Transmission Problems With The Economic Engine Of Prosperity For All

Several decades ago, as I completed earning a university degree in Economics, I contributed to a white paper for the White House and detailed in several newspapers the fact that U.S. living standards were only being maintained because most households had two earners, and I lamented this fact signaled the decline of America’s ability to provide generation after generation with a steadily improving life — that it signaled a sputtering in the economic engine of progress.

Back then, I believed that a monetarist policy at the Fed combined with a supply-side policy instituted by the Reagan administration would be just the right formula to clean out the engine valves and boost the octane fueling the economic engine.

Now, in the second decade of the twenty-first century, it requires well more than two earners working to equal the wages of a one-income household of 40 years ago. In fact, wages have plummeted so low that a two-income household is now (on average) 15% poorer than a one-income household of 40 years ago.

Wages & Standards

With the year 2000 as a base, real wages peaked in 1970 at around $20/hour. The average worker today earns $8.50/hour — more than 57% less than real earnings in 1970. Moreover, as the average wage directly determines society’s standard of living, it may accurately be said that the average standard of living in the U.S. has plummeted by more than half over the last 40 years.

The green line shows average wages, discounted by inflation calculated with the same methodology for all 40 years, properly comparing any data over time… applying identical parameters to it each year.

Then, there is the blue line: showing wage data discounted by the “official” inflation rate. Why two inflation deflators? What’s the problem? The methodology used by government to calculate inflation in 1975 is different from the method used in 1985, which is different than the method utilized in 1995, which is different than the method of 2005.

Technology & Standards

To be certain, technology has improved such that the “standard” has shifted and provided a lifestyle unimaginable or unattainable in the past; i.e., today, nearly all persons of age have a personal cell phone and internet access (hence access to instant communications); access to music proliferates on numerous mobile devises (not just families able to afford large stereo systems, or further back, their own music chambers); and the list goes on.

As they say, though, all things are relative. And, thus, to say that one has access to “absolutely” more of something now, or to something that never previously existed, is not to say that they have access to more or better… relative to what their predecessors had relative to their own time. Standards change.

If the death rate from cancer devolved back to that from 1960, would it be correct to say that’s acceptable because even then it was better than the survival rate from the 18th century? Of course not. Standards improve, and if the average person in a period can’t maintain their relative position over time in that moving standard, then we have declined was a society. Here is where America rests today.

99 To The One

Back to the chart; inflation for the last 40 years has hidden the 57% collapse in the standard of living for the average person. Nonetheless, if you’re fortunate enough to be at or successful enough to have earned a place at the top of the income charts, the situation is significantly reversed in your favor. While average American workers have seen their wages plummet by 57% over the past 40 years, in just 15 years (1992-2007) the 400 wealthiest Americans saw their incomes rise by 700%.

Now we have the complete picture: wages crumbling steadily lower year after year, decade after decade for “The 99%,” while earnings skyrocket for “The One Percent.” Is that acceptable? I don’t know… is going back to the cancer death rates of 1960 acceptable to you because that’s still better than it was in 1700?

Transmission Problems

Suffice to say that even after our massive economic/financial collapse of 2007/2008, our economic engine is running strong as the economy has fully recovered… as an engine (output and profitability exceed the high before the collapse). However, as could be observed after recovery from the 2000/2001 recession, ours is no longer an engine of economic progress broadening prosperity. The problem it seems is with our transmission, as the power of the engine is not distributed to improve the standard of life for all — or even just the majority — of Americans.

To this point, the causes of our transmission problems are equally obvious in terms of categories, although the actual analysis of those causes is more complex and beyond a simple blog post.

1) Taxation repression. As has been noted in this Presidential runnup, Romney’s 15% income tax rate because he doesn’t “earn it” though work but through investing his funds in the right slot machines on Wall Street is inherently unjust and inequitable. Billionaires now maintain the largest fortunes in history — while ordinary people who “earn” their income have been turned into “the working poor” paying significantly higher tax rates than the slot machine winners on Wall Street.

