Ian Welsh

The horizon is not so far as we can see, but as far as we can imagine

Category: Class Warfare Page 24 of 36

Too Much Money Chasing The Wrong Returns

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On November 26, 2013

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There is too much money in the world being invested in all the wrong ways.

The amount of money being created by the Federal Reserve, Bank of Japan and the ECB is dwarfed by the amount of money being produced by Chinese banks and shadow banks.

This money is being spent on unproductive enterprises.  About 70% of all sales of Brooklyn homes, for example, are going to hedge funds, investors and international buyers, who are looking for income.  In Australia much of the real-estate is driven by Chinese buyers, so Australians buy in the US, because the US is cheaper, and so on.

Money creation is out of control, we are creating vast amounts of money, and then spending it either unproductively or harmfully.  As I noted earlier, virtually the entire run up for the Dow can be explained by “Federal Reserve giving rich people money.”  In China the money is also going into real-estate, most of it shoddy, and entire rural communities are being forced off their land and into the newly built slums (because, very quickly, that is what they will become.  We have a lot of experience with what happens with these sort of planned prebuilt cities: and virtually all of it is bad.)

Money is permission to do things.  It allows you to control what people do.  Vast leveraged financial games and real-estate purchases intended to create income streams are not productive, all they are doing is moving money around, they are not creating new real services or goods which improve people’s lives.  Instead they are meant to concentrate money and power, permanently, in the hands of a small class of people and make it so that everyone else has to pay those people to survive: this is about permanent extraction of virtually all value from the majority to the minority.

This is not a sustainable economic model.  It is creation of money from thin air without underlying economic growth to justify that creation of money.  The money is used to buy up control of the system and future revenue streams, but it does so by damaging the real economic health of the majority of people, making them economic cripples.  People who live paycheck to paycheck cannot create demand for new products and services, cannot themselves create new products and services, are unhappy and increasingly unhealthy and generally unpleasant to be around, because their lives are unpleasant.

Almost all new job creation in the past seventy years has been in services: aka, McJobs and administrative jobs which create little to nothing of value.  What is happening now is accelerating that trend.

When catastrophe hits, and it will, we will be unable to respond effectively, because we will have created billions of economic cripples, of people who, never having been allowed to do anything of significance, never having had any economic agency, and never having worked at a job which wasn’t meaningless, will not easily be redeployed to do what is useful, and needed.  The real economy is what people do to create services and products which are good for other people.  A de-skilled, demoralized population, in the face of climate change and economic collapse, while it will respond as best it can, will be very hard to mobilize, not least because there will be nobody with the legitimacy to  mobilize them.

A basic rule of economic governance is this: when the “private” sector is not doing productive things with money, you must either change the incentives so they are, or simply take the money away from the people who are using it in unproductive ways and spend it yourself.  Make every building at least energy neutral, build the smart power-grid, fund electric cars and 3D printers in a big way, create high speed trains, go to Mars, radically decrease carbon emissions, provide a basic income for everyone, fund advanced research, and so on.

The first step to getting out of our current mess, then, is 95% marginal tax rates  on all income over 5 million, 90% on all income over 1 million, and a huge increase of corporate tax rates to over 70% unless they are doing what is in the public interest.  (Tax breaks on 20% corporate taxation rates do not affect corporate behavior.)

There are more fundamental fixes, mind you, but these are the basic, brain dead fixes that are doable within the current system, without radical changes.  This is what basic economics, as understood in the 1950s  with slight updates for an understanding of sinks and supply bottlenecks, tells you to do.

Do not give money,  free money, to people who are not spending it in ways beneficial to society as a whole.

And take away money from people who are spending it in harmful ways.

Money is a social creation, it is permission to tell people what to do.  You do not give money, and permission, to those who use it badly.

Why The Republicans Shut The Government Down and Threaten the Debt Ceiling

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On October 6, 2013

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HBR has an article by Justin Fox on the government shutdown in Washington in game theory terms.  It’s good as far as it goes, but it amounts to this:

  1. It works, they get some of what they want
  2. People keep doing what works.

Let’s add some more specifics.

