting deeper grounds for solidarity-in-opposition. Most readers of NC understand what these deeper grounds are!

As I wrote another time a few years ago, DP players and pundits, often urban in residence and outlook, and often themselves financially well off, ensconced in high-priced city dwellings, shopping at Whole Foods, frequenting high-end fashion boutiques, attending the best schools on mommy and daddy's dime, often appear more transparently hostile and condescending to what they judge to be the unsophisticated prejudices and religious backwardness of lower, working, and middle class Americans than do the Trumps of the Republican Party. The latter, equally or even more well-heeled than their ersatz opponents, have learned beginning in the Nixon-Colson "silent majority" days, how to project a kind of "rural, small town folksiness", filling their rallies with country music stars and NASCAR heroes, and who know enough to drag out a "social-cultural conservative" every now and then to show that they "hear and care" for the "forgotten American" even if they consistently ignore these very people in the political arena.

To be sure, the Republicans don't give a rat's ass about these things. Applying the categories of the silent-majority Americans, they are as "amoral" as the Democrat special-interest spokespeople. However, when it is a case of neither party addressing the causes that underlie the real deep-rooted rottenness that has become 21st Century America, the blue collar "ordinary" American will often fall back on the party of lip-service that at least to him or her seems to be listening to the anxieties and resentments felt by them. The irony of course is that neoliberal policies consistently applied will destroy (have destroyed) whatever was real and true about the America they think has been left behind.

Livius Drusus , February 6, 2017 at 9:57 pm

Great post. As an example of what you are talking about, I see very little concern from Democrats and liberals about the current Republican efforts to pass a national right to work law, even though this will hurt unions which are supposed to be one of the core elements of the Democratic coalition. Is this surprising? Of course not, given Obama's failure to fight for card check and to give support to the embattled unions in Wisconsin during their fight with Scott Walker. What happened to those comfortable shoes? Did Obama lose them? Unions give the Democrats money and troops during election years and are then kicked to the curb when the Democrats are in power or at most given scraps.

The upper-middle class professionals and managers who dominate the Democratic Party want to continue the identity politics emphasis with regard to opposition to Trump because they are making out well under neoliberalism and are opposed to anything that would tilt the economy in a direction that is more favorable to ordinary workers because they would lose their relative status. Upper-middle class types don't want to go back to the days of the mid-20th century when doctors and lawyers might have to share a neighborhood with factory workers.

Elizabeth Burton , February 6, 2017 at 1:14 pm

To many progressives, saving American jobs sounds jingoistic and "protectionism" is a bad word. Isn't global trade helping the poor become less so around the world? Isn't it selfish only to protect American jobs? Isn't it more moral to share scarce manufacturing jobs with the poor in Mexico and Asia? After all, even if a plant closes in the Rust Belt, service sector jobs can be found at wages that still are far higher than what the poor can hope for in low-wage countries.

May I just say that as a deplorable member of the poor white working class who is a bone-deep progressive that these are classist views of people who sit in their comfortable middle-class bubbles and pretend there are n't people in this country who are suffering from the very things they are so nobly seeking to protect workers in the third world from suffering?

If you want to know why otherwise sensible, intelligent people voted for Trump, that paragraph right there is a major example. The content is bad enough, but that an author who has written an excellent overview of the situation would automatically attribute that kind of thinking to "progressives" shows just how insidious the academic mindset is, and why the working class, regardless of race, gender, religion, or sexual preference, automatically shuts out both categories when they stroll in to "educate."

Tim , February 6, 2017 at 1:58 pm

The idealism is correct in thought, BUT, if a nation doesn't take care of its own then who will? Nobody.

If everybody took care of those closest to their sphere of influence the world would be a better place.

pricklyone , February 6, 2017 at 7:03 pm

Any attempt to equalize wages in "poorer" countries, would also have to address cost-of-living differences, as well.
You are not allowed, in "developed" nations, to live a subsistence lifestyle, any longer.
With higher living standards, comes an obligation to provide citizens with a level of income which can sustain that standard.

Gman , February 6, 2017 at 6:19 pm

'Before you judge a man, walk a mile in his shoes.

after that, who cares?
He's a mile away and you've got his shoes.'

~ Billy Connolly

*great comment by the way.

that guy , February 6, 2017 at 8:28 pm

Thank you. Better-put than I could have done. Might I add to this that I wasn't voting for the president of Uruguay or Mexico or whatever, who could reasonably be expected to look out for those people. I was voting for the next president of the United States, who I should be able to reasonably believe will look out for me, as an American, first and foremost.

Jeremy Grimm , February 6, 2017 at 4:52 pm

The recent primaries and Presidential election made clear to me how little the concerns of ordinary people mean to the two national parties. However Trump was and remains something of a wildcard - at least promising actions reflecting the concerns of the hoi polli. He has indeed delivered in short order on several of his promises.

I have trouble characterizing the opposition and protests against Trump. Are they inspired by the Democratic Party's knee-jerk opposition to anything Trump or Neoliberal opponents to Trump's dismantling of the grand corporate take-over embodied in the TPP or upper-middle "liberals" fuming about one or another of their pet issues of the moment like immigration or climate change - issues which Trump seems determined to throttle. My daughter was tempted to join the women's march because she will sorely miss planned parenthood clinics when their funds are cutoff - they were for her the only place she could find real healthCARE at any price.

At this point I tend to agree with Bernie Sanders assessment of Trump (ref. today's links - https://www.washingtonpost.com/news/powerpost/wp/2017/02/05/after-trump-moves-to-undo-financial-regulations-sanders-calls-him-a-fraud/ ). I am glad the US seems more cozy with Russia - worried about the US and China and Iran - glad the TPP has been - at least temporarily - dismantled - in short I view Trump as a very mixed blessing whose actions and intents remain opaque. I believe Trump will benefit the obscenely wealthy classes but I'm not sure yet which portions of the obscenely wealthy. I believe there is a power struggle ongoing between different behemoth factions of the uber-rich but the waters they fight in are darkly murky.

witters , February 6, 2017 at 6:52 pm

"upper-middle "liberals" fuming about one or another of their pet issues of the moment like immigration or climate change "

Yeah, climate change an 'issue of the moment'.

Here is the bedrock of modern political stupdity. A total unconcern for the future of all of us. I don't care where you think you are on the left/right BS, anyone with your view is just another instance of the great problem.

Scott , February 6, 2017 at 8:07 pm

I cannot read all the comments & know my own will be but a wisp in the wind. I am grateful to naked capitalism, Yves & Lambert for publishing the best thinking on the subjects.
"Workers of the World Unite" is about all I can see as the real option to pursue. How to really do that means using all the means of the winners.
It's seems simply impossible on one hand to be nationalistic, and fair to labor internationally at the same time.
I keep looking at WWI.
Workers of the World Unite? How? Fair Trade, Internationally the world is a struggle between the Rich who have inherited wealth & get compound interest, pass on deeds that survive as if a neofeudalism is just ordained.
Ah hell, I say if you cannot even imagine a utopia you ought not call yourself a human being.
Purchasing Power Parity & World Government?
Without private property things get weird & corruption grows from elites getting access to all.
In my Transcendia Insurodollar I overcome the flaw of Communist theory.
I have a part of it going. I have a gov. in govs. concept workable as permanently small.
Time to expand. Doubtful, really really doubtful.
I do recognize Les is on the right track and has the correct goals. The puzzle is how to really work at the Two Nation Solution of Workers & Power, corporate Power is immense.
They throw out regulations we know are necessary.
Force & mind control propaganda are levers at their fingertips.
Force? 8 have so much wealth the majority divided by language & borders a challenge is seen as doomed.
I shall imagine.

VietnamVet , February 6, 2017 at 8:23 pm

I found myself agreeing with most of the points in the post. We must be clear that Donald Trump is anti-Globalist but to get GOP support and appointees he assimilated their tribal beliefs. If he is stupid or crazy we must say so and explain why. If he is right and does something that benefits American citizens such as ratcheting down the Cold War 2.0 with Russia, we must applaud. I am fairly certain that to spite him and keep the bribes flowing, Democrats will not support the re-branding of "Medicare for All" to "TrumpCare".

It may be my history or old age; but, I am afraid that the global elite have decided the USA is ripe for a final harvest and have gr

[Feb 04, 2017] The End of Employees

Notable quotes:
"... Start focusing on the predators at the top of the pyramid scheme and then watch how those same culprits and their networks "come to the rescue" in order to capitalize on the "pain and suffering" they help to create. I see a pattern, don't you? ..."
"... Don't forget student debt. Not only are many recent graduates underemployed or unemployed, they're in the hole tens of thousands. Further incentive not to make any sort of financial commitment. Student debt should be cancelled to promote earlier family formation. ..."
"... It's almost a negative feedback loop. ..."
"... Very true. Capitalism only works as long as enough people (or states) are able to take up ever-larger debt, to close the gap (called "profit") between expensive goods and comparatively cheap labour. ..."
"... Good to point out Gat Gourmet. Almost all outsourced jobs in the beginning of places where I have worked were once part of the company. ..."
"... Still, it's hard not to notice there could be nothing more convenient to the corporate and governmental powers-that-be than a nonprofit that takes it upon itself to placate, insure, and temper the precarious middle-class. ..."
"... So which ivy-league management school / guru is most culpable in unleashing the whole lean-mean-outsourcing-machine monster because it's slowly destroying my ability to remain in IT. ..."
"... "how the big company love of outsourcing means that traditional employment has declined and is expected to fall further." – ..."
"... Story of my life! I'm still trying to get paid for freelance work that I did in December. This payment delay is wreaking havoc with MY cash flow. ..."
"... Another area of friction and waste with IT consulting and other contracting, is that an employee of a company simply and efficiently plugs into their existence administrative system (HR, timekeeping, payroll, etc). ..."
"... I work in engineering at a gigantic multinational vehicle manufacturer and the role of "consultants" has been expanding with time. Rather than consultants being people with specific technical expertise who work on one subsystem component with clear interfaces to other things, it now encapsulates project managers and subsystem / function responsible people who need to have large networks inside the company to be effective. ..."
"... Considering the huge amount of time it takes to get a new hire up and running to learn the acronyms and processes and the roles of different departments, it's a bit absurd to hire people for such roles under the assumption that they can be quickly swapped out with a consultant from Company B next week. ..."
"... It's pretty clear that management sees permanent employees on the payroll as a liability and seeks to avoid it as much as possible. ..."
"... Because they, unlike us, understand class. I can state for a fact that the Big Three auto companies are well aware of how much cheaper health care costs are for them in Canada and how much better off they would be here, cost-wise, with a national health care system where McDonald's and Wal-mart have to pay the same per hour or per employee cost as they do. But it turns out cost isn't everything. Corporate (capitalist) solidarity rules. ..."
"... Michelle Malkin ..."
"... “The Marxian capitalist has infinite shrewdness and cunning on everything except matters pertaining to his own ultimate survival. On these, he is not subject to education. He continues wilfully and reliably down the path to his own destruction”. ..."
Feb 04, 2017 | www.nakedcapitalism.com

The Wall Street Journal has an important new story, The End of Employees , on how the big company love of outsourcing means that traditional employment has declined and is expected to fall further.

Some key sections of the article:

Never before have American companies tried so hard to employ so few people. The outsourcing wave that moved apparel-making jobs to China and call-center operations to India is now just as likely to happen inside companies across the U.S. and in almost every industry.

The men and women who unload shipping containers at Wal-Mart Stores Inc. warehouses are provided by trucking company Schneider National Inc.’s logistics operation, which in turn subcontracts with temporary-staffing agencies. Pfizer Inc. used contractors to perform the majority of its clinical drug trials last year .

The shift is radically altering what it means to be a company and a worker. More flexibility for companies to shrink the size of their employee base, pay and benefits means less job security for workers. Rising from the mailroom to a corner office is harder now that outsourced jobs are no longer part of the workforce from which star performers are promoted

For workers, the changes often lead to lower pay and make it surprisingly hard to answer the simple question “Where do you work?” Some economists say the parallel workforce created by the rise of contracting is helping to fuel income inequality between people who do the same jobs.

No one knows how many Americans work as contractors, because they don’t fit neatly into the job categories tracked by government agencies. Rough estimates by economists range from 3% to 14% of the nation’s workforce, or as many as 20 million people.

As you can see, the story projects this as an unstoppable trend. The article is mainly full of success stories, which naturally is what companies would want to talk about. The alleged benefits are two-fold: that specialist contractors can do a better job of managing non-core activities because they are specialists and have higher skills and that using outside help keeps companies lean and allows them to be more "agile".

The idea that companies who use contractors are more flexible is largely a myth . The difficulty of entering into outsourcing relationships gives you an idea of how complex they are. While some services, like cleaning, are likely to be fairly simple to hand off, the larger ones are not. For instance, for IT outsourcing, a major corporation will need to hire a specialist consultant to help define the requirements for the request for proposal and write the document that will be the basis for bidding and negotiation. That takes about six months. The process of getting initial responses, vetting the possible providers in depth, getting to a short list of 2-3 finalists, negotiating finer points with them to see who has the best all-in offer, and then negotiating the final agreement typically takes a year. Oh, and the lawyers often fight with the consultant as to what counts in the deal.

On the one hand, the old saw of "a contract is only as good at the person who signed it" still holds true. But if a vendor doesn't perform up to the standards required, or the company's requirements change in some way not contemplated in the agreement, it is vasty more difficult to address than if you were handling it internally. And given how complicated contracting is, it's not as if you can fire them.

So as we've stressed again and again, these arrangements increase risks and rigidity. And companies can mis-identify what is core or not recognize that there are key lower-level skills they've mis-identified. For instance, Pratt & Whitney decided to contract out coordination of deliveries to UPS. Here is the critical part:

For years, suppliers delivered parts directly to Pratt’s two factories, where materials handlers unpacked the parts and distributed them to production teams. Earl Exum, vice president of global materials and logistics, says Pratt had “a couple hundred” logistics specialists. Some handlers were 20- or 30-year veterans who could “look at a part and know exactly what it is,” he adds .

Most of the UPS employees had no experience in the field, and assembly kits arrived at factories with damaged or missing parts. Pratt and UPS bosses struggled to get the companies’ computers in sync, including warehouse-management software outsourced by UPS to another firm, according to Pratt..

The result was $500 million in lost sales in a quarter. Pratt & Whitney tried putting a positive spin on the tale, that all the bugs were worked out by the next quarter. But how long will it take Pratt & Whitney to recover all the deal costs plus the lost profits?

There's even more risk when the company using contractor doesn't have much leverage over them. As a Wall Street Journal reader, Scott Riney, said in comments:

Well managed companies make decisions based on sound data and analysis. Badly managed companies follow the trends because they're the trends. A caveat regarding outsourcing is that, as always, you get what you pay for. Also, the vendor relationship needs to be competently managed. There was the time a certain, now bankrupt technology company outsourced production of PBX components to a manufacturer who produced components with duplicate MAC addresses. The contract manufacturer's expertise obviously didn't extend to knowing jack about hardware addressing, and the management of the vendor relationship was incompetent. And what do you do, in a situation like that, if your firm isn't big enough that your phone calls get the vendor's undivided attention? Or if you're on different continents, and nothing can get done quickly?