2) Systemic/structural unemployment. Technology always eliminates jobs faster than it creates new opportunities. With time though, technology tends to offer up more and better jobs, historically, given a long enough time horizon to adjust to the technological leap. In the meanwhile, gaps and dislocations occur. Given contemporary, unceasing acceleration in technology, our economy is in effect “permanently” reducing jobs (and creating structural unemployment). Today, the technological change and productivity increase is nearly continual…along with job redundancies.

 In our past, we as a society offered up income support and training programs to assist in the transition. Most importantly and effectively, we dealt with this structural unemployment by shortening the work week every few decades…until our current time. The basic work week at the Dawn of the Industrial Revolution was 7 days a week, 12 hours a day — an 84-hour week. For 200 years, our government steadily shortened the work week to our current 5 days a week, 8 hours a day — a 40-hour week — and our society grew steadily more prosperous.

Refusal of our government to shorten the work week (which is really voters’ economic and historic memory lapse put into practice by the reps they elect) is a systematic path that maintains massive unemployment — the strongest downward driver of average wages. Voters support and reinforce this process with a mantra of less government and hopeful/naive belief in the sanctity and divination of unfettered “free markets.” I’ve read other columnists and economists in Europe refer to their own version of this mantra as “Merkel’s Economic Taliban.”

3) Oligopolies. It is elementary (meaning basic Econ 101) capitalist theory that monopolies and oligopolies are cancers to be prevented. By definition they are caustic and anti/non-competitive — they have absolutely no productive place in any capitalist economy. Yet today, the global economy is overwhelmingly enmeshed with gigantic, non/less-competitive oligopolistic entities…the revered multi-nationals. Diminishment of our societies is an inevitable result.

4) Indebtedness. Most Western governments are well past the Rubicon in indebtedness. Nonetheless, it makes no sense to completely hollow-out and starve economies with some form of Milton Friedman-Hayek/Mises Austrian Economics Austerity (as done in Greece and Spain and Italy) — only to end up with an even larger default in the end. Had bond vigilantes accepted a 50% haircut at the beginning of Greece’s debt-crisis, Greece’s economy would have remained intact, and they would have salvaged a larger share of their debt obligations (rather than the 75% default with which they ended). In the end, around the world, all sovereign debt bond holders will take a haircut. It’s a fact. Reality. OK. Build up reserves and get ready for it. Once done, we can implement a proper system of running surpluses in good years and deficits in economic down years…and we the people will have to accept that this is as it must be.

It is time to address and correct this tragedy of the collapse in our standard of living…time to address the transmission problems with the economic engine of prosperity for all.

Now Is The Winter Of Our Discontent — A Liberal’s Calm Before The Storm

Made glorious summer by this sun of Windy City;
And all the clouds that lour’d upon our house
In the deep bosom of the ocean buried…

…for how long?

For some of us the inauguration of Barack Obama ushered in the potential for an era of liberal progress, of recovery from the dark clouds of George W. Bush… illegal wars, reactionary social policy, and economic destruction.

The republican party nomination process stimulated my presaging fear of tumult as I witnessed enthusiastic applause for the proposed destruction / elimination of women’s’ rights, civil and marriage rights, health care access, criminalized physical expressions of hate, and responsible stewardship of earth’s resources.

While I know that I am not alone in my liberal desires for a more progressive and better nation, it sure feels a lot lonelier.

As I contemplated my sense of alienation and just how far I am away from the American political norm, a battery of political spectrum tests proved that, indeed, I am a Liberal Elite in a right wing, conservative nation…and it is not a good feeling.

For the Liberal Elite contemplating the national mood, it may soon be another kind of Winter…the end (winter) of our contentment…

Transform France Into A German Economic Model? Me Thinks, Not So Fast…

German Chancellor Angela Merkel crossed traditional bounds and now campaigns vigilantly for her center-right colleague, current French President Nicolas Sarkozy, as the beleaguered French president has fallen behind in polls against his rival socialist candidate. Merkel intends to defend center-right policies and the German economic model in France, as she attempts to implement the model across all of the European Union.