The article mentions that the freezing of redistricting in most Republican states means that Republicans can’t lose the House.  What it fails to mention is this: they can lose their seats by losing the primary.  The Tea Party (unlike progressives) is very good at winning primaries.  Even if they don’t succeed in a primary challenge, their challenges are serious, and politicians don’t want to chance it.  Fighting a challenge is expensive, risky and time consuming.

Fox notes that Obama has repeatedly given in.

But has he?  Remember the famous FDR comment, “I agree with you, now make me do it?”

Obama has a long record of statements and actions which indicate he wants a lower deficit, wants to cut back on entitlement and spending and desires a grand bargain.

Were Republicans making him do things he really didn’t want to do?  Perhaps he might have chosen to do things somewhat differently (he wants mostly spending cuts but at least some new taxes, they want no new taxes).  But the goals of the Republicans (cut entitlements and the deficit) and Obama’s goals (cut the deficit and entitlements) aren’t that far apart.  What they differ on is the exact way in which it should be done.

Obama agreed to past debt negotiation events because he wanted to. He did have other options.  He could simply declare that the constitution says that debts must be paid, argue that one law (the debt-ceiling) does not outweigh another (the budget) and tell the treasury to keep on keeping on.  There is nothing the House, alone, could do about that.

Obama, in other words, to use a game theory term, has a unilateral move: something he can do that cannot (or will not) be stopped by other actors.  His BATNA (best alternative to a negotiated settlement) is to simply tell the House to suck it and keep spending.  He chose not to do so.

When you’re dealing with game theory you have to consider all the players possible moves and their goals.  Obama and the Republicans have been in an extended negotiation over not whether to do a Grand Bargain cutting entitlements or whether to cut the deficit, but what that bargain will look like and how the deficit will be cut.

Add in one more player: Democrats.  Obama cannot, using just Democratic votes, get the entitlement cuts he wants, this was true even when Democrats controlled the House.  Republicans can vote for entitlement cuts and get reelected, too many Democrats can’t.  To slash Social Security and Medicare Obama must have Republican votes.

In other words, this multi-year session of threats about the debt limit, the government shutdown, the furloughs, is a multi-year negotiation between Obama and Republicans.

The Beauty of Obama’s Clapper Appointment

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On August 13, 2013

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As you’ve probably heard, Obama has appointed James Clapper (the man who lied under oath to Congress about NSA spying) to review NSA spying.

I am in awe, few things have impressed me this deeply.

This isn’t just a middle finger to everyone to everyone who is against blanket surveillance (aka. the majority of Americans), it is Obama saying “Kiss My Ass.”

It’s really hard for most people to understand just how much contempt our lords and masters have for us.  They really don’t give a fuck what’s good for us, what we like, or what we think.  They are rich, or powerful, or famous because they deserve it, and if we aren’t any of those things then they don’t give two fucks what we think.  By not being rich, powerful or famous we have proven we don’t deserve any say.  After all, if we had any qualities that were worthwhile beyond the sort of qualities you praise in a dog, we wouldn’t be peons, would we.

In this, Obama is very similar to Bush, actually, but in general it’s a characteristic of everyone near the top of our current society.  Starting at about the Senior VP level, people decide that they deserve everything they’ve got and everyone else doesn’t.  If they did, they’d have it.

The media is full of studies showing that power decreases empathy, and I’ll bet that’s true throughout history. But I’ll also bet this, the degree to which it is true is social, and in many times and places it has been less true.  Over the last couple generations we’ve seen a significant, measurable fall in the general level of empathy in the population as a whole.  If you have an ideology which glorifies greed and which claims that society is a meritocracy when there is copious evidence to the contrary, those who win will believe they “deserve” what they have, and everyone else “deserves” what they have.  Add to that objective circumstances which amount to dog-eat-dop (there simply are not enough good jobs to go around) and people will either band together, or turn on each other.  Generally, we’ve chosen, for ideological reasons, to turn on each other.

