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The Wrongologist

Geopolitics, Power and Political Economy

Capitalism Is Past Its Sell-By Date

“This is a government of the people, by the people, and for the people no longer. It is a government of corporations, by corporations, and for corporations…” Rutherford B. Hayes (March, 1888)

Nearly 130 years ago at the height of the Gilded Age, President Hayes had it right. Capitalism then was an economic free-for-all. Today, capitalism again is rewarding too few people. And data show that the problem is worse than we thought. The WSJ reported on a study by economists from Stanford, Harvard and the University of California that found:

Barely half of 30-year-olds earn more than their parents did at a similar age, a research team found, an enormous decline from the early 1970s when the incomes of nearly all offspring outpaced their parents.

Using tax and census data, they identified the income of 30-year-olds starting in 1970, and compared it with the earnings of their parents when they were about the same age. In 1970, 92% of American 30-year-olds earned more than their parents did at a similar age. By 2014, that number fell to 51%. Here is a chart showing the results:

wsj-30-year-olds-make-less

And we know that real median household income in the US today is basically the same as in 1989. The paper doesn’t provide specific reasons for the decline in incomes for younger Americans, but it generally blames slower economic growth and, especially, the rapidly widening income gap between the top 20% and the rest of society.

They found that the inability of children to out-earn their parents is greatest in the Midwest. This underlines that those who voted for Trump have a point: The Midwest has been hit harder by import competition, especially from Japan and China, and by technological changes, than other regions of the US.

When looking only at males nationally, the decline is even starker: In 2014, only 41% of 30-year-old men earned more than their fathers at a similar age.

There are some issues with the study worth mentioning: Most kids born in the 1940s did well in their thirties, maybe because their parents were 30 during the Depression and WWII. By the 1960s, an industrialized economy brought significantly higher wages to 30 year olds. A high denominator in the ratio of parent’s income to child’s income (compared to the past) made it more difficult for succeeding generations to exceed their parents’ incomes.

The economy also has shifted in the past 30 years and is now service-based, as factories moved overseas, and automation became prevalent. This change swapped higher wage manufacturing jobs for mostly lower wage service jobs. That alone could make it all but impossible for young adults to hit the ratios that their parents did relative to their grandparents.

Maybe the American Dream didn’t die; it just never really existed in the sense of broadly-based income mobility. Have another look at the chart, upward mobility (as measured by making more than your parents) has been declining since the mid-1940s.

Why? Between rising globalization and rapid advances in automation, we now have more people than jobs. And no matter whom we elect, this trend will continue. Those manufacturing jobs are never coming back. Even in China, robots are now displacing workers in factories.

We don’t need “good paying manufacturing jobs”; we need good paying jobs.

This is the most serious challenge capitalism has faced in the US. Without improving personal income, there will be fewer who can afford college, or afford to buy the things that capitalism produces. Low personal income growth puts sand in the gears of our economy.

The left offers a critique of contemporary global capitalism but no real practical alternative. Neither does the right, but their memes of America First, nostalgia for a golden (gilded?) age, and more tax cuts seem like less of a stretch than a Bernie Sanders-like frontal assault on capitalism.

No one in either party has a plan for a world in which robots displace the demand for labor on a large scale. And the under-30 cohort is now spending at least 4 times more (in the case of Wrongo’s university, 10 times) for a college education than what their parents paid, and they are earning less.

If people matter at all to our leaders, and if 90+% of them lack the means to live without working, America must make employment our top priority, despite the fact that many have been deemed redundant by capitalists in the private sector.

Surplus labor drives the price of labor down; allowing the employer class to afford a pool boy, or a nanny, or another cook.

And it makes the waiters more attentive to Mr. Trump.

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Who Moved My Cheese?

Some may remember the book by this name by Spencer Johnson, published in 1998. The underlying message of the book is “Don’t waste time fighting against change: accept that bad stuff will happen to you for no good reason and just keep moving”.

This outdated and simplistic message remains the message of the Democratic Party to the White Working Class (WWC). Donald Trump’s message is different. He offers them nothing but a dream, to limit immigrants working in the US and to cut off the US market from China. And since the WWC knows that more of the same isn’t going to work, they’re voting for Trump.

It is useful to remember that since our “Most Favored Nation” trade deal with China in 1979, we have lost 35% of all manufacturing jobs in this country.