Francois Hollande, socialist challenger for the French presidency, has honed his general opposition to the German-led fiscal discipline treaty under EU member states’ consideration by outlining the concrete changes he would like to see made to the document. Hollande suggests that the proposed fiscal discipline treaty imposes too much of Berlin’s belt-tightening policy (Austerity) on the EU and lacks growth initiatives.

Recently, Chancellor Merkel appeared in a joint television interview with the French president, who has fully aligned himself with German economic thinking, and said she would support him “whatever he does.” And what he does is want to transform France into the industrial economic miracle of Germany. The question is begged: why the economic self-doubt by France’s President?

President Sarkozy wants France to become more like Germany, and in a recent speech he made 15 positive references to the German economic model.

Unlike France, he argued, Germany had reformed its economy and was reaping the rewards of improved competitiveness and superior economic performance. He lamented the alleged decline in French industrial prowess and praised Germany’s success at defending its industrial base in the context of globalization.

Is Sarkozy correct in being so self-critical of French performance?  And would it make sense for France to emulate the German model?

Sarkozy is certainly right that Germany is a more industrial economy than France. The share of the French economy accounted for by industrial output is as low as in Britain (a country Sarkozy likes to deride as “having no industry”) and lower than the US. Germany’s share of world export markets has also held up remarkably well over the last ten years, whereas France’s has fallen steadily.

Nonetheless, the relative size of a country’s industrial sector may or may not have implications for its economic success. Observe Italy, with a comparably-sized industrial sector to Germany, but which is readily the worst performing large developed economy. Japan also has a very large industrial sector yet has stagnated most of the last 20 years.

France actually has a reasonable economic record relative to Germany’s.

• Between 1992 and 2001, France managed annual GDP growth of 2.1 percent compared to Germany’s 1.6 percent. Over the subsequent ten years -– 2002 to 2011 -– both countries grew by 1.1 percent per year.
• Although the German economy performed better in 2010 and 2011 than its French counterpart, the two countries’ growth prospects are very similar according to the European Commission, the IMF and the OECD — all three forecast growth of 0.5 percent in 2012 and 1.5 percent in 2013.
• Productivity may be a good indicator of economic performance: Productivity per French worker is higher than in Germany, while productivity growth averaged 0.7 per year in both countries between 2002 and 2011.
• As recently as mid-2008, rates of joblessness were the same in the two countries. But Germany’s labor market performance has been superior to France’s over the last three years. By the end of 2011 the rate of unemployment had fallen below 6 percent in Germany, whereas it has risen to nearly 10 percent in France. However, a significant demographic element led to this change –- due to a very low birthrate, Germany has far fewer people entering the labor market than France.

Something far more vital than a better, finely tuned industrial economy effected the change in balance between Germany and France.

The “Hartz reforms” of former German Chancellor Gerhard Schröder’s government undercut the bargaining power of labor, and succeeded in “pricing workers back into employment,” albeit often at much lower wages than previously known in Germany. Adjusted for inflation, employee wages fell by 2 percent from 2002 to 2011, compared with a rise of over 10 percent in France. In turn, this reduction in relative wages impacted private consumption negatively, and over the same period, private consumption grew by just 4 percent in Germany, against 17 percent growth in France.

To the extent that Germany has become more “competitive,” it is not because of  German superior productivity growth but rather because of wage restraint — and the resultant reduction of wage-based inflation. As a result of such income compression, Germany’s real effective exchange rate within the eurozone fell by 17 percent between 1999 and 2011, making its exports much more price competitive. Meanwhile, for the same period, France’s real effective exchange rate rose by 4.4 percent.