This isn’t necessary: it isn’t what happened in the US in the Great Depression, for example.  It’s a choice, and our choice is to be bastards to each other.

 

Sweden v. Canada: Taxation and Inequality

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On January 13, 2013

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Ok, so Stephen Gordon in MacLeans feels compelled to weigh in on taxes, to suggest that the Nordic countries just redistribute money from the bottom 99% to each other to maintain equality and so Canada should increase its GST and give money to the poor and middle classes.

It’s true that Nordic countries redistribute a lot more than Canada does, but let’s examine what that means (these are slightly wrong as I’m taking them from different, though recent years, but they are within a percent of correct):

The Social Security tax rate in Sweden is about 30%.  This is paid by the employer, if not self-employed.  This is either a tax on the employee, if one assumes that the employer would have paid the employee this if not taxed), or it is a 30% tax on all labor costs for a corporation, and for most corporations, labor is the largest cost.

Pension insurance costs another 7%.  It’s capped, though, but since Gordon is only dealing with the bottom 99% we can ignore that.

The standard VAT rate is 25%.

70% of workers are unionized.

The top tax rate is 57%.

Corporate tax (I’ll use Gordon’s figures) is 26.3%.

Canada: Social Security (Canada or Quebec Pension) is about 10%, between employer and employee contributions.  Remember, the combined SS and Pension insurance tax in Sweden is 37% of  income.

Harmonized GST, in most provinces runs 10 to 15%.  10 to 15% less than Sweden.

Corporate tax rates, both nominal and effective, are so close there’s no difference (unless, of course, you count that employer paid SS tax, in which case Sweden’s are significantly higher.)

Unionization in Canada is about 31%.  Less than half of Sweden’s rate.

Gordon thinks that the best way to deal with income inequality below the top 1% is to increase the GST (because it does less harm to growth than corporate taxes, he claims).  Note that the GST (a VAT) is regressive, while SS taxes (if they aren’t capped) are not regressive.  So Gordon prefers a regressive tax.

What GST rate would we need to increase to, if we held everything else equal but wanted to to have total taxation, as a percentage, equal to Sweden’s?  Canada’s total tax as a percentage of GDP is 32.2%.  Sweden 47.9%. Canada would need to bring in approximately 49% more taxes to match Sweden’s rate.  VAT taxes made up, as of 2009, approximately 11.5% of Canadian tax income.  To use the GST/HST  alone to increase taxes to the Swedish rate would require approximately quadrupling the VAT taxes.  So, in Ontario, the rate would be about 60%.

That’s not happening.

Gordon’s article only deals with income inequality in the bottom 99%, but he notes that you can’t tax the top 1% to pay for transfers, they don’t actually have enough money.  I’ll just note that you don’t tax the richest (really, the top .1%) at massively progressive rates to get money from them, you tax them so they don’t have money to buy up the system, including both politicians and the market.  The US is the paradigmatic case of what happens to your political system when you allow the rich to get too rich, but the same process is happening in Canada.  (You also don’t allow a few media corporations to own almost all media, for the same reason.)

Finally, let’s just cut the bullshit. High progressive tax rates do not decrease growth.  There is no unequivocal empirical evidence that they do.  The best growth in the developed world happened in the 50s and 60s, when the developed world had much higher tax rates on both individuals and corporations.  Much, much higher rates, as in 90% on top income earners (pdf – pg. 17) in many cases, and corporate tax rates were much higher as well.

Correlation may not be causation, but causation w/o correlation is extraordinarily rare.

Corporations invest and hire more people when they have a reasonable expectation of more demand for their products and services.  If there is not enough demand, it does not matter if they have money to spend, they will not spend it.  This isn’t even economics, this is business 101.  The poorer someone is, the more they consume as a percentage of their income.  An affluent middle class, heck a working class that has disposable income, creates more demand than rich people do.

Demand alone is not enough, if there are supply bottlenecks, but the supply bottlenecks we are facing right now are not in money. Corporations have record amounts of money and are not spending it.  When individuals, whether corporations or people, won’t spend, it is the government’s JOB to take the money and spend it, and spend it in a way that will get rid of whatever supply bottlenecks exist.

They must also make sure that an actual free market exists and that no one has pricing power. It does no good to redistribute money if all that will happen is that companies with pricing power will just raise prices and take the money away, meaning no real new demand is created, and thus no new jobs and new real economic activity, whatever the nominal numbers show.

On edit: further investigation shows that almost all of the VAT is returned to low income earners.  This means the VAT functions as a luxury tax, starting about about the middle middle class.  Luxury taxes are on the best taxes, and by luxuries we mean “stuff that’s imported, and especially imported stuff ordinary people can’t afford anyway.”

The Left Wing Case Against Obama and Obama’s Next Term

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On November 3, 2012

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Matt Stoller’s made the left wing case against Obama, and then responded to his critics, who, he’s right, don’t address his points.  The two articles are excellent, and you should read them.

I haven’t really bothered writing that much about the election because it simply isn’t very important, despite the hysteria.  Romney would probably be worse on the margins, but the difference is at the margins, except, possibly, for the Supreme Court.  The most intellectually honest argument for Obama can be summarized as “he’s an evil man who has gutted the constitution and done everything possible to enshrine oligarchy, but he’ll probably appoint a Justice who will keep Roe. v. Wade and a few shattered spars of the Bill of Rights around.”

The key thing to realize is that Obama is the President who normalized Bush’s Republic.  He normalized routine civil liberties violations, normalized anti-immigrant raids, normalized the eternal war on terror, pushed executive power even further than Bush with a unilateral war against the wishes of Congress in Libya and by arrogating for himself the right to kill any American.  He made sure the rich not only stayed rich, in the face of a financial collapse which he could have used to break their power, but has increased inequality significantly.  The wealth and wages of ordinary Americans have dropped, the portion of the country’s income going to the wealthy has increased, and the US is well on its way to becoming a corrupt petro-state.  Nothing is more hilarious than Mayor Bloomberg endorsing Obama because of climate change, when Obama has quite deliberately overseen a huge increase in hydrocarbon production and openly embraces so-called “clean” coal.   Obama may agree that Global Warming exists, and Romney may pretend that it doesn’t, but the policies of the two are functionally identical and the money Obama spent on renewables was so horribly misspent as to do nothing but discredit the industry.

The argument for “who cares” is simple enough.  Yes, Romney will be worse than Obama in certain respects, but if Obama is not in charge, then the Democrats are far more likely to oppose both civil liberties absuses and efforts to cut Social Security and Medicare.

Let me tell you how Obama’s second term will play out.

1) He will appoint a milquetoast “liberal” to the Supremes.  You’ll keep the remains of Roe vs. Wade, but he’ll keep doing things like overruling Plan B as an over the counter medication, because he doesn’t really believe that girls impregnated by their fathers have a right not to have the child.  And every case that enshrines oligarchy, like Citizens United or HCR, will go for oligarchy (you aren’t stupid enough to think that Roberts switched his vote for any reasons other than to give insurance companies their bailout and gut Medicaid, I hope.)

2) The economy will struggle along till he gets his grand bargain, then it will absolutely crater.  You’ve got a couple years of lousy but not awful economy at most, use it, because years 3 and 4 are going to be awful.

3) He will make a Grand Bargain.  Winning by only a small margin of the popular vote will help with this.  The rich will pay slightly more, but most of the money will come from cutting Social Security, Medicare and other such programs.  The Republicans will give him just enough votes to pass it, so that it will be the Democrats who have gutted SS and Medicare.

4) The Republicans will nominate a right wing crazy in 2016.  He will stand a good chance of winning, because the Democrats, having cut SS and Medicare will now stand for nothing other than “fear the Supreme Court!”  In fact, the Republicans will run as the defenders of SS and Medicare.