We've discussed other outsourcing bombs in past posts, such as when British Airways lost "tens of millions of dollars" when its contractor, Gate Gourmet, fired employees. Baggage handlers and ground crew struck in sympathy, shutting down Heathrow for 24 hours. Like many outsourced operations, Gate Gourmet had once been part of British Airways. And passengers blamed the airline , not the wprkers.

Now admittedly, there are low-risk, low complexity activities that are being outsourced more, such as medical transcription, where 25% of all medical transcriptionists now work for agencies, up by 1/3 since 2009. The article attributes the change to more hospitals and large practices sending the work outside. But even at its 2009 level, the use of agencies was well established. And you can see that it is the sort of service that smaller doctor's offices would already be hiring on a temp basis, whether through an agency or not, because they would not have enough activity to support having a full-time employee. The story also describes how SAP has all its receptionists as contractors, apparently because someone looked at receptionist pay and concluded some managers were paying too much. So low level clerical jobs are more and more subject to this fad. But managing your own receptionists is hardly going to make a company less flexible.

Contracting, like other gig economy jobs, increase insecurity and lower growth. I hate to belabor the obvious, but people who don't have a steady paycheck are less likely to make major financial commitments, like getting married and setting up a new household, having kids, or even buying consumer durables. However, one industry likely makes out handsomely: Big Pharma, which no doubt winds up selling more brain-chemistry-altering products for the resulting situationally-induced anxiety and/or depression. The short-sightedness of this development on a societal level is breath-taking, yet overwhelmingly pundits celebrate it and political leaders stay mum.

With this sort of rot in our collective foundation, the rise of Trump and other "populist" candidates should not come as a surprise.

I would add this. It was deplorable for Trump to have fired Acting AG Sally Yates after she ordered Justice Department lawyers to stop defending Mr. Trump’s executive order banning new arrivals to the U.S. from seven Muslim-majority countries.

But Sally Yates was a hero for another reason. Yates was cracking down on systemic abuses by holding top healthcare executives personally accountable for false Medicare and Medicaid claims and illegal physician relationships.

Now it's personal: Top execs made to pay for companies' false claims
http://www.modernhealthcare.com/article/20161001/MAGAZINE/310019964/now-its-personal-top-execs-made-to-pay-for-companies-false-claims

BeliTsari , February 3, 2017 at 6:38 am

I remember hoping: Well, maybe Obama will actually get some decent folks into the Judiciary bring kids home from Iraq, maybe try for Medicare over 55 (to the advantage of the insurance & Pharma sectors?) But the one thing I'd actually expected him to accomplish was enact https://www.congress.gov/bill/110th-congress/senate-bill/2044 which would get the Kleptocrats a few more years out of the moldering corpse of American Labor (and not hurt multinationals, who'd off-shored, outsourced or speciously re-classified their largely undocumented, 3rd party, contingency/ gig employees decades previously).

Wage-theft Democrats was a new concept to some of us more easily deluded working class Yankees, reeling from Bush. I think a strong fantasy life's essential nowadays.

jrs , February 3, 2017 at 3:06 pm

No kidding on that law, so basic. Why can't we have that law passed? (and other nice things)

BeliTsari , February 4, 2017 at 3:52 pm

I imagine that this is among the pesky downsides of living in our YOOJ autocratic neo-Confederate theocratic kleptocracy; wage theft has always been right at the top of both parties' platforms? If they can't hide it, who will they blame it on?

GlassHammer , February 3, 2017 at 6:52 am

Decline in family formation and a populace seeking to anesthetize itself are indications of a civilization in decline. Our problem is much bigger than employment.

Disturbed Voter , February 3, 2017 at 7:02 am

You can employ deplorables, you can enslave deplorables, you can kill deplorables. The only way that a "return maximizing" system won't choose killing, is if the unit cost of killing is higher than enslavement or employment. I can hope that the bureaucratic effect of increasing costs will work faster on the cost of killing or enslavement. Reducing the cost of employment (regulations) wouldn't hurt.

BeliTsari , February 3, 2017 at 7:26 am

We'd guessed this was why Dickens, Niccolò Machiavelli, Frederick Douglass, E. A. Blair & Marx were being burnt by the DeVos Christians. Why teach management for FREE, when the drooling Know Nothings will PAY to send their dead-eyed vipers to seminars or A Beka online curricula?

redleg , February 3, 2017 at 1:13 pm

It does hurt workers, contract or not.

Eliminate environmental protections and the entire industry that investigates, researches, enforces, litigates, and mitigates environmental impacts are likewise eliminated. These are generally highly skilled professions, and has wide ranging impacts from workers all the way to the global ecosystem. Then there are economic ripple effects on top of that.

If we are going to eliminate an entire career tree, health insurance is a better choice.

jrs , February 3, 2017 at 3:10 pm

Not sure what this has to do with the article, but yes people will LOSE jobs to Trump, skilled and socially beneficial jobs like at the EPA.

For heaven knows what, jobs building useless walls to nowhere I guess, which somehow in Trumps warped mind is a more productive line of work (it won't even work to curtail immigration).

BeliTsari , February 4, 2017 at 5:36 pm

Thank you for your astute, pertinent & seldom mentioned comment (which to those of us in QA, is something we've believed central to the issue, not a tangent or unexpected side benefit of our sharecropper corporatocracy).

We'd noticed contract buy-outs & forced early-retirement in the steel industry, in the 90's, our clients' engineers (scruffy & cantankerous, who'd stand by us if we were right & replace us if we got out of hand) were all replaced by clueless, gullible desk jockeys, devoid of empirically honed judgement eventually, we'd have 2-3 gnarled old timers, amidst crews of neophytes (first they tried very well trained & knowledgeable foreign nationals, then pensioners, let go from the vendors) finally, they tried to 1099 the desperate ones, on the run from skip-chasers, deputies & repo-men.

They'd try sending us half way across the country, mention nothing, then see what we'd do (once we figured out we'd earned no overtime?)

We'd be in Indian or Russian owned mills where 80% of the employees were totally undocumented foreign nationals, many of the balance wildly underpaid temps.

And the good-old-boy management resembled characters outa Harriet Beecher Stowe. Lots of our counterparts were straight back from Afghanistan & Iraq, verifying that most of their gig- economy contingency employment had all been the same, regardless of industry sector: off-shored aircraft, as well as bridge, structural, water, nuclear, inspectors what regulation?

Dave , February 3, 2017 at 11:49 am

Leveraging guilt to rationalize the Invitation of the least educated into your nation from the most barbaric failed states and cultures in the world is another sign of civic decay.

MP , February 3, 2017 at 12:21 pm

or those with potential who are "educated" and are "victims" of false advertising campaigns I mean propaganda

Dave , February 3, 2017 at 12:38 pm

Yup, many of the Taxi and Uber drivers around here arrived and took out private loans to get "educated" and now are deep in debt and are too ashamed to go home.

MP , February 4, 2017 at 9:26 am

Start focusing on the predators at the top of the pyramid scheme and then watch how those same culprits and their networks "come to the rescue" in order to capitalize on the "pain and suffering" they help to create. I see a pattern, don't you?

Barbarians are at the gates but you may be looking in the wrong place. Beware all types of people are "vulnerable" and they will more easily identify with other human beings living under a variety of diminished circumstances. Victim shaming won't be a viable option in the not so distant future.

JEHR , February 3, 2017 at 2:50 pm

Dave, I hope you are not including Syria in your "failed states and cultures" description. Syrians are very well educated and will add much to any nation's economy.

It is not a sign of "civic decay" in the Syrian culture, but a sign of civic decay in a nation that will not accept people from a war zone. An invitation should not be dependent on one's education but on one's need and desire to survive a war zone..

wilroncanada , February 3, 2017 at 4:42 pm

Iraqis were also comparatively educated, right up through university, under its autocratic leader. Libyans were, by and large, well educated, or at least getting so, under its autocratic leader. The most poorly educated, probably, are those countries which have been under US or European hegemony for generations: a lot of Central and south America, a lot of Africa, etc. Not to mention the US itself, which has been colonizing its own hinterland for many decades. The same applies to countries like Canada, Australia, etc. particularly in terms of their indigenous populations.

Felix_47 , February 3, 2017 at 6:20 pm

How about the worst drought in 900 years, and an exploding population? That had nothing to do with the problem?

Peter , February 3, 2017 at 7:07 pm

Don't forget student debt. Not only are many recent graduates underemployed or unemployed, they're in the hole tens of thousands. Further incentive not to make any sort of financial commitment. Student debt should be cancelled to promote earlier family formation.

thoughtful person , February 3, 2017 at 6:57 am

This trend matches up with the trends of dropping life expectancy, especially among the lower half of income earners, and with slowing economies globally.

It's almost a negative feedback loop.

Politcal implications: the rise of far right politics; if you are a monarchist, or want to create an aristocracy, these trends are probably in your interest.

Praedor , February 3, 2017 at 8:54 am

Sure, it is partly psychological but it also has direct connection (by DESIGN) to the fact that such people don't have healthcare, even with Obamacare insurance. The idiots that sing the praises of Obamacare and how millions now have insurance seem to think that means those people have HEALTHCARE to go with it.

Insurance is theft. Insurance is not even remotely "healthcare". Much of those newly insured have their insurance, thanks to a government subsidy, but STILL lack healthcare because their premiums and deductibles are too high to allow them to see doctors. Thus, they're dying or going to die sooner due to untreated maladies, but at least they paid insurance company CEOs their bonuses with their subsidized insurance payments!

Bugs Bunny , February 3, 2017 at 9:41 am

Mutual insurance however is (was) socialist by nature. The true mutuals were crushed out of existence by share for share conversions to private companies that ripped off policy holders and gave a big payday to the C suites and the lawyers. Thanks to inept state insurance commissioners and assemblies for that one.

d , February 3, 2017 at 1:14 pm

while having health insurance doesnt mean you have health care, not having it does mean not having health care at all, short of having a life or death condition, as hospitals (for now an way) are only required to stabilize you. they arent required to cure you.

but then the high deductible insurance is one of those scams that some politicians gave us because they could suggest that the patient (customer) could just shop around for better deals. course that depends on us patients knowing what medical treatment is best for us, and which is the cheapest of those., the former pretty much requires patients to be as knowledgeable as doctors. the latter means we have to know what the treatments cost. could luck with that

David , February 3, 2017 at 7:14 am

I would force policy-makers in every advanced western nation to read and reflect on the last paragraph, because it describes a mindset and a series of practices that are now found everywhere in western economies.

As David Harvey reminds us in his book on the Contradictions of Capitalism, Marx identified long ago that there was a contradiction between holding down employees wages, and still expecting them to have the purchasing power to buy the goods their cheap labour was making.

This problem has become more acute with time, simply because we buy a lot more "stuff" than they did in the 19th century, and we take a lot longer to pay for it, often on credit. Houses, cars, household goods, even computers, are now significant expenditure decisions, repaid at least over months, if not years and even decades. The social corollary of mass home ownership, after all, is some assurance that you will be employed over the life of the mortgage. Otherwise, not only won't you buy the house, you won't improve or extend it, or even maintain it, so a whole series of other purchases won't get made, and the construction and maintenance industries will have less work. Instead, you'll save money, so removing purchasing power from the economy.

I assume there are people in large private sector companies clever enough to under stand this, but as always they are focused on how much money they can extract from the system in the next few years. After that, if the system crashes, well, who cares, They're all right.

susan the other , February 3, 2017 at 12:59 pm

old tricks. John D. Rockefeller became a zillion times richer after he was forced to divest himself of his majority interest in his various companies.

And back then it was a simple case of anti-trust. There were no benefits to reclaim as profit or revenue or whatever.

This won't work in today's world because there really isn't anything left to exploit – but half-baked ideas die hard sometimes.

Altandmain , February 3, 2017 at 1:43 pm

There's a quote on this one:

http://quoteinvestigator.com/2011/11/16/robots-buy-cars/

Henry Ford II: Walter, how are you going to get those robots to pay your union dues?

Walter Reuther: Henry, how are you going to get them to buy your cars?

The Economist Article this one refers to is pretty awful, and totally ignores the wage-productivity gap.

Here's an interesting article on that:
https://www.salon.com/2013/05/30/millennials_dont_hate_cars_they_cant_afford_them/

ThePanopticoin , February 3, 2017 at 4:44 pm

Very true. Capitalism only works as long as enough people (or states) are able to take up ever-larger debt, to close the gap (called "profit") between expensive goods and comparatively cheap labour. Watching developments in recent years, this very source of profit and thus base of the economic system is, even on a global level, quite limited

David Barrera , February 4, 2017 at 2:36 am

Sure. Marx Capital 1 on the crisis of production. Marx capital 2 on the crisis of realization but this constitutes just one undesirable aspect-this one indeed very macro- among the many others which the expansion of the "contracting-subcontracting chain" has brought and will bring about.

The Wall Street Journal article is-as it is to expect- late, blind to the core problems of workers and incapable to see and understand the true practical raison ( & reasons) d'ĂŞtre of outsourcing. I guess Yves Smith purpose was just to broadly replicate WSJ article

stukuls , February 3, 2017 at 7:34 am

Good to point out Gat Gourmet. Almost all outsourced jobs in the beginning of places where I have worked were once part of the company. The entire art department save two management employees were played off and rehired by a new company doing the same work with less benefits.

Then that company was later disolved. I have seen this many times in the corporate design field now. Usually ends with disaster and he hire of folks some back to full time but most to freelance. So I guess in a way it works out for the company in the end and not for the worker. Amazing the amount of money a company is willing to lose this way then use the same to pay workers better.

Arizona Slim , February 3, 2017 at 8:18 am

But-but-but freelancing is SO hip and cool! Just ask the Freelancers Union!

Arizona Slim , February 3, 2017 at 10:13 am

Here is the organization's official website:

https://www.freelancersunion.org/

And here is a critique, which I agree with:

http://www.dissentmagazine.org/article/the-i-in-union

H. Alexander Ivey , February 3, 2017 at 10:45 pm

An excellent critique, for those who were wondering. The take away paragraph, summing up the actual work done and purpose of, the Freelancers Union:

Still, it's hard not to notice there could be nothing more convenient to the corporate and governmental powers-that-be than a nonprofit that takes it upon itself to placate, insure, and temper the precarious middle-class.

As we sixties people use to say: "Right on!"

Marco , February 3, 2017 at 8:18 am

So which ivy-league management school / guru is most culpable in unleashing the whole lean-mean-outsourcing-machine monster because it's slowly destroying my ability to remain in IT.

BeliTsari , February 3, 2017 at 8:40 am

https://www.jstor.org/stable/40584994?seq=1#page_scan_tab_contents Indentured servitude had pretty strong adherents, before chattel slavery gained ascendancy in the colonies. You might as well credit Pharaoh Khufu?