Germany’s internal devaluation contributed to a big divergence in the two countries’ relative trade positions. Whereas ten years ago France and Germany both had small current account surpluses, France is now running a deficit of around 3 percent of GDP, while Germany is running a surplus of 6 percent. To be truthful, such an effect was indeed the goal of Germany’s labor market changes… but at the expense of workers’ incomes, domestic consumption, and the social condition.

German Austerity Model For France?

France and Germany have similar levels of public debt, at just over 80 percent of GDP. Concerning the yearly budget deficit, whereas Germany’s fell from 4.3 percent in 2010 to a little over 1 percent of GDP in 2011, France’s yearly deficit came in at 5.7 percent (down from 7.1 percent in 2010). Sure, France has need to strengthen its public finances, but mitigating factors deserve acknowledgement.

First, the French government has been more concerned with maintaining growth in domestic demand than its German counterpart.

Second, over a third of the difference in the size of the deficits in 2011 was accounted for by much higher levels of public investment in France — 3.2 percent of GDP compared with 1.7 percent in Germany (the second-lowest level in the EU).

Neglecting public investment harms the overall good of the nation eventually, though… witness the crumbling infrastructure of the United States. Germany’s rail system has already fallen greatly behind that of France.

German Hartz Reforms For France & EU?

French President Sarkozy is right to be concerned about France’s economic performance. In common with most of Europe, the country seems stuck. Nonetheless, the second largest economy in Europe must draw the right conclusions from what has happened within its neighbor, Germany.

Yes, France absolutely must reform its labor market — retirement age is too young and it is too difficult to terminate non-performers. Currently, those with full-time jobs earn employee rights and generous entitlements — the hallmarks of an advanced society — even while these same benefits are a disincentive for firms to hire people on a full-time basis and relegate the youth to a tenuous reliance on temporary jobs.

However, Germany’s labor market reforms might not be the best solution for France… or Europe. Germany has been able to pursue such a strategy only as other EU countries have not. Should France attempt to emulate German wage constraint, it would prove a largely zero-sum game as the move would depress domestic demand in France and across Europe, in the process worsening the eurozone crisis and leading to more layoffs.

Certainly, Germany offers many examples for France and other EU countries to follow. Still, a large industrial sector and a big trade surplus are not the exclusive indicators of economic ability and capacity. Note that, for every country running a trade surplus, another must run a deficit, and it shall never be otherwise.

Economist Milton Friedman argued that trade deficits were not intrinsically bad. Who, he asked, has done better when one trades 10 dollars worth of goods in exchange for 15 dollars worth of goods? The one nation sold more of what it produced (which employs labor and expands business) while the other got more for less. The answer as to who has the advantage is unclear.

France has its share of weaknesses, but in important aspects, the French model — where the economy is largely propelled by domestic demand, high productivity, and extended leisure time — holds out better prospects for a return to economic growth across the eurozone than does the German economic model, I must protest.

Conservative’s Talk Taken For Granted As Truth — The Social Contract & US Debt

Why is it that when one is a conservative Republican, the most unsupported and absurd comments about the economy or economics are said and taken for granted as truth?

Here’s just one recent example that raised my gall:

Dorsey D. Farr, co-founder and head of investment strategy and portfolio management for French Wolf & Farr, told the Rotary Club of Buckhead in Atlanta at a January 30, 2012 luncheon that ongoing labor market weakness, household deleveraging, consumption growth and sovereign debt will continue to be tough issues with which to tangle in 2012.

Well, fair enough, and who could argue with the assessment?

But then Farr went on to say with professorial certainty…

“…defeating the debt monster requires a revision to the social contract that created it. That takes either enormous political will or a crisis.”

Really? No, I mean, REALLY!?

As Bill Clinton left office, we ran budget surpluses and were well on the path to paying off the total US debt. So, what we really want to look at is what caused the dramatic change in direction, the rising yearly budget deficits, and the yawning total US debt after Clinton… meaning W. Bush and Obama.