Because the Republican Congress is now extremely far right wing, in fact reactionary, when they get their President, they will be able to do almost anything they want.  And all they will need is the House and 51 votes in the Senate, because they will not play stupid games about the filibuster, they’ll pass under reconciliation or just do it with 51 votes and tell everyone to go fuck themselves.  There will be no nonsense about super-majorities.  HCR will, at that point, be removed or gutted.  The court decision making Medicaid optional, however, will remain the law of the land.

Reelecting Obama does mean a better economy for the next couple years.  It does mean that people who can afford health care with mandated issue, and who must have it to make the bridge to Medicare, will get that.  It means nothing else.  It will gut the Democratic coalition, it will make a reactionary right wing president far more likely, it will kick the restructuring of the economy which is needed down the road further, making it more difficult when, or rather if, it ever occurs.  It will make the Grand Compromise, meaning SS and Medicare cuts, far more possible than if Romney were in power and Democrats were opposing the bill.  And yes, poor women will still be able, at least theoretically, to get abortions (upper middle class women are always able to get them, since they can travel.)

Is it worth it?  I don’t, personally, think so.  As with Matt Stoller and many others, if I could vote, I wouldn’t vote Obama.  To be clear, I wouldn’t vote for Romney either.  I’d probably vote for Jill Stein, making a third party viable starts with, oh, voting for it

On edit: one more thing, there is no excuse to vote for Obama if you are not in a swing state.  NONE.  Vote third party.

Some basics on the economy

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On September 3, 2012

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1) the majority of new jobs are bad.

2) the economy has still not recovered all lost jobs, either in absolute or as a percentage of the population

3) so there are fewer jobs, and what new jobs have been created are worse. They pay worse.

4) The upper middle class job market has recovered, which is why those folks are no longer panicking and are telling you that the economy isn’t so bad as all that.

5) the failure to force the rich to take their losses and to break up the banks means that the same people who caused the 2007/8 financial crisis still control the economy and the government.

6) failure to restructure the economy to get off oil and over to an electrical economy means that the US (and the world) are caught in the oil price dilemna: any real recovery increases oil price and will be derailed by those high oil prices.

7) Europe, ex. Germany, is in recession.

8 ) the developed world is in depression, it never left depression.  During depressions there are recoveries (such as they are) and recessions, but the overall economy is in depression.

9) China’s economy is slowing down.  Since China is the main engine of the world economy, followed by the US, this is really bad.  If it goes into an actual recession, bend over and kiss your butt goodbye.

10) Austerity is a means by which the rich can buy up assets which are not normally on the market for cheap.

11) the wealth of the rich and major corporations has recovered and in many countries exceeded its prior highs.  They are doing fine. Austerity is not hurting them. They control your politicians.  The depression will not end until it is in their interest for it to do so, or their wealth and power is broken.

12) The US play is as follows: frack. Frack some more.  Frack even more.  They are trying the Reagan play, temporize while new supplies of hydrocarbons come on line.  Their bet is that they’ll get another boom out of that.  If they’re right, it’ll be a lousy boom.  If they’re wrong (and the Saudis think they are, and the Saudis have been eating their lunch since 2001) then you won’t even get that.  Either way, though, they’ll devastate the environment, by which I mean the water you drink and grow crops with.

13) For people earning less than about 80K, the economy never really recovered.

14) If you’re out of work more than 2 months your odds of getting another job drop through the floor.  If you do get one, odds are it will pay much less than your previous job.

15) Canada is undergoing austerity madness at all levels of government, and the corporations, with historically low tax rates, are not going to spend either. With Chinese demand for commodities dropping, expect a nasty recession.

16) Australia, having tied itself completely to China is about to reap the downside of that decision.

17) Wages are being systematically broken in the developed world.  The rich do not believe they need you, except as wage-slave labor.  You will all be company store slaves, paying rental streams to everyone to be allowed to continued to eke out a miserable existence.

18) Since the US sells protected works (so called “intellectual property”) you will continue to see a massive attempt to break anyone who doesn’t pay IP rent to the US.  Some countries (Sweden, Germany, among others) are going along.  But there are signs of rebellion.  Apple may have won against Samsung in their ridiculous attempt to enforce patents on obvious solutions, but both Japanese and Korean courts threw the cases out.  Paying rent to America, the hegemon, when the world system is working is one thing, paying rent when the world isn’t working is another.