The WWC thinks that the Democrats have not been able to do anything to help them keep their jobs. The reasons for failure can be at least equally shared by the Parties, but since Dems have said for years that they are the party of the working class, they are getting the greater share of the blame for 35 years of no results.

There are two issues that dominate the discussion: Illegal immigration and transition assistance when jobs are lost. Regarding Immigration:

  • The WWC knows that Dems need the political support of the Hispanic community, and that requires Dems to show sympathy with illegal immigration.
  • The WWC believes that illegal immigration has put downward pressure on job opportunities and wages in the trades, in restaurant and hotel work, and in service sectors where immigrants may be overly represented.
  • That’s why Trump’s stance on immigration is so popular with the WWC. They probably know in their hearts that kicking all the Mexican workers out, or building a wall is ridiculous. But the Democrat’s position on immigration is diffuse, and is viewed as “soft” on illegals by the WWC.

Despite anything the Dems say about retraining or “transition assistance”, the WWC knows that someone on job transition assistance can’t earn enough to support a family. Other problems:

  • Identifying the fields/industries that workers can train in that will produce stable, living wage employment is an inexact science. So, demand for retrained workers is often less than the supply for any given job type.
  • Businesses have been very successful at shifting the burden (and cost) of training displaced workers from themselves to society. This is helped along by a corporate critique that public and not-for-profit private schools are failing to maintain standards, and they can’t churn out sufficient grads with qualifications that meet the corporations’ highly specific requirements.
  • Hence the continuing financial opportunities for for-profit technical schools and for-profit universities, (can you say Trump University?)

And Ford Motor Co. just gave Trump a big wet kiss:

Ford Motor Co. says it’s moving all of its US small car production to Mexico…The company is building a new $1.6 billion assembly plant in San Luis Potosi, Mexico. It will make small cars there starting in 2018.

What can the Pant Suit say about this that would go beyond what the Pant Load will certainly say? And if she did, would WWC people believe her?

On the macro level, our current capitalism has turned to technology to produce much of what is needed with far less human labor input than ever before. That leaves job growth (and job opportunity) in only the low-skilled, low-paid “service” jobs; or in highly advanced, specialized jobs requiring very advanced training/skills/talent.

This means that the dogma of Endless Economic Growth, which we have accepted since the Industrial Revolution, is dead. Along with killing that, we need to kill off the current organizing principle of our economic system, where humans exist solely to fulfill the needs of businesses.

Work helps us find our place in society. It is something that we see as having an inherent value, something that fills a basic human need, similar to food and shelter. But our current economic system no longer recognizes that, and our economy provides little opportunity for fulfilling that basic need for a large portion of American citizens, including many in the WWC.

The idea of government deploying under-utilized labor to build and repair our infrastructure, or to re-tool our country to reduce carbon emissions would be a step that might return the WWC to jobs and a place in society. It would cost a ton.

But the idea that the government would create demand is too socialist for most politicians to accept, despite the fact that the rest of the tools just haven’t worked in 35+ years.

Tell me again why Bernie Sanders was a terrible choice.

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Pant Suit vs. Pant Load, Part III

(Note: this week there will be no Sunday Cartoon Blogging, since Wrongo will be visiting MA and PA through Sunday, returning on Monday.)

Wrongo and long-time blog reader Terry engaged in a short email dialog on how to “fix” the US political system. We were concerned that there is no individual Congressperson accountability. A backbencher can follow an agenda that can imperil our nation (and a few have done just that) without consequence.

But in America, accountability is managed by election district. Your only alternative is to round up enough votes to replace poor representation. So, if you wanted to reform the impact that money has in our politics, or the way the filibuster works in the Senate, you have to reform Congress.

Yet, under our Constitution, only Congress can reform Congress. And today, there are three parties vying for control of it, and since they rarely are willing to work with each other, not much gets done. So you can completely forget about Reform.

And the parties have not been willing to deal with the not-so hidden desperation in America that shows up in statistics like increasing opioid addiction and suicide rates. The political class ignores how lethal the US economy is for the less fortunate: The New York Times reported this week that US death rates have risen for the first time in a decade.

The increase in death rates among less educated whites since 2001 is roughly the size of the AIDS epidemic. One reason is the use of opioids. And, despite Mr. Obama’s speech in Elkhart, IN where he said our economy is doing well, there has been a spike in suicides to levels higher than during the 2008 financial crisis.

The little people know that the economic policies followed by both parties have brought income inequality to Gilded Age levels. They know that all of the post-crisis income gains have accrued to the top 1%. Unlike in China which continues to grow, our economic expansion has brought with it high unemployment and underemployment, particularly among the young.