First… the social contracts for Social Security have run surpluses and helped to fund the deficit spending… not contributed to the deficits.

Moreover, doing absolutely nothing but following the law, Social Security and associated social spending will not and cannot contribute to the deficits, as Social Security may only spend what money it has and takes in. Thus, when fifteen to twenty years from now it is out of excess cash, it can only pay out to retirees the amount of money raised each year from Social Security taxes.

All this means is that given no other changes, future retirees will see a somewhat reduced monthly payout — NOT a stoppage of payout… NOT any deficit spending…

OK… none of that causes or contributes to the deficit or debt, so I’m still lost as to how the Social Contract led to our deficits and unsustainable debt or threatens the debt future, Mr Farr.

Obama Vs. W. Bush On The Deficit

So, Mr Farr, let’s see where since Clinton our deficits and the burgeoning debt originated:

Humm, well, I grant that the Part D Medicare Drug benefit that was not initially funded properly contributed to the debt and is part of a social contract. That means that of the $15 Trillion total US debt, $5 Trillion came from W. Bush in non-social contract spending!

Bottom line: W. Bush’s non-social contract spending and tax cuts caused one-third of our total US debt… not, sir, as you and other Republicans nonchalantly propound.

Sustainable & Non-Sustainable Debt

One complaint of the current debt situation is that it is 100% of yearly GDP. History has shown this amount to be a drag on economic growth and the overall financial health of a nation. What has been deemed historically supportable is a US debt level of 62-65%.

Well, take out W. Bush’s non-social contract deficit and debt contributing contributions, and you have a $10 Trillion debt against a $15 Trillion economy… or 66%!

Wow, so the un-sustainability of our US debt is NOT from social contract spending but from Bush’s absurd tax cuts, two unfunded wars (Iraq and Afghanistan), non-defense discretionary spending, and the effects of his crashing the economy!

Mr Farr, get a grip and do your research… do not just assume that because you’re conservative and Republican that your pontifications are granted truth.

Final Thought: The Absurdity of Austerity

As once practitioners and the ill, alike, advocated blood-letting and leeching to cure sickness and disease — draining vital life fluid and energy from the frail and weak… so today must society suffer self-imposed and popular austerity to cure an anemic economy. In both times, the hope was that the patient didn’t die from the cure.

In our dystopian world today, Republicans propose drastic budget cuts to the social contract that in no way contributed to our current debt problem. Yes, in a world where 70% of the economy is consumer driven, conservatives propose starving the consumer of cash by reneging on pre-agreed social programs and austerity.

Good luck with that.

Hope I live through it! Hope most of us patients live through it, too. As for the bloodletters and their supporters, ah, not so much : )

Occupy Wall Street Message? First Declaration Makes Clear

Since the occupation of Wall Street first began on September 17th, the mainstream media criticized the general assembly for lack of a cohesive list of complaints or demands.

On the night of September 29, 2011, Occupy Wall Street participants voted on and approved the first official “Declaration of the Occupation of New York City.”

The first declaration from Occupy Wall Street, is reprinted in its entirety (Seems to be a very clear message):

As we gather together in solidarity to express a feeling of mass injustice, we must not lose sight of what brought us together. We write so that all people who feel wronged by the corporate forces of the world can know that we are your allies.

As one people, united, we acknowledge the reality: that the future of the human race requires the cooperation of its members; that our system must protect our rights, and upon corruption of that system, it is up to the individuals to protect their own rights, and those of their neighbors; that a democratic government derives its just power from the people, but corporations do not seek consent to extract wealth from the people and the Earth; and that no true democracy is attainable when the process is determined by economic power. We come to you at a time when corporations, which place profit over people, self-interest over justice, and oppression over equality, run our governments. We have peaceably assembled here, as is our right, to let these facts be known.