Katharine , February 3, 2017 at 9:21 am

I don't know the answer to your question, but you would have to go back over twenty years to find it. What I find remarkable is that even though everybody affected in the early stages could see what a dumb, destructive idea it was, the MBA types never caught on, even though most of them were not so far up the hierarchy they could not ultimately be affected.

just_kate , February 3, 2017 at 12:34 pm

Jack Welch

Gaylord , February 3, 2017 at 8:39 am

Contractors need Guilds or Trade Associations that are well organized and legally able to set minimum standards for billing and performance. This is an area where Trade Unions have failed with respect to some professions, and apparently (from what I've heard) the RICO statutes need to be amended to allow for this. It's time to rig the other side to make companies think twice before replacing employees with temp workers or contractors, to keep jobs within the US, and to provide a cushion and a "floor" to those that take the risk of entrepreneurship, preventing a race to the bottom.

akaPaul LaFargue , February 3, 2017 at 12:10 pm

Yes! Geographically bound temp unions or hiring halls for all temp workers allied with low-wage worker associations. This is NOT something that established unions want, so who will agitate for it?

jrs , February 3, 2017 at 3:21 pm

Something like the I.W.W is what I'd like to see. Yea I know the response is: they are still around? Well not what they were long ago of course, but with the prison strike, yes around and rising.

Northeaster , February 3, 2017 at 8:40 am

"how the big company love of outsourcing means that traditional employment has declined and is expected to fall further." –

This line pissed me off this morning more than most other mornings. I literally just said goodbye to a long-time colleague (Big Pharma) who is being outsourced as of today. The kicker(s):

  1. The job is not high tech
  2. Employee(s) trained their replacement who are H-1B from India
  3. The company is moving the division to India

Of note, my state (MA) is responsible for over one-quarter of all H-1B's every year. Thankfully a few in the industry are helping get the word out, like Nanex's Eric Hunsader yesterday. The outsourcing, off-shoring, and H-1B abuse has to stop, but not sure The People have the will to hold political office holders accountable enough to truly change this paradigm.

https://twitter.com/nanexllc/status/827185042761859073

Northeaster , February 3, 2017 at 9:00 am

Edit: MA is in the top 10, California is number one:

https://www.foreignlaborcert.doleta.gov/pdf/PerformanceData/2016/H-1B_Selected_Statistics_FY2016_Q4_updated.pdf

Vatch , February 3, 2017 at 9:56 am

Norm Matloff's blog often covers H-1B issues. Here's one of his recent posts:

https://normsaysno.wordpress.com/2017/01/13/h-1b-reform-proposal-a-great-start-or-a-cruel-ruse/

Ann , February 3, 2017 at 1:10 pm

He has an op-ed piece in the Huffington Post today:

http://www.huffingtonpost.com/entry/trump-h-1b_us_5890d86ce4b0522c7d3d84af

sgt_doom , February 3, 2017 at 6:54 pm

Agreed, but I've been saying the exact same thing since 1980, so I've been lobbying and being a volunteer activist against this for many years, and yet I still run into women (not too many men anymore) in their 60s and 70s who believe offshoring of American jobs, and insourcing foreign visa replacement workers is fantastic (truly, we are a dumbed down society today, where they routinely protest on behalf of the financial hegemons).

Best book on this (and I am no conservative and have never voted r-con) is Michelle Malkin's book (with John Miano), Sold Out!

This has been going on for a long time, and by design: with every "jobless recovery" one-fifth of the workforce is laid off, and one-half of that one-fifth will never find another job, while one-half of the remainder, will only find lower-paying jobs.

And each and every time, more jobs are restructured as temporary or contractor type jobs. We've had a lot of "jobless recoveries" to date.

A recent study from Lawrence Katz and Alan Krueger found that 94% of the new jobs created over the past some years were all part-time, while a study from Rutgers University a year or so ago found that one-third of the new jobs created couldn't be verified as actually existing!

Nothing particularly new here, as it has been going on for quite some time (another great book is Ron Hira's book, Outsourcing America ).

Damian , February 3, 2017 at 8:46 am

In every category of labor – blue and white collar – the press is on to increase the supply and reduce the demand for labor.

The book ends: The Clintons in 92′ put thru the WTO / NAFTA – shut down 10's of millions of jobs and factories – blue & white collar. Obama did the same, with anticipating Hillary would be elected, put forth the TTP to enable unlimited H1-b for tech workers from off shore. The Neo Liberal Democrats were at the forefront of of this 25 year Plan for labor devaluation (with Republican help).

The Immigration Policy by government both illegal and legal were at the epicenter of increasing the supply in all categories with various programs while Obama also increased the regulations to wipe out more factories and deliberately reduce demand.

The solution is eliminate immigration in all forms until the 95 Million are employed and wages rise by the equivalent of what was lost in the past 15 years plus Tariffs to enable a marginal cost compared to imports to allow domestic factories to expand demand.

Increase the demand and lower the supply of labor will mean potentially a switch will occur from 1099 to W-2 as companies have to secure labor reliability in a short labor market which is squeezed.

The Millennials sooner or later will figure it out. Identity Politics which enables a greater supply of labor and diversion of attention to intangible values at the expense of tangible values has to be substituted for Labor Only Politics.

These young people have been duped based on the recent focus of the demonstrations. They don't understand they were screwed deliberately and with great malice by "Going with Her".

sgt_doom , February 3, 2017 at 6:56 pm

I've been keeping count over the years, and as close as I can find, over 170,000 production facilities were shipped out of the country. (Or, as David Harvey phrased it: "Identity politics instead of class analysis.")

Scott , February 3, 2017 at 8:58 am

One aspect of outsourcing that the article does not hit upon is the impact on company cash flows, which has some importance to large outsourcing initiatives. A company must pay its employees within 6 (it might be 7) days of the end of the pay cycle, which is typically two week. By contrast, when outsourcing, at the end of the month the contractor will provide an invoice, the company will then pay according to its payment cycle. This could be 30, 45, 60, 90, or even 120 days. The contractor still must pay its bills, in essence it's providing a low cost loan to firm (which often has a lower cost of capital). This approach, including the extension of payments has been largely driven by financial/business consultants.

Arizona Slim , February 3, 2017 at 10:15 am

Story of my life! I'm still trying to get paid for freelance work that I did in December. This payment delay is wreaking havoc with MY cash flow.

Scott , February 3, 2017 at 11:25 am

It can actually get worse – they might not pay you at all, hoping that you'll file a lawsuit, which will be interpreted according to the contract, rather than legislation which covers employment issues. The litigation costs might exceed any payments you'd receive.

My guess is that this wouldn't happen to an individual working under a 1099 (as word might get around), and very large firms often have leverage (not providing continuing services), but medium-size firms often get held up for months and years (especially once the contract has ended).

redleg , February 3, 2017 at 10:16 pm

Or they can go Chapter 7 during that time, where your almost 6 figures in billables gets paid 4 years later as mid- 2 figures.

Left in Wisconsin , February 3, 2017 at 10:49 am

Excellent point.

Another thing the article glosses over is that most outsourcing is simply wage cutting. I have never once seen confirmation of the notion that "specialist" firms provide better services at comparable labor costs than firms can do in-house. The double-bubble is that firms (and public sector employers) often spend more on outsourcing than they would doing the work in house despite the wage savings, which all accrue to the outsourcer of course.

diogenes , February 3, 2017 at 12:38 pm

When the airlines went on their deliberate BK spree in the 90's, they outsourced flying to regional carriers. Regional a/c (45-90 seaters) have higher CASM's than the a/c the airlines actually owned. In brief, it is cheaper to transport 100 passengers on a 100 seat a/c than to transport 100 passengers on two 50 seat a/c. That's been a fact since the Wright brothers broke the ground.

FWIW, SouthWest never went the regional route, never went BK and pays their unionized employees quite well.

The BK spree was all about breaking labor, not operational efficiencies that would actually save money.

d , February 3, 2017 at 1:23 pm

but now it seems the majors are not to happy with the regionals , cause customers cant tell the difference between them, the next problem is that for some reason the regionals cant find pilots. seems that pilots dont want to work for less than 30,000 a year.

Harris , February 3, 2017 at 4:53 pm

The FAA increased the number of hours required to be a pilot to 1,500 from 250.

Yves Smith Post author , February 4, 2017 at 4:45 am

Yes, but that is a one-time benefit. Once you've shifted the payment cycle, your quarterly reported cash flow will be more or less the same.

PKMKII , February 3, 2017 at 9:24 am

Another area of friction and waste with IT consulting and other contracting, is that an employee of a company simply and efficiently plugs into their existence administrative system (HR, timekeeping, payroll, etc).

With a consultant, there has to be reconciliation between the vendor's records and the company's records, which means work hours burned matching everything up. And that assumes they do match up neatly; If the vendor says "our consultant worked 50 hours this week, pay them as such" and whoever oversees the consultant at the company claims they only approved for 40 hours, now you've got a mess on your hands, could potentially go to the lawyers.

rusti , February 3, 2017 at 10:03 am

The idea that companies who use contractors are more flexible is largely a myth. The difficulty of entering into outsourcing relationships gives you an idea of how complex they are. While some services, like cleaning, are likely to be fairly simple to hand off, the larger ones are not.

I work in engineering at a gigantic multinational vehicle manufacturer and the role of "consultants" has been expanding with time. Rather than consultants being people with specific technical expertise who work on one subsystem component with clear interfaces to other things, it now encapsulates project managers and subsystem / function responsible people who need to have large networks inside the company to be effective.

Considering the huge amount of time it takes to get a new hire up and running to learn the acronyms and processes and the roles of different departments, it's a bit absurd to hire people for such roles under the assumption that they can be quickly swapped out with a consultant from Company B next week.

It's pretty clear that management sees permanent employees on the payroll as a liability and seeks to avoid it as much as possible.

Jim Haygood , February 3, 2017 at 12:24 pm

" It's pretty clear that management sees permanent employees on the payroll as a liability. "

No doubt correct. But why is that? Over time, mandates on employers - particularly large employers - just keep escalating. Health care; pensions; overtime; layoff notifications: regulators just keep raising the ante. Employers respond by trying to reduce their profile and present a smaller target to their predators. Staying under 50 employees wins a lot of exemptions from federal regulations.

Taken to an extreme, some developing countries (Argentina being one example) have European-style labor regulations guaranteeing job security and mandating generous compensation when employees are laid off. With hardscrabble small businesses being in no position to shoulder such risks, the result is that about 40 percent of employment is trabajo en negro , with no benefits or protections whatsoever - a perfect example of unintended consequences.

Editorial comments such as "these [contracting] arrangements increase risks and rigidity" ignore that government employment regulations also increase risks and rigidity. There's a balance of power. Overreaching, such as Obama's surprise order to vastly increase the number of employees subject to overtime pay, leads to employer pushback in the form of more contracting and outsourcing. Getting whacked out of the blue with a big new liability is unfair.

diogenes , February 3, 2017 at 12:47 pm

Actually, the overtime rules were an attempt to restore overtime that GWB took away:

http://www.nytimes.com/2004/08/23/us/controversial-overtime-rules-take-effect.html?_r=0

Concur about costs, and health care is the big one. Every other industrialized nation we compete against has national health care. Given that, why doesn't business support Medicare for all and get health costs off their books? Plus it would be a damsite easier to start up a business if one had health care.

susan the other , February 3, 2017 at 1:16 pm

Yes. I've never understood why corporations aren't all over this.

Left in Wisconsin , February 3, 2017 at 8:08 pm

Because they, unlike us, understand class. I can state for a fact that the Big Three auto companies are well aware of how much cheaper health care costs are for them in Canada and how much better off they would be here, cost-wise, with a national health care system where McDonald's and Wal-mart have to pay the same per hour or per employee cost as they do. But it turns out cost isn't everything. Corporate (capitalist) solidarity rules.

H. Alexander Ivey , February 3, 2017 at 10:56 pm

Yes, yes, damn yes!! It's about your class, not your race, not your education, not your gender. As Lambert might say, identity politics (your race, your education, your gender) is used to keep your eye off the prize: economic opportunity and security.

DH , February 3, 2017 at 2:21 pm

It is also easier to have part-time workers because they are still covered by health insurance in some sort of national health insurance system. In the US, the part-time workers will have high turnover as they look for full-time jobs to get access to health insurance.

Workers are also more likely to start their own businesses to provide services since the health insurance is just a fee they pay instead of an astronomical non-group insurance bill. COBRA insurance premiums are ginormous if you need to continue coverage after you leave a company.

Economists have been decrying the lack of employee mobility and small business formation over the past decade or so. Health insurance is probably a primary reason for this. Obamacare hasn't been around long enough and with enough certainty to change that dynamic yet.

jrs , February 3, 2017 at 3:37 pm

It's probably part of it, though I suspect the bad labor market is part of it as well. It's one thing to quit a job to start a business when you think "if it doesn't work out, I can always go back to my old career and easily be hired", another when quitting a good job means one might not land another ever.

susan the other , February 3, 2017 at 1:24 pm

haven't seen any more info on Hollande's "Flex – Security" plans to give corporations a way to lay off workers to improve the corporation's revenue. French Labor was having none of it and then Hollande went negative in the polls and was done for. Our contracting out former corporation departments sounds like bad quality control at best. If the state – whatever state you can name – is going to prop up all corporations everywhere because they can no longer successfully compete then something is fundamentally wrong with the system that demands such murderous and mindless competition.

d , February 3, 2017 at 1:32 pm

well there also that wage theft rules, that employers don't like. course if you look at work mans comp, you will find that it no longer works to protect employees any more. and maybe that is also why employers are get rid of employees. plus there is all of that needing to manage them. but you still end up having to manage vendors too, and while i suppose you could hire another vendor to manage the vendors (not really sure this will work out well), it still leaves the biggest problem

since consumers are about 70% of the entire economy (always wonder if this is true. because almost all corporate 'investment' is done because of customer demand), seems like this business fad, will end up with fewer customers (which seems to be the way its working too, as evidenced by the falling sales figures from companies, even Apple), so it like business is like lemmings, going a cliff, because some one else started

Lune , February 4, 2017 at 3:09 pm

So are you a proponent of Medicare-for-all? It would be a tremendous benefit to corporations to get out of the healthcare business and also increase employees' willingness to become freelancers and consultants, since they'd never have to worry about healthcare.

The truth is that citizens expect a certain amount of social welfare and security. This can be provided by 1) individuals themselves, 2) private players e.g. corporations, or 3) public players e.g. govt. Each has downsides. If you expect individuals to provide for themselves, it will less inefficient than having professional managers, and individuals will cut down on other consumption and save more, thereby hurting an economy such as ours which is highly dependent on consumption. This leaves companies and government. If companies lobby against public welfare programs like nationalized health insurance, unemployment insurance, social security, etc., they shouldn't be surprised if government foists those requirements back on them through back-door regulations.

To be fair to companies, most of the ones engaged in the "real economy" e.g. manufacturing, actually wouldn't mind medicare for all, or some other program that relieves them of the burden of providing healthcare to their employees. But they're being drowned out by the financial economy of Wall St., banking, insurance, etc. who depend on putting more money in the hands of individuals from whom they can extract much higher fees than they ever could from govt or corporate HR depts.

If companies don't want increased health mandates, for example, their enemy wasn't Obama: it was the private health insurance companies that didn't want a public plan.

Lune , February 4, 2017 at 3:17 pm

Sorry, I meant individuals will be less *efficient*.

Altandmain , February 3, 2017 at 1:45 pm

Yeah when I worked for one of the big 3 at an assembly plant, I felt that the use of temporary contractors could have very negative implications.

Most of the staff though were reasonably well paid, although asked to work long hours. I think though that overall, highly paid permanent workers pay for themselves many times over.

DJG , February 3, 2017 at 10:11 am

One aspect of the whole fandango that I don't get is how the IRS allows whole departments within a company to be outsourced: If people show up at your plant or office every day to work on your tasks, they are your employee, not a contractor. Is this melting away of the idea of an employee because of lack of enforcement or some change in IRS rules that I am not aware of?

Basically, if you control a worker's day, and if that worker works regularly for you, the person is your employee. I don't see how companies get away with this sleight of hand–avoiding, at the most basic legal level, who is on staff or not. [Unless the result, as many note above, is to increase class warfare.]

goldie , February 3, 2017 at 1:35 pm

The company doesn't get away with it if someone is willing to whistleblow to the IRS and said company fails the IRS 20-Factor Test (IC vs. employee). The nice thing there too, is that the tax burden will be on the company and not the employee. While I don't advocate being a stoolie, if a company wants to screw me over turn-about is fair play. I do the best I can to avoid those kinds of companies in the first place.

sgt_doom , February 3, 2017 at 7:02 pm

" One aspect of the whole fandango that I don’t get is how the IRS allows whole departments within a company to be outsourced . . "

If I understand your question correctly it is because a federal regulation was enacted by congress (I believe one of them was faux-progressive, Jim McDermott, no longer in congress but co-founder of the India Caucus, to replace American workers with foreign visa workers from India) which forbids oversight of the foreign visa program - and yes, they established a federal regulation killing oversight of the program by the government!

Suggested reading:

Sold Out, by Michelle Malkin and John Miano

fooco1 , February 4, 2017 at 2:54 am

Someone quoted Norm Matloff (a known bigot) above. You are now quoting anchor child Filipino bigot Michelle Malkin of all people ? It's not helping your case.

The H1-B program is a few hundred thousand legal tax paying people a year. There are 21 million Mexican illegals in this country. What do you think has more downward pressure on wages ? .005% H1-B (yeah, you read that right) of the total immigrant/wage pressure ? It's idiotic and a purely bigoted worldview.

Yves Smith Post author , February 4, 2017 at 3:08 am

We are supposed to regard "a few hundred thousand" as bupkis when they are concentrated in one sector?

The H1-B visa program has has a huge impact on wages in the IT sector and has virtually eliminated entry-level computer science jobs. This is strategically foolhardy, in that the US is not creating the next generation of people capable of running critical infrastructure.

And the illegal immigrants do pay taxes: sales, gas, and property taxes through their rents. And many actually do pay FICA. The Treasury recognizes that certain Social Security numbers are reused many times, and it's almost certainly for illegal immigrants. In fact, the IRS encourages illegal immigrants to "steal" Social Security numbers:

http://www.forbes.com/sites/robertwood/2016/04/13/irs-admits-it-encourages-illegals-to-steal-social-security-numbers-for-taxes/

That article whinges about possible tax credit scamming, but even that estimate is well below what they pay in FICA, $12 billion. And pretty much none of them will draw benefits.

This is from memory, but I believe they collect over $4 billion from these SSN per year. And most of these jobs are seasonal and/or too low wage for them to pay much in the way of income taxes when they are being paid in cash.

fooco1 , February 4, 2017 at 7:31 pm

H1-B is not in one industry, the .005% is spread across entry level jobs in all industries: finance, automotive, insurance, arts, film, automation, etc. The total amount of H1-B is minuscule, vanishingly close to zero in a country of 300+ million and 20+ million illegals.

You don't seem to be complaining about the tens of millions that used to concentrated in one sector..actual manufacturing. Wonder why ? Here's a hint: that sector used to make computer peripherals, keyboards, mice, terminals, monitors, LCD's, chips, motherboards, pretty much everything in the USA.

Employees in china, taiwan, etc pay zero USA taxes and they displaced millions of manufacturing jobs. And ironically, you are using an entirely outsourced computer (that actually displaced tens of millions of jobs in the aggregate) to complain about the minuscule .005% H1-B effect. A few hundred thousand entry level coding jobs (which are ridiculously simple and lo-tech, google 13 year olds getting Microsoft certified to see how low down on the value chain this is). You genuinely think writing a few for-loops (I am simplifying a little but you get the idea) is hard ?

Certainly, way way less capital intensive and way way less barrier to entry than Hi-Tech manufacturing. It's all going to be outsourced much faster than manufacturing was, since there is literally no barrier to entry. And H1-B is a good thing, relatively speaking, compared to full on outsourcing (just like manufacturing was).

Like I said, the only explanation for these anti H1-B posts is plain old bigotry. No other explanation comes close.

fooco1 , February 4, 2017 at 8:08 pm

Might as well finish my train of thought..then I'm outta here.

There are less H1-B visas this year than refugees , Refugees (not to mention the 20 million illegals) also put downward pressure on wages across all industries, but of course, those are all food servicing/picking/janitorial jobs and who cares about those people right ? (sarcasm for the impaired)

So, coming back to H1-B's..let's take the logical alternative and ban all H1-B's entirely and deport the ones on H1-B visas. What happens then ?

1) They can do the job exactly as well remotely (all they need is email/internet/skype).
2) They get paid even less (but more than zero).
3) They pay no taxes.
4) Their output is words..code is the same as prose and math. Good luck banning math/words..if it can be printed on a t-shirt, it ain't bannable. (See the famous bernstein crypto case from the early 90's for a illustration of this).
5) And finally..there are zero new jobs added for native USA'ians (which would now cost more, given the alternative).

It makes the situation far worse than it is today. There is fewer local coffee shop selling coffee, fewer rental units getting rented, fewer groceries getting bought, cars being purchased, etc.

For a easily displaceable and low barrier to entry coding gig, there isn't any easy answer. H1-B's are actually the best solution (or at the very least neutral), not the problem.

FluffytheObeseCat , February 4, 2017 at 7:22 am

The H1-B visa program is operated so as to wreck the bargaining power of native born young U.S. workers. Young Americans are increasingly likely to be nonwhite AND from the less valued (not Asian) subgroups of nonwhite. The damage H1-Bs do to our white Baby Boomers is almost incidental at this point; they are aging out of the workforce. And given the intense age bigotry of the IT subculture, they are not a factor within it at all at this point.

H1-B visas lock our striving, capable working class young people out of upward mobility. Kids who are now graduating from say, San Jose State with skills as good as those of South Asians don't get jobs that they are qualified for, because they are shut out of entry to the business. They are disdained in Silicon Valley because the majority of entry level conduits to employment are now locked up (via social contacts, and "who-you-know" relationships) by men from the subcontinent.

Your race argument is pernicious and I suspect, promoted in the full the knowledge of this fact. It is a great shame that we are relying on kooks like Malkin to promote obvious truths, but the shame belongs to our morally derelict 'liberal' chattering class, not those who listen to her and her ilk for lack of other sources.

vegeholic , February 3, 2017 at 10:22 am

An underappreciated aspect of contracting versus cultivating your own employees is that it hollows out the organization to the point that it may no longer have competence to perform its mission. Having an apparent success at contracting out menial tasks, the temptation is to keep going and begin to contract out core functions. This pleases the accountants but leaves the whole organization dependent on critical talent that has very little institutional loyalty. When an inevitable technical paradigm shift occurs, who can you count on to give you objective and constructive advice?

Costs of training and cultivating employees are high, and it is tempting to think that these costs can be eliminated by using contractors. It is strictly an apparent, short-term gain which will in due time be revealed as a strategic mistake. Do we have to learn every lesson the hard way?

Portia , February 3, 2017 at 10:55 am

yes, and when I read that Pfizer farms out research, I also wondered if retention of the outsource company contract is results-related. could new drug results hinge on a company wanting to keep their Pfizer contract by telling them what they want to hear?

Ann , February 3, 2017 at 1:06 pm

Agreed. Every time a company offshores jobs or goes through another round of layoffs, it loses its institutional memory. This is particularly acute in the mainframe IT systems that prop up the TBTFs (yep, they offshored these too). After a while, nobody understands exactly how these systems work and can only get to the bottom of them by reading code, which is a pretty flawed way to learn the business. This has been going on for years and nobody cares.

sgt_doom , February 3, 2017 at 7:03 pm

Amen to that, something I've been preaching for over 35 years now!

wilroncanada , February 3, 2017 at 6:14 pm

It pleases the accountants, that is, until their jobs too are outsourced. First they came for the janitors

Denis Drew , February 3, 2017 at 10:35 am

Centralized bargaining - a.k.a., sector wide labor agreements - is the only strategic answer to contracting out. Done in continental Europe, French Canada, Argentina, Indonesia.

(Take a vacation from reality with Soma - one gram and I don't give a damn.)

L , February 3, 2017 at 10:40 am

The one word I don't see in your excellent writeup is loyalty . Companies, like countries depend to a great extent on social constraints to keep people committed to the group. You cannot monitor all people all the time and doing so causes them to turn against you. But companies staffed with contractors and temps and temps supervising contractors have no loyalty to the company. Ergo no one employee has any reason to go the extra inch or to turn down the chance to sell out for personal gain should the opportunity arise.

All that imposes real costs that companies conveniently ignore because they are not always realized in share price.

PhilM , February 3, 2017 at 5:54 pm

I was going to add the same thought, but use the label "goodwill." It is something that appears on balance sheets in enormous amounts depending on what the accountants think it may represent.

There is a "goodwill bank" in the labor pool of any given company, and when the balance hits zero, the company will fail, "emigrate" its capital, or go public to the greater fools. Companies are engaged in a savage race to the bottom that is inherent in corporate structure: executives are now playing with somebody else's money, and somebody else's life. If corporate liability were suddenly returned to the days of the partnership, what a change we would see. And those days were not so long ago: Wall Street remembers the 1960s.

PS What a treat to come here and see informative journalism and commentary instead of the monkey cage.

oliverks , February 3, 2017 at 11:52 am

My daughter was recruited and interviewed by Genentech and then sent to work for an organization called PPD. PPD did nothing in this relationship, other than take money from Genentech pocketed about 1/2 of that and then pay her the rest. I really couldn't figure out what the heck the point of this was, other than some long running strategy to ultimately depress salaries of Genentech chemists.

DH , February 3, 2017 at 2:29 pm

One of my kids works in a unionized metal foundry (they still exist in the US!). When they need new workers, they bring several in through a temp agency for several months. If they can cut it and are acceptable, then they get pulled into the union or into the plant management team. This allows them to try out several people on a rent-to-own basis, but in the long run they become loyal company employees with very low turnover.

jrs , February 3, 2017 at 3:45 pm

Contract-to-hire is not new. The problem from an employee perspective is trying to evaluate when a company is actually serious about hiring if the contractee does a good job, and when it's just empty promises and they have no intent of making full time job offers at all.

DH , February 3, 2017 at 2:31 pm

BTW – the Genentech scientists probably get a bunch of benefits like bonuses and stock options, etc. that are not available to the contract workers. They probably have more protections if they are terminated or laid off whereas the contract workers would be done that day. The really good contract workers may get offers to work at the company for the long-run.

j84ustin , February 3, 2017 at 12:14 pm

Outsourcing is done in the public realm, too; my first job after grad school was with a major housing authority – except it wasn't for them (despite me having a "housingauthority.org" email address). I worked for a contractor of the housing authority, who paid us shit and treated us like cattle. I lasted three months.

j84ustin , February 3, 2017 at 12:36 pm

***but I was still a W2 employee! silver lining.

jrs , February 3, 2017 at 3:48 pm

Oh yes it definitely happens in the public realm, a lot with local government, more and more it seems.

akaPaul LaFargue , February 3, 2017 at 12:19 pm

One area not discussed in this post is municipal outsourcing. What this means in practice is the loss of organizational memory . assuming that records are not adequately maintained since the "old-timers" were still around. But with the loss of human memory banks, no new ones (digital?) have taken their place. Further, when consultants are hired for a specific project, when they have completed that project, what they have learned as ancillary knowledge is lost cuz the end-product is all that counts, not the process.

Dave , February 3, 2017 at 12:57 pm

i.e. Rip up the entire street to find where the pipe is because the old public works director who was replaced with a bright young woman with a degree before he qualified for his pension, got even and deleted the maps on the software. :-)

wilroncanada , February 3, 2017 at 6:41 pm

Didn't Yves mention this loss of institutional memory in reference to fianancial services, or was it banks, and their IT?

Further to government outsourcing:
Back a few years my wife and I worked for a school district on the East coast of Canada. The janitorial service had been outsourced a few years previously, with the former head janitor becoming the main contractor, who then hired other cleaning staff to work for him. He/she was already being squeezed to reduce his rates, leading to work not done or his working from 8AM to midnight to save an after-school employee. So–lower employment overall, all at minimum wage, including the main contractor.

One district had bucked the province-wide trend by keeping its own cleaning staff. Visiting the schools in that district those few years later, one could see the result, in vastly superior level of cleanliness, better co-ordination between admin and teaching staff with cleaners, and much better relations with students as well.

The staff weren't bosses, the cleaners weren't minions, and the students weren't customers. They were a team.

Glen , February 3, 2017 at 12:21 pm

I don't think there will be a change in this because it's too profitable for the CEOs to strip mine the companies assets (knowledgeable employees are an asset) for maximum "shareholder value" (always replace "shareholder value" with "my compensation"). I suppose this will change when all companies are stripped to the bone and go under. But we now call these "too big to fail" and prop them up with taxpayer dollars.

We need to change incentives. These might help:

Make corporations really pay taxes so that it makes sense to invest in the company rather than strip it.

Don't prop up TBTF companies, let them fail so that many small companies can grow.

Stop all the fraud and corruption. Send corrupt CEOs to jail.

Medicare for All would be a boon for businesses, especially the smaller and mid-sized ones.

Herb Kelleher, CEO of Southwest, was once asked where he ranked shareholders vs employees. He replied employees were first (because if the employees are not happy, then the customers are not happy), customers (they pay the bills), and shareholders (they buy and sell shares in seconds). If the company is successful, the shareholders will come. We somehow need to get back to these company values. A successful company starts with the employees.

Arizona Slim , February 3, 2017 at 2:12 pm

Thank you, thank you, THANK YOU, Glen!

JimTan , February 3, 2017 at 12:58 pm

Wow – good post.

This is a pretty ugly development in our history. The 'end of employees' is a very accurate description of what is going on in our gig economy related to a specific legal contradiction. In the U.S., we've adopted a vast body of labor laws ( many in response to the Industrial Revolution and Great Depression ) that are primarily designed to protect "employees" from exploitation. Buried deep in our tax law is a second designation for worker called "independent contractor", defined as a self-employed person providing services to other businesses that is exempt from most labor laws on the principle that a self-employed person can't exploit themselves. The key here is labor laws protect 'employees' from 'employer' abuses. Changing a workers classification from employee to ( self-employed ) contractor, will change an employers classification to customer, and remove the workers legal protections from exploitation. Labor law protections include minimum wage and hours, workplace safety and health, wrongful dismissal protections, anti-discrimination protections, employee benefits security, and worker compensation protections. This contradiction is allowing many companies to sidestep centuries of laws enacted to stabilize and and protect our society. Some companies push this power imbalance even further by transferring many of the business costs associated with their revenue to employee contractors ( see Uber ).

Hopefully when there is enough public outcry, regulators and prosecutors will decide to challenge these interpretations of existing laws and force businesses back in line regardless of their political influence.

Arizona Slim , February 3, 2017 at 2:09 pm

Call it what it really is - the frig economy. Because it keeps frigging us over.

JimTan , February 3, 2017 at 2:24 pm

Incidentally, the slippery logic that removes labor law protections by classifying a worker as self-employed ( both employer and employee ) might also grant businesses protections from their workers via consumer protection laws against fraud and unfair practices ( when businesses become customers of their now self-employed former employees ).

vegeholic , February 3, 2017 at 1:44 pm

As has been stated several times, sometimes government entities are the worst offenders here. Grover Norquist & Co. insisted on shrinking the size of government. The obedient elected officials and managers immediately replaced employees with contractors and could claim that they had indeed reduced the size of government. Unfortunately the budget probably went up since we now have to provide profit for the rent extracting contract vendors.

redleg , February 3, 2017 at 10:37 pm

They replaced govt employees with their contractors.
FIFY
Dual purpose- Eliminate the government's ability to govern while capturing the tax revenue.

Democrita , February 3, 2017 at 2:11 pm

A few years ago I was working for a family of local weekly papers, run on a shoestring (of course) with pathetic salaries for the tiny staff. At one point, they heard about possibly outsourcing design–layout of modular pages–to cheap labor in Romania. But when they ran the numbers .our in-house designers were already cheaper than the Romanians!

Second point: At my current magazine I am one of just two full-time staffers on the edit side. Our copy-editor/proofreader is paid on an hourly basis, and works off-site. Our designer works on a monthly retainer, off-site. And so on.

That makes the relationship between us and our workers competitive and antagonistic: They try to do the least amount of work, and we try to pay the least amount of money. So when the publisher wants to be "innovative" or try something different, the designer resists. He doesn't want to spend any more time on us than he normally does. So we don't do anything well, we get by with just good enough.

Point 3 – institutional knowledge: One of our key competitive advantages has been/is being eroded because there are things we haven't done in two years due to turnover. When I arrived and took up one such project, hugely important to the company's bottom line, no one could tell me how it was done. Everyone who had been involved in it was gone. We've now spent several months reinventing this particular wheel.

But the publisher doesn't see that as money. He only sees money as money.

DH , February 3, 2017 at 2:24 pm

BTW – the financial sector is ripe for this. Automation is taking over many positions and people in active investing is getting slashed big-time. Ironically, places like Vanguard may actually be some of the last bastions of actual employees.

Detrei , February 3, 2017 at 2:35 pm

The problem with these short term contract jobs are immense. Employees that don't have a steady income have difficulty getting loans for cars or homes. They certainly have less protection too. Our son worked for SKY TV as a part time employee through a temp agency for 3 years, working 40 hour weeks. But when an unstable full time employee assaulted him, in front or several witnesses, he was the one fired on the spot without explanation. He was a non-person. The temp agency didn't want to get involved for fear of losing their contract. With no union, no rights and little money, there was little he could do. They knew he couldn't afford a lawyer and involving the police wouldn't get his job back. This goes on all the time now. 20 years ago would have been unthinkable. I see a revolution coming, in many countries

Pelham , February 3, 2017 at 2:39 pm

Given the long evident fact that our corporate owners and their servants in government will not do a bloody thing to make life better for us, what can we do? As a first step toward any solution, we need to recognize that nothing is possible within the narrow boundaries of our political and economic system.

Vatch , February 3, 2017 at 3:03 pm

What you describe as a first step seems a lot like a claim of inevitable failure. Rather than expect failure, I recommend as a first step that we try to block a few of Trump's predatory cabinet nominations. Andrew Puzder, the nominee to head the Labor Department, and Steven Mnuchin, nominated to be the Secretary of the Treasury, seem to be very relevant to the scope of this article. Also Tom Price, nominated to be the Secretary of Health and Human Services. Tell your Senators that you don't want them to be confirmed. It's easy, although you might need to make a few extra phone calls, because the Congressional phone lines are often busy these days.

https://www.senate.gov/senators/contact/

Sorry, I know I'm being repetitious. But it's better to do something positive than to bewail our political impotence.

JEHR , February 3, 2017 at 3:04 pm

Or everything is possible within Witness–Trump as Pres.!!!!!

JEHR , February 3, 2017 at 3:03 pm

I ask, Why can't banks be fully automated? You wouldn't need CEOs and COOs and CFOs in banks because IT can do all those jobs automatically. Then we would find out that we only need ONE bank–the central bank and, voila, the banks no longer can create money by making loans. (I'm sure there is a weak point in this argument!!!) However, I can see something like this happening in the future if only we separate investment banking from commercial banking.

Sound of the Suburbs , February 3, 2017 at 3:20 pm

Marx saw capitalism as an endless class struggle between the bourgeoisie and the proletariat.

He wasn’t far wrong.

1920s – high inequality, high banker pay, low taxes for the wealthy, robber barons, reckless bankers, globalisation phase (bourgeoisie in the ascendency)

1970s â€" low inequality, worker and union power, high taxes on the wealthy (proletariat in the ascendency) (probably more true in the UK than the US)

2000s â€" high inequality, high banker pay, low taxes on the wealthy, robber CEOs, reckless bankers, globalisation phase (bourgeoisie in the ascendency)

The pendulum swings back and forth and always swings too far in both directions.

If the human race could take a more sensible, big picture view they might see it as a balance between the supply side (bourgeoisie) and the demand side (proletariat).

The neoliberal era has been one where a total ignorance of debt has held sway.

Redistributive capitalism was removed to be replaced with a capitalism where debt based consumption has become the norm. without a single mainstream economist realising the problem.

The world is maxing out on debt, this system is set to fail due to a lack of demand. The Bourgoisie have been in the ascendency and made their usual mistake.

“The Marxian capitalist has infinite shrewdness and cunning on everything except matters pertaining to his own ultimate survival. On these, he is not subject to education. He continues wilfully and reliably down the path to his own destruction”.

Keynes thought income was just as important as profit, income looks after the demand side of the equation and profit looks after the supply side.

He has the idea of balance.

Just maximising profit â€" The Bourgeoisie looking after their own short term, self interest with no thought of the longer term.

1) Money at the top is mainly investment capital as those at the top can already meet every need, want or whim. It is supply side capital.

2) Money at bottom is mainly consumption capital and it will be spent on goods and services. It is demand side capital.

You need to keep the balance.

Too much capital at the bottom and inflation roars away.

Too much capital at the top and there is no where sensible to invest and the Bourgeoisie indulge in rampant speculation leading to the inevitable Wall Street Crash, 1929 and 2008.

Today’s negative yield investments?
Too much capital at the top, no one wants it and you have to pay people to take it off your hands.

Sound of the Suburbs , February 3, 2017 at 5:07 pm

We are actually using 1920s economics, neoclassical economics.

No wonder everything looks familiar, the Bourgeoisie have no imagination.

“Stocks have reached what looks like a permanently high plateau.”Irving Fisher 1929.

In 2007, Ben Bernanke could see no problems ahead.

Their beliefs were based on an absolute faith in markets based on neoclassical economics which states markets reach stable equilibriums.

We should actually learn from mistakes, not repeat them.

1920s levels of inequality â€" what a surprise it’s the same economics.

We have moved on to the 1930s now:

1930s/2010s â€" Global recession, currency wars, rising nationalism and extremism

1940s â€" Global war

Something to look forward to.

jerry , February 3, 2017 at 5:24 pm

"You need to keep the balance." The post war era was balance, that was the middle of the pendulum swing, we have never seen you're next sentence:

"Too much capital at the bottom and inflation roars away." When? Name one instance outside of extraordinary political situations like weimar germany and zimbabwe where this has occurred?

Inflation is the boogey man that the elite throw around to scare us into submission. They don't care when its inflation of house prices, they don't care when its inflation of healthcare costs, education costs, etc. etc. But they damn sure start sweating a lot when its the cost of labor that goes up. Shocker.

Check my article about this very topic (shameless self promotion) : https://marginallyattachedblog.wordpress.com/2017/01/04/inflation-worries-from-trump-fiscal-stimulus/

FreeMarketApologist , February 3, 2017 at 3:28 pm

"Gate Gourmet had once been part of British Airways. And passengers blamed the airline."

You can transfer expenses, you can transfer legal and regulatory liability risk, you can transfer financial risk, but it is virtually impossible to transfer reputational risk. Companies who think they can do so (or ignore the fact) do so at their own peril.

Barbara , February 3, 2017 at 4:37 pm

My d-i-l, a research professional, has survived five down-sizings, assuming an additional work load each time. The last time she also got a small promotion (well, you'd think they'd give her something positive after all this). To myself I thought, they're going to wear this woman out till she has nothing left to give and dump her.

It's worse. The corporation (company is a concept from my early working days) just announced that everyone would have to bid for their projects(jobs). What this means of course is "how much are you willing to give?" not to mention pitting one employee against another.

Not prescient enough, was I?

jerry , February 3, 2017 at 5:30 pm

Love the article.

I "work" (temp/contract/no benefits) at a large multinational electronics company in cust service and have seen this first hand. In response to a couple years of dropping profits, they outsourced the entire department (couple hundred employees) to the Philippines. They cut full time employees, replace them with temps for half the pay, because people will do it, and we live in desperate times with no bargaining power.

As someone mentioned, its a negative feedback loop, less demand, less employment, less demand, until the whole world is greece. We won't make it through another world war, the world is too globalized, too connected, too advanced technologically. We need a relatively peaceful populist revolution – which we seem to be seeing the first real signs of – or our species is done for.. and the sad part is I'm not even exaggerating.

sgt_doom , February 3, 2017 at 7:07 pm

Best overall reading list on this subject:

Sold Out by Michelle Malkin

Outsourcing America by Ron Hira

America: Who Stole the Dream? by Donald L. Barlett

One Nation Under Contract by Allison Stanger

Dick Burkhart , February 4, 2017 at 6:07 pm

One point you missed is that a company cannot manage, let alone write a contract very well unless it has sufficient expertise on staff. It is not sufficient to hire a consultant unless that arrangement is more or less permanent. Too many things can go wrong, as they often do even with competent staff when projects are complex or innovative.

[Feb 04, 2017] Is Inequality a Political Choice?

Notable quotes:
"... Cross posted from the Institute for New Economic Thinking website ..."
"... Steve Bannon, Chief Strategist and Senior Counselor to President Trump is a prominent proponent of the theory. As a documentary filmmaker Bannon discussed the details of Strauss-Howe generational theory in Generation Zero. According to historian David Kaiser, who was consulted for the film, Generation Zero "focused on the key aspect of their theory, the idea that every 80 years American history has been marked by a crisis, or 'fourth turning', that destroyed an old order and created a new one". Kaiser said Bannon "is very familiar with Strauss and Howe's theory of crisis, and has been thinking about how to use it to achieve particular goals for quite a while." A February 2017 article from Business Insider titled: Steve Bannon's obsession with a dark theory of history should be worrisome commented "Bannon seems to be trying to bring about the 'Fourth Turning'." ..."
"... no sh*t, Sherlock ..."
"... Wealth and Democracy ..."
"... However, reading about the recent Gini index leads me to believe that either our preference for inequality is changing [probably not the case, given Trump], or our history is outrunning our preferences. ..."
"... early 1980's TRUMP SWAMP WHISTLE-BLOWER WAYNE BARRET (RIP)? https://www.nytimes.com/2017/01/19/business/media/wayne-barrett-dead-village-voice-columnist.html ..."
"... What socio-econ OU ..."
"... Cross posted from the Institute for New Economic Thinking website ..."
"... Steve Bannon, Chief Strategist and Senior Counselor to President Trump is a prominent proponent of the theory. As a documentary filmmaker Bannon discussed the details of Strauss-Howe generational theory in Generation Zero. According to historian David Kaiser, who was consulted for the film, Generation Zero "focused on the key aspect of their theory, the idea that every 80 years American history has been marked by a crisis, or 'fourth turning', that destroyed an old order and created a new one". Kaiser said Bannon "is very familiar with Strauss and Howe's theory of crisis, and has been thinking about how to use it to achieve particular goals for quite a while." A February 2017 article from Business Insider titled: Steve Bannon's obsession with a dark theory of history should be worrisome commented "Bannon seems to be trying to bring about the 'Fourth Turning'." ..."
"... no sh*t, Sherlock ..."
"... Wealth and Democracy ..."
"... However, reading about the recent Gini index leads me to believe that either our preference for inequality is changing [probably not the case, given Trump], or our history is outrunning our preferences. ..."
"... early 1980's TRUMP SWAMP WHISTLE-BLOWER WAYNE BARRET (RIP)? https://www.nytimes.com/2017/01/19/business/media/wayne-barrett-dead-village-voice-columnist.html ..."
"... What socio-econ OUTCOMES have resulted in even PAMPLIN MEDIA GROUP ..."
"... and the so-called alternative weeklies who only make news hole available for Lifestyle features on the new Wellness Spa, Tattoo Parlor or Booze\Gourmet venture ..."
"... Mitch Ritter\Paradigm Shifters Lay-Low Studios, Ore-Wa Media Discussion Group ..."
"... TCOMES have resulted in even PAMPLIN MEDIA GROUP ..."
"... and the so-called alternative weeklies who only make news hole available for Lifestyle features on the new Wellness Spa, Tattoo Parlor or Booze\Gourmet venture ..."
"... Mitch Ritter\Paradigm Shifters Lay-Low Studios, Ore-Wa Media Discussion Group ..."
Feb 04, 2017 | www.nakedcapitalism.com
Posted on February 4, 2017 by Yves Smith Yves here. Both economists and the press do such a good job of selling the idea that inequality is the fault of those who come out on the short end of the stick that academics need to develop empirical evidence to prove what ought to be intuitively obvious.