As a result, people feel powerless. In fact, a RAND survey in January found that 86.5% of GOP voters who strongly identified with the statement “people like me don’t have any say about what the government does” were Trump supporters.

And, since so much of politics is about corralling money into the bank accounts of our politicians, your Congresspersons have no intention of listening to you unless you have given at least $10,000 to their campaign fund, or are the CEO of a major employer in their district or state. In US politics, money=speech. But, there is little meaning to free speech without free access to influence the political process.

Many of us feel nihilistic about our politics and our government. So the Pant Load’s support seems a lot like a form of public political vandalism where The Donald is the can of spray paint.

Most people can see that a large portion of Americans are poorer with each new election cycle. After all, the reason Trump (and Sanders) are doing well is because many, many workers are seeing their job security, income security, and retirement security all go up in smoke. That’s no mystery, just the natural outcome when the government fails to represent the people in favor of the rich who fund their campaigns. It’s no wonder the Pant Load is easily corralling the frustrated.

But can the Pant Suit reverse the Democratic Party’s abandonment of the working class in America?

We know that she needs to focus on drawing more potential working class and young supporters, but so far, Democrats are content to run only in their municipal strongholds, following a strategy of stitching together interest groups, largely in states with big urban populations.

Energizing people around the fact of our corrupt political system is both a way to get higher turnout, and a way to elect members of Congress and state legislatures to fix the corrupt system. That is Bernie’s message, what he calls a “political revolution.” But Sanders is not the person to bring this about. Consider Sanders just the messenger.

Strategically, the Pant Suit needs to figure out how to get folks energized enough to vote for her and against Trump for reasons that don’t so paralyze them with fear that they stay home. If she is successful, it could be the start of re-establishing the New Deal coalition, and a re-installation of the principles of the civil rights movement.

That’s a huge job that will not be completed in one election cycle.

This threat is the GOP’s worst nightmare. They have worked for 40 years to eliminate these ideas, so expect the GOP to unanimously support the Pant Load:

COW Never Hillary

The Bernie Dems will rally behind Hillary for similar reasons.

Trump/Arpaio 2016: Because immigrants are the greatest threat to the nation.

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“The Oven is Preheating, But Your Goose is Not Yet Cooked.”

The quote above is from “City on Fire” (Knopf, 2015) a novel by Garth Risk Hallberg that describes NYC in the 1970s when it was both dangerous and in decay. And it aptly describes the current phase of American politics. What we are seeing with Trump, and to a lesser extent with Sanders, is that angry white working class people have decided to overturn our election process.

Maybe not in 2016, but certainly by 2020.

It shouldn’t be difficult to understand, since wages for working class white males peaked in 1968, 48 years ago. For their entire working lives, conditions for working class males have been getting worse. Here is a chart from the WSJ:

White Men in Labor Force

For white working-class men in their 30s and 40s, in what should be the prime decades for working and raising a family, participation in the labor force dropped from 96% in 1968 to 79% in 2015. Over that same period, the portion of these men who were married dropped from 86% to 52%. (The numbers for nonwhite working-class males show declines as well, though not as steep, and not as continuous.)

More from the WSJ:

In today’s average white working-class neighborhood, about one out of five men in the prime of life isn’t even looking for work; they are living off girlfriends, siblings or parents, on disability, or else subsisting on off-the-books or criminal income. Almost half aren’t married, with all the collateral social problems that go with large numbers of unattached males.

In these communities, about half the children are born to unmarried women, with all the problems that go with growing up without fathers. Drugs also have become a major problem outside of urban areas, in small towns and in the suburbs.

During the same half-century, American corporations exported millions of manufacturing jobs, which were among the best-paying working-class jobs. They were (and are today) predominantly men’s jobs.

The share of the total income of the bottom 80% of US households vs the top 20% of households also peaked in 1968: 57.4% vs 42.6%. As of 2014, the share of total household income of the top 20% has increased from 42.6% to 51.2%, while that of the bottom 80% has declined to 48.8%.

So in 1968, the combined share of the bottom 80% of household income was 14.8% greater than that of the top 20%. In 2014, it was only 2.4% less. That is a 17.2% negative swing. So, the quality of life for the average white male peaked in 1968.