• They have taken our houses through an illegal foreclosure process, despite not having the original mortgage.
• They have taken bailouts from taxpayers with impunity, and continue to give Executives exorbitant bonuses.
• They have perpetuated inequality and discrimination in the workplace based on age, the color of one’s skin, sex, gender identity and sexual orientation.
• They have poisoned the food supply through negligence, and undermined the farming system through monopolization.
• They have profited off of the torture, confinement, and cruel treatment of countless nonhuman animals, and actively hide these practices.
• They have continuously sought to strip employees of the right to negotiate for better pay and safer working conditions.
• They have held students hostage with tens of thousands of dollars of debt on education, which is itself a human right.
• They have consistently outsourced labor and used that outsourcing as leverage to cut workers’ healthcare and pay.
• They have influenced the courts to achieve the same rights as people, with none of the culpability or responsibility.
• They have spent millions of dollars on legal teams that look for ways to get them out of contracts in regards to health insurance.
• They have sold our privacy as a commodity.
• They have used the military and police force to prevent freedom of the press.
• They have deliberately declined to recall faulty products endangering lives in pursuit of profit.
• They determine economic policy, despite the catastrophic failures their policies have produced and continue to produce.
• They have donated large sums of money to politicians supposed to be regulating them.
• They continue to block alternate forms of energy to keep us dependent on oil.
• They continue to block generic forms of medicine that could save people’s lives in order to protect investments that have already turned a substantive profit.
• They have purposely covered up oil spills, accidents, faulty bookkeeping, and inactive ingredients in pursuit of profit.
• They purposefully keep people misinformed and fearful through their control of the media.
• They have accepted private contracts to murder prisoners even when presented with serious doubts about their guilt.
• They have perpetuated colonialism at home and abroad.
• They have participated in the torture and murder of innocent civilians overseas.
• They continue to create weapons of mass destruction in order to receive government contracts.*

To the people of the world,

We, the New York City General Assembly occupying Wall Street in Liberty Square, urge you to assert your power.

Exercise your right to peaceably assemble; occupy public space; create a process to address the problems we face, and generate solutions accessible to everyone.

To all communities that take action and form groups in the spirit of direct democracy, we offer support, documentation, and all of the resources at our disposal.

Join us and make your voices heard!

*These grievances are not all-inclusive.

YES! President Clinton…

Occupy Together Movement Expands Across the States — Economic Royalists Not Amused

Occupy Atlanta, the Atlanta branch of the Occupy Together movement, occupied downtown’s Woodruff Park Friday, October 07, 2011 following a protestors’ General Assembly — about seven hundred people attended.

A group of several hundred activists decided to stay in the park past the 11pm closing time and risked arrest.

Day two began Saturday morning as chilly and groggy members of the protest group Occupy Atlanta emerged from their tents in Woodruff Park and then set about planning the day’s activities.

Occupy Together is a new, young, and vital movement that is emerging in major US cities around the nation.  They call themselves the ninety-nine percent that has been left behind and left out, while the one percent control vast amounts of wealth and took even more during the great transfer of wealth in 2008.

Prior to the current economic crisis, Wall Street ran amuck, without regulations, and the banks gambled away their resources in a frenzy of blind greed never before seen. Everyone lost except the CEO’s and upper echelon of the corporate world… and the politicians beholden to these interests.

The “We Are The 99%” movement members are aware that most of our elected representatives primarily represent the interests of the rich and powerful and… not the people. During the General Assembly, a crowd of about seven hundred people encircled the facilitators.

WE ARE THE PEOPLE – AND WE HAVE FOUND OUR VOICE

The General Assembly passed out their draft of demands and read their preamble.

The drafted demands and preamble:

We hold this truth to be self-evident that the 99% deserve equal rights, equal protections, equal access and equal opportunity as the 1% who benefit disproportionately from the current system.  We therefore freely assemble to assert our rights and demands:

1. We demand greater democratic control in all spheres of life, from the home to the government, from the economy to the workplace.  It is a moral, logical and political imperative that people should be in control of their own lives to the greatest extent possible.

