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Change the Rules of Engagement

Fighting a class war based on the old rules is a losing proposition for poor and working class Americans. It’s time for new rules. A new way of thinking when it comes to our economic system.

Traditional media and some talking heads are starting to recognize the huge level of income inequality and wealth gap in the U.S. U.S. hasn’t experience this level of inequality since time preceding the Great Depression. There are serious consequences to this level inequality. One of which we are seeing today - those at the top do what ever they can to keep what they have by controlling the political system. Yep, we’re talking a plutocracy.

To some it’s obvious what is happening. In fact, Warren Buffett, famous stock investor, even called it:

“There’s class warfare, but it’s my class, the rich class, that’s making war, and we’re winning.”

Mr. Buffett was at it again today in an op-ed in New York Times titled “Stop Coddling the Super Rich” where he called for higher taxes on the super-rich.

There’s no question that Mr. Buffett is right about class warfare but raising tax rates on the super-rich is not enough. We have serious structural problems in our economy that will not be addressed by simply raising tax rates on the super-rich. Stagnate wages and household incomes is one the problems that will still remain. What do we do about that?

My concern is that this one thing - increased tax rates on super-rich - is being sold as the end all be all to our economic ills. It’s not. The problems we have relate in large measure to our economic system.

Fighting class warfare by the old rules is obviously a losing proposition for poor and working class families. This debate over taxing the super-rich is part of the old rules. We know that tax rates can easily change again under another presidential administration and another party controlling congress. What we need is fundamental and transformational change to our economic system. This won’t happen using the old rules.

We must change the Rules of Engagement on this class war. Or in non-military lingo - we must challenge the status quo. We can do that by starting a New Economy - one that competes with the current economic system that’s the root cause of our economic problems. This involves creating new institutions that could eventually replace existing ones. One example would be to increase the use of credit unions and local/community banks and snubbing the big banks. Another would be increase use of business models that prioritize people and environment over profits.

David Korten has written extensively on a vision for a New Economy. He offered ten principles for a New Economy that are worthy of consideration. Here are just a few:

1. The proper purpose of an economy is to secure just, sustainable, and joyful livelihoods for all. This may come as something of a shock to Wall Street financiers who profit from financial bubbles, securities fraud, low wages, unemployment, foreign sweatshops, tax evasion, public subsidies, and monopoly pricing.
2. GDP is a measure of the economic cost of producing a given level of human well-being and happiness. In the economy, as in any well-run business, the goal should be to minimize cost, not maximize it.
3. A rational reallocation of real resources can reduce the human burden on the Earth’s biosphere and simultaneously improve the health and happiness of all. The Wall Street economy wastes enormous resources on things that actually reduce the quality of our lives—war, automobile dependence, suburban sprawl, energy-inefficient buildings, financial speculation, advertising, incarceration for minor, victimless crimes. The most important step toward bringing ourselves into balance with the biosphere is to eliminate the things that are bad for our health and happiness.

There are two things that I would explicitly add to these principles (because that’s just how I roll) and those are to encourage more cooperative businesses and worker ownership. Both would go a long way to improving local economies and overall democracy, increasing community wealth and promoting business models that put people and environment before profits.

Economic empowerment gained from creating a New Economy and building local, self-sufficient economies will lead to political empowerment. Now, that’s Change that we can believe in.

Good luck.

Shifting

News reports indicate that G7 and central banks will be holding emergency meetings to address ANOTHER crisis.

What can they possibly be discussing and do you think your interests will be represented at these emergency meeting? Hell no, but the oligarchs will certainly be represented.

We are witnessing an economic system that generated the Global Financial Crisis simply shifting crisis from one sector to another sector. Never really fixing the problems - just avoiding pain for those with money and power. And the problems we see in Europe are not the same as those in U.S but the resulting policies will be.

The problems in Europe, while instigated by the Global Financial Crisis, are systemic and inherent to their monetary system. Essentially, with the Euro or European Monetary Union there are countries issuing debt in a currency (Euro) that they don’t control. It becomes incredibly burdensome over time, and particularly in a recession, for a country to pay its debt obligations in currency it doesn’t control. But what is happening is not at all different to what happened in Wall Street bailout. Big European banks that hold the debt of countries like Spain, Greece and Italy don’t want to take ‘haircuts’ on the debt. Instead, what we are seeing is that people of these indebted countries are paying the price in the form of austerity - severe cuts to social programs and pension programs.