Cross posted from the Institute for New Economic Thinking website

The fact that most of the fruits of US economic growth have not been shared with the lower-middle and working class is accepted across the political spectrum in America. But that inequality is often treated as a somehow inevitable consequence of globalization and technological change. That view is contradicted by the comparison of income growth and distribution statistics between the US and three others rich countries, France, Norway and the UK - according to new research by Max Roser and Stefan Thewissen of the Institute for New Economic Thinking at Oxford. Writing in Vox on the database they've constructed, Roser and Thewissen note:

"We compare the evolution of the income an individual needs to be right at the 10th percentile of the income distribution to the evolution of the income of an individual at the 90th percentile. We call these two groups the 'poor' and the 'rich.' We can then look at how much incomes grew for the poor and the rich in absolute terms as well as relative to each other - and thereby assess the extent to which growth was widely shared. We measure income after taxes and transfers, and adjust for differences in prices over time and across countries using inflation and purchasing power information. Our database can be accessed online, with more information on our exact measure and data for other countries."

The US performs poorly by comparison to these countries, for reasons that may have more to do with structure, institutions and policy. Roser and Thewissen conclude:

"The differences we have identified across countries and time imply that increased globalization and technological change cannot be blamed as sole causes for rising inequality. Those forces work across borders and should affect all countries. The fact that other developed countries have been able to share the benefits of these market forces suggests that policy choices on the national level play a central role for boosting living standards. Policies can make a difference not just in growth levels, but also in who gets the benefits of that growth."

8 0 16 3 1 This entry was posted in Banana republic , Free markets and their discontents , Global warming , Guest Post , Income disparity , Politics , Regulations and regulators , The destruction of the middle class on February 4, 2017 by Yves Smith . Subscribe to Post Comments 36 comments Disturbed Voter , February 4, 2017 at 7:03 am

The intuitively obvious, should be taken as axiomatic. Like two points determine a single line. When you start out from an unequal position (not like at the start of a foot race) it is unclear who to blame, for the one person who crosses the finish line first vs the losers. And much of life is "first across the finish line". Also since in this case, the winner of the last race, gets an advantage on the next starting line the unequal advantage tends to accumulate. Life is unfair. The point is to maintain the status quo, statically and dynamically. Those who have advantages today, continue to have them, as white collar US workers and even blue collar US workers used to. The previous winners continue to win these unequal contests, but the number of happy workers gets fewer and fewer. This is why Trump voters the benefits of inequality are now being shared less equally ;-) The purpose of government is to benefit the status quo. Therefore policy doesn't offer substantive way out. Change will occur but only when the current status quo maintenance system fails. Conclusion: like the game of Musical Chairs there is no change until the music stops, and someone different can't find a chair to sit in. But it is less fun in real life.

Moneta , February 4, 2017 at 7:16 am

Funny how kids' games are there to show how luck works in life and how people work around it, yet many never seem to see the link.

Disturbed Voter , February 4, 2017 at 8:08 am

Unfortunately many in the current generation are content to play the little pig, in Charlotte's Web. They forget where McDonald's McRib comes from. Again, children's culture is illustrative and simplified.

MP , February 4, 2017 at 10:14 am

I wouldn't underestimate "many in the current generation" – especially among those who don't have the "divided baggage" of the generations that preceded them. Due to purposely recirculated historical circumstances aligned with modern "evolution," it may not be as easy for power to continue to "manipulate and control."

Kris Alman , February 4, 2017 at 2:11 pm

Speaking of generations
In 2010, Steve Bannon directed and wrote this film: Generation Zero
http://generationzeromovie.com/trailers.html

You can watch the full length movie here:
http://www.snagfilms.com/films/title/generation_zero

In this fear-mongering film, conservatives like Gingrich put a spin on the power of the "elite" destroying the middle class in a revisionist approach (although they are quick to point out that both parties are captured by global corporations). The future: austerity, deregulation and 20 years of chaos (with probable war) ahead of us.

The film revolves around the Strauss-Howe generational theory.
https://en.wikipedia.org/wiki/Strauss%E2%80%93Howe_generational_theory
Steve Bannon, Chief Strategist and Senior Counselor to President Trump is a prominent proponent of the theory. As a documentary filmmaker Bannon discussed the details of Strauss-Howe generational theory in Generation Zero. According to historian David Kaiser, who was consulted for the film, Generation Zero "focused on the key aspect of their theory, the idea that every 80 years American history has been marked by a crisis, or 'fourth turning', that destroyed an old order and created a new one". Kaiser said Bannon "is very familiar with Strauss and Howe's theory of crisis, and has been thinking about how to use it to achieve particular goals for quite a while." A February 2017 article from Business Insider titled: Steve Bannon's obsession with a dark theory of history should be worrisome commented "Bannon seems to be trying to bring about the 'Fourth Turning'."

David Kaiser has distanced himself from Bannon's extreme views.
http://time.com/4575780/stephen-bannon-fourth-turning/

When I was first exposed to Strauss and Howe I began thinking how their ideas explained the histories of other countries as well, and during our interview, I mentioned that crises in countries like France in the 1790s and Russia after 1917 had led to reigns of terror. Bannon included those remarks in the final cut of Generation Zero.
A second, more alarming, interaction did not show up in the film. Bannon had clearly thought a long time both about the domestic potential and the foreign policy implications of Strauss and Howe. More than once during our interview, he pointed out that each of the three preceding crises had involved a great war, and those conflicts had increased in scope from the American Revolution through the Civil War to the Second World War. He expected a new and even bigger war as part of the current crisis, and he did not seem at all fazed by the prospect.
I did not agree, and said so. But, knowing that the history of international conflict was my own specialty, he repeatedly pressed me to say we could expect a conflict at least as big as the Second World War in the near or medium term. I refused.
Apocalyptic rhetoric and apocalyptic thinking flourish during crisis periods. This represents perhaps the biggest danger of the Trump presidency, and one that will bear watching from all concerned citizens in the months and years ahead.

That's why we should all be concerned about Bannon being added to the National Security Council. http://www.cnn.com/2017/01/29/politics/susan-rice-steve-bannon/index.html

Bannon's Islamaphobia portends a 'global war' between 'the Judeo-Christian west' and 'jihadist Islamic fascism.'
https://www.theguardian.com/us-news/2017/feb/03/steve-bannon-islamophobia-film-script-muslims-islam

MP , February 4, 2017 at 3:01 pm

Thanks for the information. I'm aware of the madman's "movie" and his authoritarian ideology. He and his commander-of-thieves will continue to unravel right before our eyes. Many lives will continue to be severely impacted by these hateful, selfish, abusive throwbacks from "central casting."

DWD , February 4, 2017 at 10:10 am

The Race

Every day there is a race you have to run. For the sake of discussion, let's call it a 100 yard race.

The participants are called and then evaluated by the judges. Starting points for the race are then determined. If you are particularly comely, you are given an advantage: that is, your starting point is moved up depending on the judges. If you have a personality that people find attractive, you are given further yards. If you happen to have had great success in school, you are awarded so many yards because of your academic record. If you happen to be good looking and personable, the academic success yards are added onto your already determined starting point.

Then the quality and reputation of your educational institution is evaluated and you are given further yards to determine starting points with certain schools worth a better starting position. And even the type of training at the institution is evaluated and further yards given.

Finally the judges add your total experiences – including your finishing position in previous races – advanced degrees, and connections and further yards are added.

So when the gun sounds, the person without the advantages strives as hard as they can but they cannot win the race because some people only have to simply step over the finish line.

And even more troubling some people are moved behind the starting line because they could not even muster the necessary accomplishments to reach the starting line: drop outs from school, people who have been convicted of crimes and the rest. The worse the offense, the further you are moved behind the starting line.

Every day this continues and those striving to win – even running faster and harder than their competitors – are simply unable to do so because the rules are such that winning is not even a consideration when the race is rigged.

Jazz Paw , February 4, 2017 at 4:30 pm

The factors are certainly at work in inequality. Some of those factors can either be mitigated or compensated for by the individual and/or the social system.

There are other structural factors that influence inequality. Family connections, inherited wealth, and other forms of social capital that can make advancement easier is one. Savings and investment patterns that can be engaged in to varying degrees depending on just how much surplus income one has is another.

The social and political system in the US generally favors vigorous competition, private self-dealing, and asymmetric information. Individuals who learn to navigate these factors can prosper, while those who either can't or don't want to can suffer significant disadvantages in outcomes. The influence of these structural factors in any social system influences the degree of income/wealth stratification.

In my own family, many of the starting social factors are fairly equal among the individuals. Even though my various relatives have not necessarily made "bad" choices in the moral sense, their outcomes have been vastly different. The degree to which they have chosen to engagein income/wealth maximization has generally been a large factor. In that sense, the game is rigged away from living what many consider a humane life.

David , February 4, 2017 at 7:19 am

You mean people actually got paid to research and write stuff like this? You simply have to look at the (re)distribution policies of the countries concerned – and there are substantial differences between the three of them, by the way.
Wouldn't a much more interesting question be "By what mechanism does globalization necessarily increase inequality, and how does it work precisely in a number of contrasted cases"? But then you might get the wrong answer.

lyman alpha blob , February 4, 2017 at 9:38 am

No kidding – kind of amazing that people get paid good money to restate the obvious, but using sesquipedalian language just to make it more difficult to understand.

Inequality is caused by one group not having as much money as another. Money is simply a tool created by human beings. Much like a hammer, human beings could use it to build houses for everyone or to bash others about the head. We humans seem to prefer the latter use.

Grebo , February 4, 2017 at 1:43 pm

The people paid to prove the obvious are far outnumbered by those paid to disprove it. We need the former because of the latter.
On the other hand, there are many cases where the obvious turned out to be wrong when it was looked at carefully. More research needed!

Knute Rife , February 4, 2017 at 1:49 pm

We're in a world where politicians get paid to lie about these obvious things and legislate based on those lies, and businesses make their profits off the lies, so I can't get too exercised when someone gets paid to point out the lies.

Fred Grosso , February 4, 2017 at 7:52 am

Yes. I decided I wasn't going to be Fred Trump's son.

Disturbed Voter , February 4, 2017 at 8:06 am

Bravo. Who can tolerate the virtue signaling of the plutocracy?

Carla , February 4, 2017 at 10:20 am

+10

funemployed , February 4, 2017 at 8:36 am

"Forces." Really? "Globalization" and "technological change" are things humans do for human reasons. To treat them as "forces" somehow exogenous to human choices is self-evidently fallacious. It's precisely the same logic that says the King is the King cause God likes him best.

They're not "forces." They are heuristics. And as heuristics, they are pretty lousy unless you parse them quite a bit. Obama's 1 trillion dollar investment in nukes creates "technological change." The destruction of local agricultural techniques and knowledge is "technological change." A kindle is "technological change." Keyword searches readily available to academic researchers was a big "technological change."

I'm assuming what they mean by "technological change" here is the sort that allows us to collectively make more stuff with less work. God forbid anyone spell that out though. Because "hey, guess what: you have to work more for less because we can now make more stuff with less work," would quickly lead to the violent demise of economists and rich people. (more to say on "globalization" but this post is already way longer than intended.)

Sound of the Suburbs , February 4, 2017 at 9:21 am

Redistributive Keynesian capitalism produces the lowest levels of inequality within the developed world from the 1950s to the 1970s.

1980s – Let's get rid of redistributive Keynesian capitalism.

Inequality soars.

What was supposed to happen?

nowhere , February 4, 2017 at 6:31 pm

A rising tide of lifting boats

Pelham , February 4, 2017 at 10:06 am

Germany should have been included in the study. German manufacturing is far more technologically advanced than manufacturing in the US, yet Germany manages to maintain high employment in that sector, probably because the companies invest in worker training and feel some obligation toward labor.

There's a structural reason for this, with labor having powerful representation on German corporate boards and smaller companies being owned by families instead of faceless shareholders, with the families' long-term interests naturally more in alignment with those of their employees.

David , February 4, 2017 at 11:22 am

Actually, I thought the inclusion of France and the UK was a bit strange, as well. Inequality in both countries has been increasingly massively in recent years. One Thomas Piketty even wrote something on the topic, if I'm not mistaken. Japan would have been a much better example.

jrs , February 4, 2017 at 12:22 pm

I think it kind of makes the point, if even a country that isn't exactly known for egalitarianism, like the UK, is doing better than the U.S. it kind of shows how extreme on the scale the U.S. is.

nowhere , February 4, 2017 at 6:33 pm

We are exceptional in every way!

Barni , February 4, 2017 at 1:42 pm

Contrary to elite owned and serving mass media claims, the trick that created the German economic miracle is no mystery; it was, and IS, their banking system.
In Germany more than 70% of all banking is done by "municipally owned banks"!!!
A situation that the elites – masters of the universe -have been working day and night to drastically alter so that their "too big to fail" minion zombie banks can take complete AND total control of the economy, as they have in most of the developed world except North Dakota, Canada (Canada owns the Bank of Canada – the Finance Minister holds all the shares on behalf of all Canadians), and Switzerland (Switzerland has Cantonal {municipally or provincially} owned banks) – all three countries, like the German municipally owned banks, are under attack by the elite serving bureaucrats in the IMF and the U.S. Federal Reserve; all of whom are owned by, and minions of, Wall Street; and most importantly the corporate bought and sold world's university economics departments – co-opted to right agenda faux economic B.S.
The U.S. Federal Reserve now donates more money to universities worldwide than all of the rest of the donors combined!?! The proviso on these donations is that they only hire economics profs who have been published in one of the 37 journals published by the U.S. Federal Reserve – and we know what kind of right agenda 'fascist' mumbo-jumbo these minion economists are dedicated to serving up in order to get published by the U.S. Fed!!!
So what you say!! Well here's so what!
If you are in any other developed country than Germany and you have a great idea/product and require a one million dollar loan to build a factory and set up production – here's what happens to you. Your local banks will never lend you that money, so you have to go to the criminal Big Banks which will also never lend you the money you need, which means you will have to sell your idea/product at pennies on the dollar to one of their huge corporate clients, who will offshore production to a corrupted third world country where workers get paid pennies an hour and unions are considered a criminal enterprise. Leaving you, the creator of the product or service with pennies on the dollar; and leaving your local economy with zero economic growth and no well paid local employment opportunities. The corporate buyer of your technology/product/idea may well just kill your product because it is better than the (inferior) one they are currently making bags of money selling – for which they have just eliminated your innovative and superior competitive product.
If you are in Germany however the story is far different. In Germany you would go to your local municipally owned bank which is only too happy to give you the one million dollars you need to set up production (locally providing employment and contributing to local economic prosperity).
This is the basis for the strength of the German economy and the reason for the so called ":German economic miracle?"!
It is described as a "miracle" not because we have no idea how it happened, rather because the elites who own more than 80% of all corporate shares need to confuse us plebs they want to economically and politically crush!

Sluggeaux , February 4, 2017 at 11:01 am

American wealth inequality is a political problem? Well, no sh*t, Sherlock .

Kevin Phillips wrote about this phenomenon a decade ago in his wonderful book Wealth and Democracy . Between 1920 and 1980, American plutocrats had been placed in fear by the Bolshevik revolution, humbled by the Great Depression, and shamed by the Second World War. Greed was in check. Then they died-off and left their wealth to a new generation more interested in emulating Mick Jagger than Dwight D. Eisenhower. Ronnie Reagan was their Hollywood pal, who cut estate and coupon-clipping taxes so that they could party like rock stars.