2.  We deserve an economic system that meets human needs, reduces economic inequality, shrinks the income gap, and doesn’t reward decisions that have a negative impact on society.

3.  We recognize that the market will not regulate itself.  What is good for profit is not always good for people or the environment.

4.  We assert the right of every human being to adequate shelter, food, clothing, hygiene and other basic necessities.

5. We assert the right of every individual to adequate protection from the economic uncertainties of old age, accident, unemployment and other hardship.

6.  We denounce all predatory lending and fraudulent banking practices and demand accountability.

7.  We recognize that no society should allocate more resources to warfare than to the public good.

8.  We demand a more democratic, publicly representative and accountable media.

9.  We insist that the internet is a basic human right and as such should remain absolutely free and neutral.

10. We assert our right to public spaces and our right to freely inhabit them because they are essential to democracy and our right to assemble.

11. We denounce a criminal justice and for-profit prison system that relies on mass incarceration, especially when it reinforces the marginalization and disenfranchisement of people.

Who could… who would… why would anyone deny these demands and assertions?

… I guess the republican likes of Herman Cain who stated that if these protestors were not successful, if these protestors were losing their homes, if these protestors lost and couldn’t find new jobs… that it is their own fault, and they are just jealous of those superior persons who have succeeded.

The Occupy groups’ liberal causes have drawn criticism from a variety of sources, particularly conservative politicians. U.S. House Majority Leader Eric Cantor, R-Va., for example, called the gatherings “mobs.”

But liberal and well respected Democrat U.S. Rep. John Lewis, R-Ga., attended Friday night’s rally in a show of support and asked to speak to the group. The assembly voted against it, however, and Lewis left without addressing the group.

The movement protestors stated that they did not want politicians co-opting their grass-roots efforts. They announced: “We are not Republicans, Democrats or any other party.  We are the people, and we have found our voice.”

Economist Paul Krugman: Economic Justice

Nouriel Roubini — Economist Who Foresaw 2008 Economic Crash — Comments About Today: “CAPITALISM CAN DESTROY ITSELF… THAT’S WHAT HAS HAPPEND”

WSJ:

So you painted a bleak picture of sub-par economic growth going forward, with an increased risk of another recession in the near future. That sounds awful. What can government and what can businesses do to get the economy going again or is it just sit and wait and gut it out?

Roubini:

Businesses are not doing anything. They’re not actually helping. All this risk made them more nervous. There’s a value in waiting. They claim they’re doing cutbacks because there’s excess capacity and not adding workers because there’s not enough final demand, but there’s a paradox, a Catch-22. If you’re not hiring workers, there’s not enough labor income, enough consumer confidence, enough consumption, not enough final demand.

In the last two or three years, we’ve actually had a worsening because we’ve had a massive redistribution of income from labor to capital, from wages to profits, and the inequality of income has increased and the marginal propensity to spend of a household is greater than the marginal propensity of a firm because they have a greater propensity to save, that is firms compared to households. So the redistribution of income and wealth makes the problem of inadequate aggregate demand even worse.

Karl Marx had it right. At some point, Capitalism can destroy itself. You cannot keep on shifting income from labor to Capital without having an excess capacity and a lack of aggregate demand. That’s what has happened. We thought that markets worked. They’re not working. The individual can be rational. The firm, to survive and thrive, can push labor costs more and more down, but labor costs are someone else’s income and consumption. That’s why it’s a self-destructive process.

2011-20: Decade Of U.S. Economic Hell

More Bad News For America’s Worst Decade

Adapted From The Commentary By Paul B. Farrell, MarketWatch

Next decade? Toxic politics promises to make economic matters much worse than even today.

“The U.S. economy appears to be coming apart at the seams,” warned Columbia Prof. Robert Lieberman earlier this year in Foreign Affairs.

Now, over at Foreign Policy magazine, Josh Rogin warns: “This Fight Ain’t Over: Think the debt ceiling gridlock was ugly? