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The Wrongologist

Geopolitics, Power and Political Economy

Sunday Cartoon Blogging – July 29, 2018

They found water on Mars. It appears to be salt water. Maybe we’ll build a giant desalinization device, and a few survivors of this hell on earth can give a fresh start to humanity on Mars. Also, Russian scientists found nematodes in Siberia that have been frozen for nearly 42,000 years. With climate change, they were visible to scientists. A few came back to life in the lab:

After being defrosted, the nematodes showed signs of life, said a report today from Yakutia, the area where the worms were found. ‘They started moving and eating.’ One worm came from an ancient squirrel burrow in a permafrost wall of the Duvanny Yar outcrop in the lower reaches of the Kolyma River….Another was found in permafrost near Alazeya River in 2015, and is around 41,700 years old….They are both believed to be female.

Both of those news items are more believable than much of what we hear from Washington, DC these days. For example, Trump’s speech to the Veterans this week included his caution about believing the news media. That led to this cartoon by Darin Bell:

And consider the gloating about “historic growth” in GDP by Trump. John Harwood schools us on the data:

If you think that’s fake news, check out the data.

Trump went off on Iran. What could be behind President Rouhani’s provocations?

Michael Cohen stayed in the news again this week. He’s gonna get a TV series:

Tariffs are always a tax on consumers. Donny is here to collect:

Americans no longer have unlimited voting rights, or election security in the US. This is believable:

Establishment Democrats always react the same way:

Wrongo isn’t on board with the democratic socialism platform, but he believes that corporations should be subjected to tighter regulations. They should pay more in taxes. They should be forced to reimburse the people for the deleterious impacts of their activities, like cleaning up factory sites that have polluted the land.

And every American should have access to healthcare, childcare, and some form of employment. We could make the choice to provide a free education to every American if it were a higher priority than new bombers, or aircraft carriers. ICE should be reformed, not abolished.

Establishment Democrats are trying to scare voters away from candidates who support the democratic socialism agenda. They should relax, democratic socialism isn’t about taking everything what you have away, and making it government-owned.

When you consider the perils and benefits of democratic socialism, you should think about Europe. Five of the top 10 happiest nations in the world (according to the UN) are Scandinavian: Finland, Norway, Denmark, Iceland, and Sweden. And they are all democracies.

Ever since Alexandria Ocasio-Cortez upset the 4th ranking House Democrat by running on a democratic socialist platform, Dems worry that what worked in the Bronx won’t work in Kansas. They’re right, it won’t work in Kansas. That’s why candidates need to run on issues that are important to their districts. A voter in Kansas is probably more concerned over the price of wheat than he is about gay marriage.

But, running on the economy and jobs works everywhere.

Ocasio-Cortez campaigned with Bernie Sanders in Kansas. James Thompson, a centrist Democrat running for Congress in Kansas, said she might as well come out, because the local Republicans were going to call him a socialist anyway.

Democrats were called socialists in 1992 when Bill Clinton won. They shouldn’t panic – they should own the accusation.

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Saturday Soother – July 28, 2018

The Daily Escape:

Quote by John Maynard Keynes posted on the wall at the School of Economics, St. Petersburg State University, Russia – 2018 photo by Conor Morrissey

Welcome to the weekend. US GDP hit 4.1% for the second quarter of 2018. Trump was out there on Friday saying that the economic winning has only just begun, and that it’s due to the GOP tax cuts, and his moves to impose tariffs on our trading partners. He neglects to mention this year’s $1 trillion budget deficit that he and the GOP created. That’s what’s fueling our current growth, and it won’t last.

Speaking of tariffs, NPR reports that US ham and other pork products now face very high Chinese tariffs of between 62% and 70% after retaliatory tariffs by China. What happened next shouldn’t be surprising:

In recent weeks, the US Department of Agriculture has reported zero weekly export sales of pork to China….So our exports to the country have pretty much collapsed.

Does this mean cheaper bacon for America? As we have heard, “Trade wars are good and easy to win”. Apparently, the Stable Genius can bring home the bacon, but he can’t sell it abroad. Thoughts and prayers to all the pork producers who got conned.

US farm subsidies were about $23 billion last year. A year ago, the Trump administration proposed a $4.8 billion cut to that. Now he’s increasing the subsidy by a one-time $12 billion to make up for the effects of his tariffs.

OTOH, in the EU, farm subsidies for the 2021-2027 period are scheduled to be reduced by five percent to $420 billion. Maybe there will be some additional winning for our farmers, assuming we can export more to the EU. But the US isn’t above criticism: US dairy producers now have a whopping 1.39 billion-pound surplus of cheese; 4.6 pounds per American. Wrongo is doing his part to cut into the surplus, what about the rest of you?

And at the same time there is overproduction, there’s growing risk to our health due to overuse of antibiotics on dairy farms. America shouldn’t give up its food security and become dependent on other countries, but it’s time for clear(er) thinking about our agricultural policy.

The big news on Thursday night was that Trump’s former attorney, Michael Cohen, is now saying that Trump knew beforehand about the June 2016 meeting between his top campaign staff, his son and Russians promising dirt on Hillary Clinton. If true, it would add a lot to a case of Trump obstructing justice.

We’ll see if Mueller ever makes a case in the court of justice, vs. only in the court of public opinion.

Are you fed up yet with being told “what you’re seeing and what you’re reading is not what’s happening”? Or having Trump say that Putin is a good guy? Or, that North Korea is no longer a threat, that Canada is our enemy? Or, that some black football players hate America? Or, that immigrants are ruining everything? That our allies are out to get us, and there was no collusion!?

This takes Wrongo back to Cohen. Maybe he has the lead-up to the June meeting on tape as well.

In any event, we’ve closed the book on another hard week. Time to kick back, get soothed, and stare vacantly at all of the yard work we aren’t getting around to doing.

To help you relax, let’s open a cup of Martinez, California’s States Coffee & Mercantile’s new Reserve Cold Brew ($12/24oz. bottle). It is brewed from Tanzania beans, and is a ready-to-drink bottled black coffee. The brewer says it is richly sweet, with an umami undercurrent, and that adding whole milk mediates the umami impression, while amplifying the chocolate and spicy floral notes.

Wrongo says, go for it! Add ice and milk, and chug a couple to get your day started.

Now, settle back and listen to Ana Vidovic playing “La Catedral” by Agustín Barrios Mangoré on solo guitar. Mangoré, who died in 1944, was a Paraguayan virtuoso guitarist and composer, regarded as one of the greatest performers on the guitar. “La Catedral” is considered one of the most colorful, and difficult, works in the guitar repertoire. It is Barrios’ tribute to Bach:

Those who read the Wrongologist in email can view the video here.

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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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Capitalism, It’s Not You, It’s Me

There is a meme that has gone global since the early days of the Occupy movement. Here it is as a wall graffiti from Greece that uses the same meme we first saw in NYC in 2011:

Capitalism Lotek

Just kidding capitalism, it really is you.

The artist is a Greek who styles himself as Lotek. The name Lotek is derived from the short story (and later, a film) by William Gibson called Johnny Mnemonic. The story is set in 2021, in a world ruled by corporations. An anti-authoritarian gang that are called Lo-Teks, fight the power. They are in fact not low tech at all, but are high tech hackers. Sound familiar?

Greece is surely a place at war with neoliberalism and free market capitalism. So is it also time for us to reconsider capitalism?

Consider this from Mark Blyth in Foreign Affairs:

An inherent tension exists between capitalism and democratic politics since capitalism allocates resources through markets, whereas democracy allocates power through voting.

The compromises both systems have struck with each other over recent history shapes our contemporary political and economic world. Blyth observes:

  • In the three decades that followed World War II, democracy set the rules, taming markets with the establishment of protective labor laws, restrictive financial regulations, and expanded welfare systems.
  • Starting in the 1970s, a globalized, deregulated capitalism, unconstrained by national borders, began to push back.

And today, capital markets and capitalists are setting the rules, and democratic governments follow them.

Some background: Cutting taxes in the 1980s caused government revenues to fall. Deficits widened, and interest rates rose as those deficits became harder to finance. At the same time, conservative govern­ments, especially in the UK and the US, dismantled the regulations that had reined in the excesses of the financial service industry since the 1940s.

The financial industry began to grow unchecked, and as it expanded, investors sought safe assets that were highly liquid and provided good returns: the debt of developed countries.

This allowed governments to plug their deficits and spend more, all without raising taxes.

But the shift to financing the state through debt came at a cost. Since WW II, taxes on labor and capital had provided the foundation of postwar state spending. But, as govern­ments began to rely more on debt, the tax-based states of the postwar era became the debt-based states of today.

This transformation had pro­found political consequences. The increase in government debt has allowed capitalists to override the preferences of citizens:

  • Bond-market investors can now exercise an effective veto on policies they don’t like by demanding higher interest rates when they replace old debt with new debt.
  • Investors can use courts to override the ability of states to default on their debts, as happened recently in Argentina
  • They can shut down an entire country’s payment system if that country votes against the interests of creditors, as happened in Greece in 2015.
  • Citizens United dictates who runs for office in the US, and in many cases, who wins.

Now that the financial industry has become more powerful than the people, should we blindly follow capitalism’s meme as the only way forward?

Free-market rhetoric hides the dependence of corporate profits on conditions provided for, and guaranteed by, governments. For example:

  • Our financial institutions insist that they should be free of meddlesome regulations while they depend on continuing access to cheap credit from the Federal Reserve.
  • Our pharmaceutical firms have resisted any government limits on their price-setting ability at the same time that they rely on government grants of monopolies through our patent system.

To use a sporting metaphor, it’s as if the best football team purchased not only the best coaches and facilities, but also bought the referees and the journalists as well. Those responsible for judging economic competition have lost all authority, which leaves the dream of ‘meritocracy’ or a ‘level playing field’ in tatters.

In our country, the divide between the business oligarchs, the political class and “the people” increasingly appears unbridgeable, marked by hostility and deep distrust. When people are told for a generation that government mustn’t make decisions that interfere with free markets, it is inevitable that people will lose faith in democratic governance, and in government’s capacity to help them solve their problems.

Capitalism in its current form no longer works for the people. We have seen a reaction in the start of movements by Occupy, by Bernie, and by others in Europe.

Remember that the greatest prosperity in living memory in the US came during the brief social democratic moment, in the 1950s and 1960s, when the constraints on business were the greatest.

More democracy and more economic justice are the necessary foundations for the path to a more prosperous, and sustainable economy.

A reformed capitalism must be a part of what emerges from that fight.

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Too Much Focus on GDP

(Wrongo is back from his project. Regular blogging begins again today.)

In our lifetime, Gross Domestic Product, or GDP, has been transformed from a narrow economic indicator to our universal yardstick of progress. This spells trouble. While economies and cultures measure their performance by it, GDP ignores central facts such as quality, costs, or purpose. It only measures output: more cars, more accidents; more lawyers, more trials; more extraction, and more pollution. All count as success in the GDP equation. In fact, our cumulative real GDP growth since 2008 is 6.9%.

But we need to focus on other yardsticks to understand what is really going on with our economy. First, take a look at the growth in job openings (blue line) vs. growth in hourly wages (red line):

fredgraph 81715

In the past, the two have usually moved in tandem, which makes sense, since the laws of supply and demand should also apply to employment. But since 2011, and most notably in the past year, they have diverged starkly, with wages drifting back to where they were in 2012, while unfilled job openings have skyrocketed: Job openings are now higher than at the height of the tech boom in 2000. And yet, worker’s wages um, suck.

What happened? Perhaps huge numbers of people are now returning to the labor market after years on the sidelines. We know that many people want a job, but stopped searching for lack of opportunities, while many others want more than the part-time work they’ve managed to find. The uneven pace of wage growth shows there is plenty of slack in the labor market. This is supported by Bloomberg’s report that we still need another 2.4 million jobs to reach “full employment”, (5.1%).

So by definition, we can’t be in a tight labor market.

Some of the difficulties driving American job growth are the problems in the global economy. We see low growth in the developed world, coupled with the continuing impact of automation and the movement of much of our remaining manufacturing jobs to low-wage developing nations.

Take a look at another chart, showing the growth in productivity vs. growth in wages:

Hourly compensation vs productivity 81715

Hourly compensation grew in tandem with productivity until 1973. After 1973, productivity grew, but the typical worker’s compensation has been relatively stagnant. This divergence of pay and productivity has meant that the majority of workers did not benefit from productivity growth.

This is another way of saying that the economy could afford higher pay, but didn’t provide it.

The analysis confirms that since 1973, the largest factor driving the gap between productivity and median compensation has been the growing inequality of wages. The divergence between wages and productivity we see above, along with increasing concentration of wealth in the very top of the social strata, are not just correlated, they have a causal relationship.

The two charts demonstrate the shift of income from labor to capital. Larry Mishel of EPI notes that from 2000 to 2011, there was a shift from income derived from labor to income derived from capital, accounting for roughly 45% of the gap shown above.

Workers have lost their share of gains in productivity. It was stolen by capital.

Thorsten Veblen distinguished between the Captain of Business, whose focus was on goods production, and the Captain of Finance, who concerned himself with manipulating money. He deplored the replacement of Industry by Finance; and the situation today is far worse than in the early 1900s. (Veblen died in 1929.)

The development of finance since the late 1970s has been near-pathological. It has been essentially unregulated, left free to become an oversized parasite. It has assimilated more and more of our traditional economic activity through “financialization“. The recklessness of that was made clear by its damage to the housing market in 2008, followed by the huge loss of jobs that occurred in its aftermath.

It is that crisis that leaves wages weak today. It is those jobs that we have been looking for the past eight years.

It is well past time to put finance back in its place. The Dodd-Frank law will never be enough, since it continues to allow the very innovations in finance that can take down the financial system, even while pretending to decrease them.

Capitalism has a phenomenal capacity to lift people out of poverty. But it does so at a cost. Capitalism changed before, and it’s time for it to change again. Free markets have existed for thousands of years; capitalism as we now know it, for fewer than 150.

Effective and productive free markets should also provide workers a living wage. If today’s capitalism isn’t the means to that end, it is time to change it.

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Is GDP Growth Enough?

A strong 2014 Q2 GDP report came out yesterday, registering 4% annualized real GDP growth, better than what we have seen in several years. This is good news, but it is worth looking at it in the context of the full recovery of the US economy. The House of Debt Blog has a chart showing recoveries after every post WWII recession in the US, updated to include Q2, 2014:

GDP Growth all recessions

The red line is the Great Recession, compared to our recovery from 9 other post-war recessions. The slight uptick at the end of the red line reflects yesterday’s GDP report. Despite this recent fun news, we remain in the weakest economic recovery in history. Reportage from the New York Times:

The US economy rebounded in the spring after a dismal winter, the Commerce Department reported on Wednesday, growing at an annual rate of 4% for the three months from April through June.
In its initial estimate for the second quarter, the government cited gains in personal consumption spending, exports and private inventory investment as the main contributors to growth. The increase exceeded economists’ expectations and further cemented their views that the decrease in America’s overall output during the first quarter was most likely a fluke tied in large part to unusually stormy winter weather as well as other anomalies.

The NYT says that first quarter numbers were also adjusted upward:

During the first quarter, output shrank by 2.1%, less than had been reported, according to the Commerce Department’s newly revised GDP figures, also released on Wednesday. The department had previously said first-quarter output decreased 2.9%.

Now for the issues in the data: (emphasis by the Wrongologist)

While the economy seems generally to be bouncing back from the recession, overall growth remains lackluster. Wages have failed to rise significantly, an area of concern that Janet L. Yellen, chairwoman of the Federal Reserve, noted when she appeared before Congress this month.

In fact, Doug Short at the DShort blog provides a very helpful series of charts on wages and hours for the private workforce. The Bureau of Labor Statistics (BLS) has been collecting these data since 1964. The BLS numbers provide excellent insights on the income history of the private middle class wage earner. First, average hourly wages adjusted for inflation have remained unchanged since the Nixon Administration:

DShort Real Weekly Earnings

But that isn’t the bad news. Average weekly hours worked have been declining since the Johnson Administration:

DShort Avg Weekly hours

Finally, DShort multiplies the real average hourly earnings by the average hours per week. This produces a hypothetical number for average weekly wages of this middle-class cohort, currently at $694 — well below its $827 peak back in the early 1970s:

DShort Avg Weekly Wages

$694 per week equates to a $36,000 annual wage. Then the person has to pay taxes, social security, rent, etc. So, purchasing power has declined for the middle class worker. Tomorrow, the July Jobs Report comes out. Then we’ll see if the fun times continue.

In a consumer-driven economy where wages have failed to rise, there can be no sustained economic growth. Media reports say that the economy “rebounded”, that it “exceeded economists’ expectations”. But have economic conditions for average people improved? No, for them, this is a paper rebound, not a real one.

Tracking the economy of ordinary people continues to go unremarked and untargeted by lawmakers. The economic health of average people is an afterthought to the politicians, who consider it a vague byproduct of ‘GDP’ and ‘growth’. In the real world, GDP growth does not directly correlate with improvements in the average person’s well-being.

Workers desperately need more hours at better paying jobs. How does prosperity return if wages stagnate while wealth concentration continues?

 

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