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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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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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1890s Progressivism: When the Movement Worked

Last week, Wrongo read “The Bully Pulpit: Theodore Roosevelt, William Howard Taft, and the Golden Age of Journalism” by Doris Kearns Goodwin (Simon and Schuster, 2013). The book covers the birth of the Progressive Era, a period of social activism and political reform across the US, from the 1890s to 1920.

For context about the times, does any of this sound familiar?

The gap between rich and poor has never been wider…legislative stalemate paralyzes the country…corporations resist federal regulations…spectacular mergers produce giant companies…the influence of money in politics deepens…bombs explode in crowded streets…small wars proliferate far from our shores…a dizzying array of inventions speeds the pace of daily life.

That was the political landscape in the 1890s. This was the time of the Gilded Age, a time of income and wealth inequality. From 1860 to 1900, the wealthiest 2% of American households owned more than a third of the nation’s wealth, while the top 10% owned roughly three-fourths of it. The bottom 40% had no wealth at all.

The Bully Pulpit” tries to do three things simultaneously: It is a biography of Theodore Roosevelt, and a biography of William Howard Taft; third, it introduces us to McClure’s magazine and the rise of Muckraking journalism. The muckrakers were investigative reporters who exposed corrupt politicians and business leaders at all levels. Goodwin includes mini-bios of Ida Tarbell, Lincoln Steffens, Ray Stannard Baker and William A. White, all of whom were titans of investigative journalism at the time. A key finding by Goodwin is how TR encouraged the Muckrakers. He offered them access and friendship, and received information about the problems they were investigating, a synergy that enabled both to influence policy and politics for 30 years.

Consider the times: Corporations were ascendant. Politicians were reluctant to involve the federal government too heavily in the private sector. In general, they accepted the concept of laissez-faire, opposing government interference in the economy except to maintain law and order. This attitude started to change during the depression of the 1890s when small businesses, farmers, and labor movements began asking the government to intercede on their behalf.

By the start of the 20th century, the middle class was leery of the emerging corporate giants called “Trusts”. The Trusts consolidated businesses, using horizontal (controlling competitors) or vertical integration (controlling supply and distribution), and thus, created monopolies. For example, John D. Rockefeller drove other oil companies out of business and created a giant oil company, Standard Oil.

The Progressives argued the need for government regulation of business practices to ensure competition and free enterprise. Under President Benjamin Harrison, Congress regulated railroads in 1887 (the Interstate Commerce Act), and in 1890, the Sherman Antitrust Act, which prevented large firms from controlling a single industry. But, these laws were not rigorously enforced until Teddy Roosevelt, vice president under McKinley, became president after McKinley’s assassination in 1901.

Roosevelt and William Howard Taft became close friends when both were part of the Harrison administration in 1888. Taft became a key member of President Roosevelt’s cabinet, and later his handpicked successor, in the election of 1908. While TR thought Taft a “genuine Progressive”, Taft was not the politician that TR was, and he was by temperament, more conservative. In 1910, TR broke bitterly with Taft on a series of issues and when in the 1912 nomination process, Roosevelt failed to block Taft’s re-nomination, he launched the Bull Moose Party. This ultimately led to them both losing in 1912 to Democrat Woodrow Wilson, who also ran as a Progressive.

This wave of reforms was continued by Wilson. The legacy of the Progressive Era includes the Pure Food and Drug act, the progressive income tax, direct election of senators and the women’s vote.

All of this makes “Bully Pulpit” a very long book at 928 pages. But, it is a very worthwhile read, particularly since many of the same issues we face today were in full flower back then. And it is remarkable how similar the political and ideological arguments of the time are nearly identical to the arguments today.

The book gives us some hope that, at one time, divided government could morph into a movement that won by embracing progressive values. That happened because interest groups, including farmers, small businesses and unions joined together with local governments, journalists like the Muckrakers, and sympathetic politicians of both parties to energize a movement that was directed at solving specific problems – the consequences of the Gilded Age.

Can it happen again? Can investigative journalism return, or is it dead?

Tomorrow, we will take a look at why Progressivism died and was then reborn under another Roosevelt.

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