19) Stirling Newberry says, and I agree, that none of this is stable, but it will last as long as the majority of the baby boom, the silents and a good chunk of the Xers still think they can hang on to their little piece of the pie, and screw everyone else.  It will most likely break down in 2020/24, which is when the demographics turn.  Young people today are completely screwed, they have astronomical student loans, no or shitty jobs, can’t afford a house and can’t afford to start a family.  Note that the places where revolutions, peaceful or otherwise, are happening, are places where the majority of the population is young.  Latin America, the Middle East.

Addendum

20) The economic numbers you hear don’t mean squat. Headline inflation does not matter, ask yourself instead “what are my fixed expenses?”  Start with food.  Jobless claims cannot be compared to prior numbers because less people have the sorts of jobs that let you make those claims.  For the to make sense you’d have to adjust them for the reduced # of jobs which allow claims.  The unemployment rate has dropped even though there are, in absolute terms, less jobs, because people have given up looking.

21) The money the Fed floods into the financial markets (quantitative easing, among others) is mostly NOT getting to ordinary people, and whatever Bernanke and his apologists say, it was never intended to.  It is intended to prop up financial actors, and keep the rich richer.  It has done what it is supposed to do.

Will a man on horseback come to rule America?

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On May 7, 2012

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I think the US will take longer, but a man-on-horseback can still happen in the US.   Remember that virtually the only trusted institution in America is the military.  The difference in America, as opposed to Europe, that the left isn’t going to get its chance, if at all, for quite some time.  Obama trashed the left’s reputation since the hoi polloi think he’s left, and since the left refused to primary him, which I and a few others, told them they needed to do.

This generation of left leadership, with almost no exceptions, needs to be retired. They are almost always willing to sell out, and when not willing to, they are ineffectual twits who won’t do what’s necessary and worse, will make sure that no one else can.

So for the US, there is no “left gets its chance and IF it fails”, because the left already failed.

Also in the US there’s going to be one more (shitty) boom, based on fracking.  The US will be a post-apocalyptic wasteland when it’s over, but in the meantime, enough people will be kept employed, and thinking they might make it, to keep the game together.  How long that’ll go on, I don’t know.  Stirling Newberry thinks its good for as much as 20 years.  I think it’ll be less, just because these elites are so frickin’ incompetent.  More on that in a post soon.

The left will have its chance in Europe

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On May 7, 2012

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So, in France Hollande has won, and in Greece, left wing parties have more of the vote than the center or the right (we’ll see if they can form a government, however.)  They will now have their chance.  If they fail, however, the right will sweep back in, and it will be the harder right, the neo-nazi, fascist right.  If the left, or what passes for the left cannot do the job and turn things around, the right will offer its “solution”.

The elites, if they make it impossible for the left to do their work (or if the left just fails, quite possible), will, in many cases, be signing their own death warrant.  If the neo-nazis in Greece or France take charge, be sure that they will liquidate much of the old order, the old elites.  Since those elites are, in fact, corrupt and treasonous (selling out the interests of their own countries), they will be able to do so to cheers and by simply enforcing the law.

The right’s solution won’t work, of course, but it can be made to look like it works for a few years at least.  And that it won’t work, won’t mean anything to dead oligarchs.

The elites aren’t going to keep getting financial oligarchy, where they force the government to borrow money from them, pay it back with interest and sell off the crown jewels at fire-sale prices.  That game is NOT going to continue for much longer, in the grand scheme of things (at least not in Europe, the US is a different matter).

If they want to save their own necks, and yes, it will come to that, they’d best cut a deal now.  The longer they wait, the worse the deal is going to get for them.

Of course, some part of the elites will make a deal, and will survive.  But some won’t.

As for the left, remember that the rich are, as a class, your enemies.  Treat them as such, or they will make sure you fail.

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