The problem in U.S. is a different one. Right now, we have a political crisis. We have a political system hell bent on addressing issues, such as deficit and federal debt, that are not crises. The real crisis is a jobs crisis. The debt/deficit fiasco is manufactured crisis but the results will be same as what many Europeans are experiencing now - DEEP AUSTERITY. Yes, this means cuts to many programs that help poor and working class Americans including Social Security, Medicare and Medicaid.

But this deep austerity will be sold as ‘shared sacrifice’ by politicians. ‘Shared sacrifice’ is a campaign slogan or a lie to cover up what is really happening. There will never be ‘shared sacrifice’ when we have millions of foreclosures, millions of home mortgages underwater, 25 MILLION people either unemployed or underemployed and 44 MILLION on food stamps. And nothing in Washington being discussed to address these problems. However, there is more talk of cutting programs. Some would argue but there are tax increases for top tax brackets. Yeah, so!  Impact of cuts to programs such as Social Security, Medicare, Medicaid and the like will be far more painful to those affected than a small tax increase on top incomes - in other words this NOT ‘shared sacrifice’.

This DEEP AUSTERITY is really a symptom of our economic system. Our political system is really a reflection of our economic system. An economic system characterized by huge income inequality and little to no economic mobility. The consequences of this are what we see in our political system - a plutocracy where polices are determined by what is best for those with money (consider the piece of propaganda - top incomes are the ‘job creators’) and big corporations. This is also a major reason why we see the shift of crisis from one sector to another - the global financial crisis was instigated by financial sector and was quickly moved to government sector via $13 TRILLION bailout. Now, a manufactured debt/deficit crisis is being used to eliminate help for those who need it or move much of the government sector functions to the private sector through privatization. Bottom line is that political system and the economic system behind it are not working for poor and working class families.

It’s time to change that. Since our political system is a reflection of our economic system. The place to start is our economic system. Time to start creating new economic institutions that will support the challenge to and the eventual down fall of our current economic system. Economic institutions that encourage increased community wealth, increased democracy and increased economic opportunity for people. There are plenty of ideas/visions for this New Economy - just look up people like Gar Alperovitz, David Korten, David Schweickart. There are others. Don’t be fooled - there are alternatives.

Good luck.

Tapped Out

Not only are families tapped out but so is our economic growth model. This why we have had an uneven recovery - corporate profits recover but family finances don’t. It’s the nature of our economic system. The real issue is or should be what are we going to do to change this.

Let’s start with this graph:

It use to be that our economic growth model included steady wage growth for workers. Companies would share the gains in worker productivity with workers. Thus, the idea or notion that people were rewarded for hard work. But then something happened in the 1970’s. The link between wage growth and productivity growth was broken. There are several factors in break of the link including drop in union participation, globalization of labor markets, and technological advances.

Let me digress and show one huge implication of this break:

There’s clearly a correlation between the huge income inequality in U.S. and the break between wage growth and productivity. Currently, the productivity gains, and the resulting profits, powered by worker on behalf of their employers - the companies, is no longer being shared. All the gains are staying at the top with shareholders and senior executives. So it should be no surprise when we hear news stories (covering an actual study) like this one: The Wageless, Profitable Recovery. Sorry, I digress

As we know that if the cost of living continues to rise but wages are not keeping up the cost of living, something has to happen to maintain a certain living standard. Well, as recent history shows when wages are not increasing but families are struggling to maintain a certain living standard - a ‘middle class’ living standard - something did fill the void. Prior to the Great Recession it was more debt:

The above graph measures the amount of family debt versus disposable personal income or the amount of leverage. This graph shows there are huge limitations on the amount of debt families can take on before becoming tapped out. But this was the ‘old normal’ for our economic growth model: lack of wage growth was substitute with debt. Then the Great Recession happened.

Now, we have a ‘new normal’. One that is characterized by low job creation and low economic growth. This all works to suppress wage growth even more - it’s simple higher unemployment means lower wages - law of supply and demand. National Employment Law Project has report out that confirms this ‘new normal’. NELP found that:

• In the weak recovery to date, employment growth has been concentrated in lower-wage occupations, with minimal growth in mid-wage occupations and net losses in higher-wage occupations.
• The net result is that the current U.S. jobs deficit is not evenly distributed.
• Workers’ real wages have shown no growth since the start of the recession.