Crass punks like Donald Trump and the Kochs are the scions of inherited wealth and Studio 54. They could never have made it on their own, on their own talents, and it is in their class interest to destroy any sort of meritocracy. They have used materialism and greed to buy the political class.

Advance , February 4, 2017 at 11:21 am

Look up Geert Hofstede's work on "power distance," which is the extent to which a nation accepts inequality.

According to Hofstede, countries have different "tastes" or preferences for inequality. For example, the Middle East, parts of S America, India, and other parts of Asia have a much bigger "taste" for inequality compared to, say, the Scandinavian countries, which have the lowest.

I would guess that differences in preferences for inequality between countries go back to a nation's history, and maybe other hard-to-pin down forces and factors.

The US, according to Hofstede's work, is at the middle point, or a little lower, as to taste for inequality. However, reading about the recent Gini index leads me to believe that either our preference for inequality is changing [probably not the case, given Trump], or our history is outrunning our preferences. In other words, we may be getting more inequality than we like.

By the way, Hofstede assumes that power distance preference is a fairly durable characteristic of a nation.

UserFriendly , February 4, 2017 at 2:45 pm

Preference?? Yes, I'm sure the mid east loves inequality, which is why they are known for choosing dictators who quash uprisings as their leaders. And how exactly would I choose egalitarianism here in the US? I can vote for Wall Street and Holly Wood or Wall Street and Exxon Mobil. Which one is the egalitarian one?

Ignacio , February 4, 2017 at 2:58 pm

"

However, reading about the recent Gini index leads me to believe that either our preference for inequality is changing [probably not the case, given Trump], or our history is outrunning our preferences.

"

What about "power distance" (extent to which a nation accepts inequality) interactions with "distance to power" extent to which a nation influences the powerful.

Sam , February 4, 2017 at 12:40 pm

According to Ha-Joon Chang, markets are political creations.

So, yes.

Bernard , February 4, 2017 at 12:45 pm

"To serve Humans." The cookbook from " the Outer Limits/Twilight Zone" TV series had aliens come to "devour" humans. such a farce!! lol

when the reality all along has been that's it the Rich who wrote the "Cookbook". Bernay's sauce, once again.

who would have thunk it! Inequality is the major ingredient.

Anonymous , February 4, 2017 at 2:17 pm

I've been reading Robert J. Gordon's book, 'The Rise and Fall of American Growth.' Gordon would say that American labor did well from 1870-1970 because of the innovations that drove the economy increased everyone's productivity and the value of their work. Since 1970, productivity has slowed down. It rose again during the decade of the '90s but mostly for knowledge workers, thanks to the internet, spreadsheets, etcetera, but now has continued to slow. That was a recipe for income inequality, and for wealth inequality as well, since the rise of digital industries has increased property values on the coasts and in select inland cities.

Slowing productivity also increased wealth inequality by facilitating the decline of interest rates. This helps the haves, since their assets are suddenly more valuable.

pretzelattack , February 4, 2017 at 3:23 pm

http://www.huffingtonpost.com/martin-ford/is-american-economic-grow_b_9096698.html

this guy argues that productivity has been decoupled from compensation, and that has driven the rise of inequality.

off topic, but the krugman review of the book contained the interesting fact that, during the 1880's, wall street was 7 feet deep in manure in some places.

UserFriendly , February 4, 2017 at 2:53 pm

Of course inequality is a political choice. Chosen by the oligarchs who buy the politicians.

Just like every mainstream economist is choosing to make millions suffer and die every day because excepting MMT would bruise their ego's. That is a choice too.

Ignacio , February 4, 2017 at 3:01 pm

I think that inequality is not a political choice directly but a consequence of deregulation or "do nothing" policy. Reducing inequality is a policy choice.

marblex , February 4, 2017 at 3:32 pm

To quote the very astute Batman11 from ZH:

𝐀𝐥𝐥 𝐟𝐨𝐫 𝐨𝐮𝐫𝐬𝐞𝐥𝐯𝐞𝐬, 𝐚𝐧𝐝 𝐧𝐨𝐭𝐡𝐢𝐧𝐠 𝐟𝐨𝐫 𝐨𝐭𝐡𝐞𝐫 𝐩𝐞𝐨𝐩𝐥𝐞 𝐬𝐞𝐞𝐦𝐬, 𝐢𝐧 𝐞𝐯𝐞𝐫𝐲 𝐚𝐠𝐞 𝐨𝐟 𝐭𝐡𝐞 𝐰𝐨𝐫𝐥𝐝, 𝐭𝐨 𝐡𝐚𝐯𝐞 𝐛𝐞𝐞𝐧 𝐭𝐡𝐞 𝐯𝐢𝐥𝐞 𝐦𝐚𝐱𝐢𝐦 𝐨𝐟 𝐭𝐡𝐞 𝐦𝐚𝐬𝐭𝐞𝐫𝐬 𝐨𝐟 𝐦𝐚𝐧𝐤𝐢𝐧𝐝." 𝐀𝐝𝐚𝐦 𝐒𝐦𝐢𝐭𝐡, 𝐓𝐡𝐞 𝐖𝐞𝐚𝐥𝐭𝐡 𝐨𝐟 𝐍𝐚𝐭𝐢𝐨𝐧𝐬

𝐌𝐚𝐧𝐤𝐢𝐧𝐝 𝐟𝐢𝐫𝐬𝐭 𝐬𝐭𝐚𝐫𝐭𝐞𝐝 𝐭𝐨 𝐩𝐫𝐨𝐝𝐮𝐜𝐞 𝐚 𝐬𝐮𝐫𝐩𝐥𝐮𝐬 𝐰𝐢𝐭𝐡 𝐞𝐚𝐫𝐥𝐲 𝐚𝐠𝐫𝐢𝐜𝐮𝐥𝐭𝐮𝐫𝐞.

𝐈𝐭 𝐰𝐚𝐬𝐧'𝐭 𝐥𝐨𝐧𝐠 𝐛𝐞𝐟𝐨𝐫𝐞 𝐭𝐡𝐞 𝐞𝐥𝐢𝐭𝐞𝐬 𝐥𝐞𝐚𝐫𝐧𝐭 𝐡𝐨𝐰 𝐭𝐨 𝐫𝐞𝐚𝐝 𝐭𝐡𝐞 𝐬𝐤𝐢𝐞𝐬, 𝐭𝐡𝐞 𝐬𝐮𝐧 𝐚𝐧𝐝 𝐭𝐡𝐞 𝐬𝐭𝐚𝐫𝐬, 𝐭𝐨 𝐩𝐫𝐞𝐝𝐢𝐜𝐭 𝐭𝐡𝐞 𝐜𝐨𝐦𝐢𝐧𝐠 𝐬𝐞𝐚𝐬𝐨𝐧𝐬 𝐭𝐨 𝐭𝐡𝐞 𝐚𝐦𝐚𝐳𝐞𝐝 𝐦𝐚𝐬𝐬𝐞𝐬 𝐚𝐧𝐝 𝐜𝐨𝐥𝐥𝐞𝐜𝐭 𝐭𝐫𝐢𝐛𝐮𝐭𝐞.

They soon made the most of the opportunity and removed themselves from any hard work to concentrate on "spiritual matters", i.e. any hocus-pocus they could come up with to elevate them from the masses, e.g. rituals, fertility rights, offering to the gods . etc and to turn the initially small tributes, into extracting all the surplus created by the hard work of the rest.

The elites became the representatives of the gods
and they were responsible for the bounty of the earth and the harvests. As long as all the surplus was handed over, all would be well.
Later they came up with money.

We pay you to do the work and you give it back to us when you buy things, you live a bare subsistence existence and we take the rest.

"𝐌𝐨𝐧𝐞𝐲 𝐢𝐬 𝐚 𝐧𝐞𝐰 𝐟𝐨𝐫𝐦 𝐨𝐟 𝐬𝐥𝐚𝐯𝐞𝐫𝐲, 𝐚𝐧𝐝 𝐝𝐢𝐬𝐭𝐢𝐧𝐠𝐮𝐢𝐬𝐡𝐚𝐛𝐥𝐞 𝐟𝐫𝐨𝐦 𝐭𝐡𝐞 𝐨𝐥𝐝 𝐬𝐢𝐦𝐩𝐥𝐲 𝐛𝐲 𝐭𝐡𝐞 𝐟𝐚𝐜𝐭 𝐭𝐡𝐚𝐭 𝐢𝐭 𝐢𝐬 𝐢𝐦𝐩𝐞𝐫𝐬𝐨𝐧𝐚𝐥 – 𝐭𝐡𝐚𝐭 𝐭𝐡𝐞𝐫𝐞 𝐢𝐬 𝐧𝐨 𝐡𝐮𝐦𝐚𝐧 𝐫𝐞𝐥𝐚𝐭𝐢𝐨𝐧 𝐛𝐞𝐭𝐰𝐞𝐞𝐧 𝐦𝐚𝐬𝐭𝐞𝐫 𝐚𝐧𝐝 𝐬𝐥𝐚𝐯𝐞." 𝐋𝐞𝐨 𝐓𝐨𝐥𝐬𝐭𝐨𝐲

𝐓𝐡𝐞 𝐬𝐮𝐫𝐩𝐥𝐮𝐬 𝐩𝐫𝐨𝐝𝐮𝐜𝐞𝐝 𝐬𝐢𝐧𝐜𝐞 𝐭𝐡𝐞 𝐞𝐚𝐫𝐥𝐢𝐞𝐬𝐭 𝐚𝐠𝐫𝐢𝐜𝐮𝐥𝐭𝐮𝐫𝐚𝐥 𝐜𝐨𝐦𝐦𝐮𝐧𝐢𝐭𝐢𝐞𝐬 𝐰𝐚𝐬 𝐭𝐡𝐮𝐬 𝐞𝐱𝐭𝐫𝐚𝐜𝐭𝐞𝐝 𝐛𝐲 𝐭𝐡𝐞 𝐞𝐥𝐢𝐭𝐞.

A bare subsistence existence ensured the workers didn't die and could reproduce, why give them anymore? The vile maxim of the masters of mankind.

Basic capitalism was how it all started in the 18th and 19th Centuries, the poor lived in squalor and the rich lived in luxury, the same as it had always been.

Only organised labour movements got those at the bottom a larger slice of the pie, basic capitalism gives nothing to the people who do the work apart from a bare subsistence existence.

The wealthy decided they needed to do away with organised labour movements and the welfare state; it was interfering with the natural order where they extract all the surplus.

2017 – World's eight richest people have same wealth as poorest 50%

Nearly there.

They need a bit more fine tuning at Davos.

Some of the world's workers are not living a bare subsistence existence.

𝐀 𝐛𝐚𝐫𝐞 𝐬𝐮𝐛𝐬𝐢𝐬𝐭𝐞𝐧𝐜𝐞 𝐞𝐱𝐢𝐬𝐭𝐞𝐧𝐜𝐞 𝐞𝐧𝐬𝐮𝐫𝐞𝐬 𝐭𝐡𝐞 𝐰𝐨𝐫𝐤𝐞𝐫𝐬 𝐝𝐨𝐧'𝐭 𝐝𝐢𝐞 𝐚𝐧𝐝 𝐜𝐚𝐧 𝐫𝐞𝐩𝐫𝐨𝐝𝐮𝐜𝐞, 𝐰𝐡𝐲 𝐠𝐢𝐯𝐞 𝐭𝐡𝐞𝐦 𝐚𝐧𝐲𝐦𝐨𝐫𝐞? 𝐓𝐡𝐞 𝐯𝐢𝐥𝐞 𝐦𝐚𝐱𝐢𝐦 𝐨𝐟 𝐭𝐡𝐞 𝐦𝐚𝐬𝐭𝐞𝐫𝐬 𝐨𝐟 𝐦𝐚𝐧𝐤𝐢𝐧𝐝, 𝐜𝐮𝐫𝐫𝐞𝐧𝐭𝐥𝐲 𝐤𝐧𝐨𝐰𝐧 𝐚𝐬 𝐧𝐞𝐨-𝐥𝐢𝐛𝐞𝐫𝐚𝐥𝐢𝐬𝐦.

𝐁𝐚𝐬𝐢𝐜 𝐜𝐚𝐩𝐢𝐭𝐚𝐥𝐢𝐬𝐦, 𝐬𝐭𝐫𝐢𝐩𝐩𝐞𝐝 𝐨𝐟 𝐚 𝐰𝐞𝐥𝐟𝐚𝐫𝐞 𝐬𝐭𝐚𝐭𝐞 𝐚𝐧𝐝 𝐨𝐫𝐠𝐚𝐧𝐢𝐬𝐞𝐝 𝐥𝐚𝐛𝐨𝐮𝐫 𝐦𝐨𝐯𝐞𝐦𝐞𝐧𝐭𝐬, 𝐰𝐢𝐭𝐡 𝐚 𝐠𝐥𝐨𝐛𝐚𝐥 𝐰𝐨𝐫𝐤𝐟𝐨𝐫𝐜𝐞 𝐞𝐧𝐬𝐮𝐫𝐢𝐧𝐠 𝐚𝐧 𝐞𝐱𝐜𝐞𝐬𝐬 𝐬𝐮𝐩𝐩𝐥𝐲 𝐨𝐟 𝐥𝐚𝐛𝐨𝐮𝐫 𝐝𝐫𝐢𝐯𝐢𝐧𝐠 𝐰𝐚𝐠𝐞𝐬 𝐝𝐨𝐰𝐧 𝐭𝐨 𝐭𝐡𝐞 𝐦𝐢𝐧𝐢𝐦𝐮𝐦.

𝐏𝐞𝐫𝐟𝐞𝐜𝐭, 𝐢𝐭'𝐬 𝐠𝐨𝐢𝐧𝐠 𝐭𝐨 𝐛𝐞 𝐣𝐮𝐬𝐭 𝐥𝐢𝐤𝐞 𝐭𝐡𝐞 𝐠𝐨𝐨𝐝 𝐨𝐥𝐝 𝐝𝐚𝐲𝐬.

𝐓𝐡𝐞 𝐢𝐦𝐩𝐨𝐯𝐞𝐫𝐬𝐢𝐡𝐞𝐝 𝐦𝐢𝐝𝐝𝐥𝐞 𝐜𝐥𝐚𝐬𝐬, 𝐡𝐨𝐰 𝐝𝐢𝐝 𝐭𝐡𝐚𝐭 𝐡𝐚𝐩𝐩𝐞𝐧?

𝐈𝐭 𝐰𝐚𝐬 𝐩𝐚𝐫𝐭 𝐨𝐟 𝐭𝐡𝐞 𝐩𝐥𝐚𝐧.

Francis Fukuyama talked of the "end of history" and "liberal democracy".

Liberal democracy was the bringing together of two mutually exclusive ideas.

Economic liberalism – that enriches the few and impoverishes the many.

Democracy – that requires the support of the majority.