And it’s not just men. Poor women are angry too. One thing everyone in the lower rungs of the ladder (the bottom 50% of the household income scale) have in common is that most of them now realize they are getting screwed. The numbers of white working-class voters will dip to just 30% of all voters by 2020. This is a dramatic decline from 1988, when white working-class voters were 54% of all voters.

Trump supporters want to use political power to restore their economic position. As any aware citizen knows, you never get power exactly the way you want it. Therefore, Trump’s supporters think they need to overturn our established politics to make change, and that can only happen if they follow an authoritarian like The Donald. A good current example of this is the Congress’s Freedom Caucus, who with just 40 members, have thrown out a Speaker of the House, and plan to drive the federal legislative process.

Contrast this with the American Civil Rights movement, which was ideologically diverse, incompletely successful, but mainstreamed in our politics. It negotiated a better life for African-Americans. But today’s white underclass are through playing the long game. They do not plan to struggle for as long as the black underclass did, and they are believe that working within the system is futile.

Remember, most of them are armed. Our concern meter should be dialed up to 11.

America is starting to look like a pre-revolutionary society. Life today shouldn’t be “black ties matter.” Unregulated capitalism makes for a mean culture, and today, it is dominating us.

So, the oven is preheating. There is still time to avoid cooking our goose, but we have had a president who called himself a “uniter, not a divider” and failed. We then had a president who promised to be post-partisan, but deepened our political divisions.

And there is no political leader on the horizon who possesses the skills and message to unite us.

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Angry Men Now a Political Force

The spin after the SOTU was about how angry voters are, and the political opening that creates, despite the genuine good news on the economy. Here is Mr. Obama from the SOTU:

Most of all, democracy breaks down when the average person feels their voice doesn’t matter; that the system is rigged in favor of the rich or the powerful or some narrow interest.

We can’t change the fact that some people are angry, but this article from the Washington Monthly by Andrew Yarrow points to some stunning facts about how men in particular have been left by the wayside of American life:

At least 20% of the nation’s 90 million white men have been pushed to the sidelines, either retreating or storming out of the mainstream of American life. They are not the men you see at work, who play with their children, go out with their wives or partners, are involved in their communities, and earn a living to save for their children’s education and their own retirement. What they do doesn’t register in…the gross domestic product…

Yarrow continues:

We know that they are out there. But they don’t fit old stereotypes of failure, so we’ve had trouble coming to grips with who they are or naming the problem. Parts of their stories have garnered significant attention, but we don’t see that what have been treated as separate problems are closely related.

Here are a few statistics from the article that merit your attention:

• Today, fewer than seven out of ten American men work; in the 1950s, nine out of ten worked.
• Since the 1970s, inflation-adjusted incomes for the bottom 80% of men have fallen, with the most dramatic declines occurring among the bottom 40%, most of whom do not have a college education.
• Today, just half of men are husbands; in 1960, three-fourths of men were married.
• As Barack Obama leaves office, only two out of three children live with their fathers; when John Kennedy was elected President, nine out of ten children lived with their fathers.
• Today, 43% of 18-to-34-year-old American men live with their parents (compared to 36% of millennial women); in 1960, about 28% lived at home.
There are 36% more women in college than men, whereas in 1970, there were about 35% more men than women in college.
Men are 50% less likely to trust government than women.
• In recent years, there has been a roughly 20-point gender voting gap, with white men being much more likely not only to vote for Republicans but to express disillusionment and anger toward government; until about 1980, men and women voted roughly evenly for Democrats and Republicans.

The point is that a lot has gone wrong for many white men, a demographic that once was the epitome of privilege and high expectations. And while politicians discuss stagnant wages, broken families and inequality, few notice, much less talk about the probable linkages between these issues and the impact of angry males on our politics.

Some may be thinking that this is a manufactured issue. After all, men still out-earn women, and they still hold most of the CEO and board–level jobs. And none of this white male angst should obscure the continuing struggles of women and people of color, including men of color. African-American and Latino men have had it worse than white men for a very long time.

But we ignore any group’s anger at our peril. The Bundy Brigade’s antics in Utah and Oregon is just one recent example. Many men are mad as hell, and their anger is often turned on scapegoats: Government in the case of the Bundys; Muslims, immigrants, African Americans, and Latinos in the case of others.

In 2016 we are seeing several presidential candidates feeding from the trough of this anger. Playing to the inchoate anger of a sizable minority of white men who have been benched economically, or who simply left the field, is a dangerous demagoguery, one that only benefits the demagogues.

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