This ‘new normal’ with low job growth and continued wage stagnation is different from the ‘old normal’ in one very big way - family debt is no longer an option. This means that our economic growth model is tapped out - the debt driven growth we saw years ago is not an option any more. This doesn’t bode well for the living standards of millions of American families. With this status quo economic growth model we will see even bigger income inequality with more and more families falling to the bottom. It doesn’t have to be this way.

We have choices. Any option pursued will not easy or quick to accomplish. But at this point maintaining the status quo economic growth model means economic devastation for millions of American families.

There are options. Some require political involvement - others do not. It truly is up to us to determine the direction we want to go (BTW, there a plenty more options-these are ones that I have studied):

1) Employer of Last Resort/Job Guarantee - obviously this requires legislative action which is a huge problem. Our political system and both political parties don’t really care about the concerns of poor and working class families.

2) New Economy - that’s right, organizing a new economy that is based on an entirely different set of values. Two very important ones: people over profits and more and better democracy. David Korten has written extensively on the subject of a New Economy. There are others with similar visions of a New Economy.

Again, it’s really up to us decide on the direction of our economy. But one thing should be absolutely clear - we have to challenge the economic status quo - it’s now a matter of survival. Any other ideas?

Good luck.

Nice System

This is our economic system in a nutshell.

Nice system we got:

1)  No economic mobility;
2)  Low to stagnate wage growth;
3)  More household debt to maintain living standard;
3)  Low job growth;
4)  Huge income inequality.

We can do better. We must do better because it’s a matter of survival for millions of Americans. These characteristics and other not listed point to one thing - time to create a New Economy. 

Good luck.

TORN

I am torn between continuing to advocate against the impending austerity movement coming out of Washington verses shutting up and preparing for the results. I am not sure whether I should curse President Obama or thank him for his incredibly short-sighted austerity policy.

Austerity will crash an already weak economy. I am not sure why this is so difficult for people to understand: when businesses are not hiring and families are cutting back having federal government (state and local governments are already cutting back) also cut back doesn’t help. Don’t confuse the finances of the federal government with that of businesses or households - they are very different. Even a conservative organization like the International Monetary Fund recognizes that austerity will not help with economic growth. But both political parties in Washington are determined to crash the economy again - Pres. Obama is calling for $4 trillion (over 10 years) in spending cuts and tax increases and republicans are calling for $2 trillion in spending cuts. 

We are hearing a lot of bullshit about ‘shared sacrifice’ and ‘balanced approach’. There’s nothing ‘shared’ or ‘balanced’ about cutting from those who have very little and pretending to tax those who can easily shelter income or already have tons of money and who benefited tremendously from government bailouts. Both proposals from supposed opposition parties will not improve the huge income inequality we’re experiencing today but actually may make it worse.

Cuts to social programs and other crazy ideas such as eliminating the minimum wage will only serve to make people more poorer.  This certainly won’t strengthen an economic system or even stabilize it. It would create conditions for serious civil unrest. It’s convenient for some and down right ignorant for other to ignore history. Many of the programs created after the Great Depression and that are under attack today were a response to great civil unrest and to preserve the capitalist system.

Those blinded by ideology persist to the detriment of or possible salvation for poor and working class families. This idea that making people poorer will allow them to pick themselves up by the bootstraps is a joke particularly in an economic system such as ours.  Instead of picking themselves up by their bootstraps their are more likely to revolt.

Here lies my quandary. Austerity will crash the economy and cause great pain to poor and working class families. And out that pain will create an opportunity to overthrow the current economic status quo and organize a new economy. A new economy that at the very least is defined by the following values:

• Prioritizing the well being of people and our environment over profits;
• Creating a more equitable distribution of wealth;
• Providing more and better opportunities for families to improve their living standards;
• Encouraging people to have more control or say over how they work;
• Developing strong and self-sufficient local economies; and
• Encouraging more direct participation by people in the creation of new institutions.

I keep thinking about that quote ‘don’t let a crisis go to waste’. Crises that are so common to our current economic system will lead to an opportunity for great change. Change that can benefit most people and not just a select few.

Good luck

 

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