Trying to bring two mutually exclusive ideas together just doesn't work.

The ideas of "Economic Liberalism" came from Milton Freidman and the University of Chicago. It was so radical they first tried it in a military dictatorship in Chile, it wouldn't be compatible with democracy. It took death squads, torture and terror to keep it in place, there was an ethnic cleansing of anyone who still showed signs of any left wing thinking.

It was tried in a few other places in South America using similar techniques. It then did succeed in a democracy but only by tricking the people into thinking they were voting for something else, severe oppression was needed when they found out what they were getting.

It brings extreme inequality and widespread poverty everywhere it's tested, they decide it's a system that should be rolled out globally. It's just what they are looking for.

𝐆𝐨𝐨𝐝 𝐧𝐞𝐰𝐬 𝐢𝐭 𝐰𝐨𝐫𝐤𝐬 𝐚𝐬 𝐩𝐥𝐚𝐧𝐧𝐞𝐝.

𝟐𝟎𝟏𝟒 – "𝟖𝟓 𝐫𝐢𝐜𝐡𝐞𝐬𝐭 𝐩𝐞𝐨𝐩𝐥𝐞 𝐚𝐬 𝐰𝐞𝐚𝐥𝐭𝐡𝐲 𝐚𝐬 𝐩𝐨𝐨𝐫𝐞𝐬𝐭 𝐡𝐚𝐥𝐟 𝐨𝐟 𝐭𝐡𝐞 𝐰𝐨𝐫𝐥𝐝"

𝟐𝟎𝟏𝟔 – "𝐑𝐢𝐜𝐡𝐞𝐬𝐭 𝟔𝟐 𝐩𝐞𝐨𝐩𝐥𝐞 𝐚𝐬 𝐰𝐞𝐚𝐥𝐭𝐡𝐲 𝐚𝐬 𝐡𝐚𝐥𝐟 𝐨𝐟 𝐰𝐨𝐫𝐥𝐝'𝐬 𝐩𝐨𝐩𝐮𝐥𝐚𝐭𝐢𝐨𝐧"

𝟐𝟎𝟏𝟕 – 𝐖𝐨𝐫𝐥𝐝'𝐬 𝐞𝐢𝐠𝐡𝐭 𝐫𝐢𝐜𝐡𝐞𝐬𝐭 𝐩𝐞𝐨𝐩𝐥𝐞 𝐡𝐚𝐯𝐞 𝐬𝐚𝐦𝐞 𝐰𝐞𝐚𝐥𝐭𝐡 𝐚𝐬 𝐩𝐨𝐨𝐫𝐞𝐬𝐭 𝟓𝟎%

𝐓𝐡𝐞 𝐠𝐥𝐨𝐛𝐚𝐥 𝐞𝐥𝐢𝐭𝐞 𝐚𝐫𝐞 𝐮𝐧𝐬𝐮𝐫𝐩𝐚𝐬𝐬𝐞𝐝 𝐢𝐧 𝐥𝐨𝐨𝐤𝐢𝐧𝐠 𝐚𝐟𝐭𝐞𝐫 𝐭𝐡𝐞𝐢𝐫 𝐨𝐰𝐧 𝐢𝐧𝐭𝐞𝐫𝐞𝐬𝐭𝐬.

𝐖𝐡𝐚𝐭 𝐡𝐚𝐯𝐞 𝐭𝐡𝐨𝐬𝐞 𝐩𝐨𝐩𝐮𝐥𝐢𝐬𝐭𝐬 𝐠𝐨𝐭 𝐭𝐨 𝐜𝐨𝐦𝐩𝐥𝐚𝐢𝐧 𝐚𝐛𝐨𝐮𝐭?

𝐍𝐚𝐨𝐦𝐢 𝐊𝐥𝐞𝐢𝐧'𝐬 "𝐒𝐡𝐨𝐜𝐤 𝐃𝐨𝐜𝐭𝐫𝐢𝐧𝐞" 𝐜𝐨𝐯𝐞𝐫𝐬 𝐭𝐡𝐢𝐬 𝐢𝐝𝐞𝐨𝐥𝐨𝐠𝐲 𝐢𝐧 𝐚𝐥𝐥 𝐢𝐭𝐬 𝐧𝐚𝐬𝐭𝐢𝐧𝐞𝐬𝐬."
Post by Batman11@ZH

Mitch Ritter , February 4, 2017 at 4:14 pm

Would a for-profit chain of local newspapers whose business model and advertising is built on serving the Portland Business Alliance and Chamber of Commerce interests hire or keep on staff any kind of investigative journalistic team or even an individual columnist\calumnist like recently deceased VILLAGE VOICE early 1980's TRUMP SWAMP WHISTLE-BLOWER WAYNE BARRET (RIP)?
https://www.nytimes.com/2017/01/19/business/media/wayne-barrett-dead-village-voice-columnist.html

What socio-econ OU

Is Inequality a Political Choice? Posted on February 4, 2017 by Yves Smith
Yves here. Both economists and the press do such a good job of selling the idea that inequality is the fault of those who come out on the short end of the stick that academics need to develop empirical evidence to prove what ought to be intuitively obvious.

Cross posted from the Institute for New Economic Thinking website

The fact that most of the fruits of US economic growth have not been shared with the lower-middle and working class is accepted across the political spectrum in America. But that inequality is often treated as a somehow inevitable consequence of globalization and technological change. That view is contradicted by the comparison of income growth and distribution statistics between the US and three others rich countries, France, Norway and the UK - according to new research by Max Roser and Stefan Thewissen of the Institute for New Economic Thinking at Oxford. Writing in Vox on the database they've constructed, Roser and Thewissen note:

"We compare the evolution of the income an individual needs to be right at the 10th percentile of the income distribution to the evolution of the income of an individual at the 90th percentile. We call these two groups the 'poor' and the 'rich.' We can then look at how much incomes grew for the poor and the rich in absolute terms as well as relative to each other - and thereby assess the extent to which growth was widely shared. We measure income after taxes and transfers, and adjust for differences in prices over time and across countries using inflation and purchasing power information. Our database can be accessed online, with more information on our exact measure and data for other countries."

The US performs poorly by comparison to these countries, for reasons that may have more to do with structure, institutions and policy. Roser and Thewissen conclude:

"The differences we have identified across countries and time imply that increased globalization and technological change cannot be blamed as sole causes for rising inequality. Those forces work across borders and should affect all countries. The fact that other developed countries have been able to share the benefits of these market forces suggests that policy choices on the national level play a central role for boosting living standards. Policies can make a difference not just in growth levels, but also in who gets the benefits of that growth."

8 0 16 3 1 This entry was posted in Banana republic , Free markets and their discontents , Global warming , Guest Post , Income disparity , Politics , Regulations and regulators , The destruction of the middle class on February 4, 2017 by Yves Smith . Subscribe to Post Comments 36 comments
Disturbed Voter , February 4, 2017 at 7:03 am

The intuitively obvious, should be taken as axiomatic. Like two points determine a single line. When you start out from an unequal position (not like at the start of a foot race) it is unclear who to blame, for the one person who crosses the finish line first vs the losers. And much of life is "first across the finish line". Also since in this case, the winner of the last race, gets an advantage on the next starting line the unequal advantage tends to accumulate. Life is unfair. The point is to maintain the status quo, statically and dynamically. Those who have advantages today, continue to have them, as white collar US workers and even blue collar US workers used to. The previous winners continue to win these unequal contests, but the number of happy workers gets fewer and fewer. This is why Trump voters the benefits of inequality are now being shared less equally ;-) The purpose of government is to benefit the status quo. Therefore policy doesn't offer substantive way out. Change will occur but only when the current status quo maintenance system fails. Conclusion: like the game of Musical Chairs there is no change until the music stops, and someone different can't find a chair to sit in. But it is less fun in real life.

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Moneta , February 4, 2017 at 7:16 am

Funny how kids' games are there to show how luck works in life and how people work around it, yet many never seem to see the link.

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Disturbed Voter , February 4, 2017 at 8:08 am

Unfortunately many in the current generation are content to play the little pig, in Charlotte's Web. They forget where McDonald's McRib comes from. Again, children's culture is illustrative and simplified.

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MP , February 4, 2017 at 10:14 am

I wouldn't underestimate "many in the current generation" – especially among those who don't have the "divided baggage" of the generations that preceded them. Due to purposely recirculated historical circumstances aligned with modern "evolution," it may not be as easy for power to continue to "manipulate and control."

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Kris Alman , February 4, 2017 at 2:11 pm

Speaking of generations
In 2010, Steve Bannon directed and wrote this film: Generation Zero
http://generationzeromovie.com/trailers.html

You can watch the full length movie here:
http://www.snagfilms.com/films/title/generation_zero

In this fear-mongering film, conservatives like Gingrich put a spin on the power of the "elite" destroying the middle class in a revisionist approach (although they are quick to point out that both parties are captured by global corporations). The future: austerity, deregulation and 20 years of chaos (with probable war) ahead of us.

The film revolves around the Strauss-Howe generational theory.
https://en.wikipedia.org/wiki/Strauss%E2%80%93Howe_generational_theory
Steve Bannon, Chief Strategist and Senior Counselor to President Trump is a prominent proponent of the theory. As a documentary filmmaker Bannon discussed the details of Strauss-Howe generational theory in Generation Zero. According to historian David Kaiser, who was consulted for the film, Generation Zero "focused on the key aspect of their theory, the idea that every 80 years American history has been marked by a crisis, or 'fourth turning', that destroyed an old order and created a new one". Kaiser said Bannon "is very familiar with Strauss and Howe's theory of crisis, and has been thinking about how to use it to achieve particular goals for quite a while." A February 2017 article from Business Insider titled: Steve Bannon's obsession with a dark theory of history should be worrisome commented "Bannon seems to be trying to bring about the 'Fourth Turning'."

David Kaiser has distanced himself from Bannon's extreme views.
http://time.com/4575780/stephen-bannon-fourth-turning/

When I was first exposed to Strauss and Howe I began thinking how their ideas explained the histories of other countries as well, and during our interview, I mentioned that crises in countries like France in the 1790s and Russia after 1917 had led to reigns of terror. Bannon included those remarks in the final cut of Generation Zero.
A second, more alarming, interaction did not show up in the film. Bannon had clearly thought a long time both about the domestic potential and the foreign policy implications of Strauss and Howe. More than once during our interview, he pointed out that each of the three preceding crises had involved a great war, and those conflicts had increased in scope from the American Revolution through the Civil War to the Second World War. He expected a new and even bigger war as part of the current crisis, and he did not seem at all fazed by the prospect.
I did not agree, and said so. But, knowing that the history of international conflict was my own specialty, he repeatedly pressed me to say we could expect a conflict at least as big as the Second World War in the near or medium term. I refused.
Apocalyptic rhetoric and apocalyptic thinking flourish during crisis periods. This represents perhaps the biggest danger of the Trump presidency, and one that will bear watching from all concerned citizens in the months and years ahead.

That's why we should all be concerned about Bannon being added to the National Security Council. http://www.cnn.com/2017/01/29/politics/susan-rice-steve-bannon/index.html

Bannon's Islamaphobia portends a 'global war' between 'the Judeo-Christian west' and 'jihadist Islamic fascism.'
https://www.theguardian.com/us-news/2017/feb/03/steve-bannon-islamophobia-film-script-muslims-islam

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MP , February 4, 2017 at 3:01 pm

Thanks for the information. I'm aware of the madman's "movie" and his authoritarian ideology. He and his commander-of-thieves will continue to unravel right before our eyes. Many lives will continue to be severely impacted by these hateful, selfish, abusive throwbacks from "central casting."

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DWD , February 4, 2017 at 10:10 am

The Race

Every day there is a race you have to run. For the sake of discussion, let's call it a 100 yard race.

The participants are called and then evaluated by the judges. Starting points for the race are then determined. If you are particularly comely, you are given an advantage: that is, your starting point is moved up depending on the judges. If you have a personality that people find attractive, you are given further yards. If you happen to have had great success in school, you are awarded so many yards because of your academic record. If you happen to be good looking and personable, the academic success yards are added onto your already determined starting point.

Then the quality and reputation of your educational institution is evaluated and you are given further yards to determine starting points with certain schools worth a better starting position. And even the type of training at the institution is evaluated and further yards given.

Finally the judges add your total experiences – including your finishing position in previous races – advanced degrees, and connections and further yards are added.

So when the gun sounds, the person without the advantages strives as hard as they can but they cannot win the race because some people only have to simply step over the finish line.

And even more troubling some people are moved behind the starting line because they could not even muster the necessary accomplishments to reach the starting line: drop outs from school, people who have been convicted of crimes and the rest. The worse the offense, the further you are moved behind the starting line.

Every day this continues and those striving to win – even running faster and harder than their competitors – are simply unable to do so because the rules are such that winning is not even a consideration when the race is rigged.

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Jazz Paw , February 4, 2017 at 4:30 pm

The factors are certainly at work in inequality. Some of those factors can either be mitigated or compensated for by the individual and/or the social system.

There are other structural factors that influence inequality. Family connections, inherited wealth, and other forms of social capital that can make advancement easier is one. Savings and investment patterns that can be engaged in to varying degrees depending on just how much surplus income one has is another.

The social and political system in the US generally favors vigorous competition, private self-dealing, and asymmetric information. Individuals who learn to navigate these factors can prosper, while those who either can't or don't want to can suffer significant disadvantages in outcomes. The influence of these structural factors in any social system influences the degree of income/wealth stratification.

In my own family, many of the starting social factors are fairly equal among the individuals. Even though my various relatives have not necessarily made "bad" choices in the moral sense, their outcomes have been vastly different. The degree to which they have chosen to engagein income/wealth maximization has generally been a large factor. In that sense, the game is rigged away from living what many consider a humane life.

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David , February 4, 2017 at 7:19 am

You mean people actually got paid to research and write stuff like this? You simply have to look at the (re)distribution policies of the countries concerned – and there are substantial differences between the three of them, by the way.
Wouldn't a much more interesting question be "By what mechanism does globalization necessarily increase inequality, and how does it work precisely in a number of contrasted cases"? But then you might get the wrong answer.

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lyman alpha blob , February 4, 2017 at 9:38 am

No kidding – kind of amazing that people get paid good money to restate the obvious, but using sesquipedalian language just to make it more difficult to understand.

Inequality is caused by one group not having as much money as another. Money is simply a tool created by human beings. Much like a hammer, human beings could use it to build houses for everyone or to bash others about the head. We humans seem to prefer the latter use.

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Grebo , February 4, 2017 at 1:43 pm

The people paid to prove the obvious are far outnumbered by those paid to disprove it. We need the former because of the latter.
On the other hand, there are many cases where the obvious turned out to be wrong when it was looked at carefully. More research needed!

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Knute Rife , February 4, 2017 at 1:49 pm

We're in a world where politicians get paid to lie about these obvious things and legislate based on those lies, and businesses make their profits off the lies, so I can't get too exercised when someone gets paid to point out the lies.

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Fred Grosso ,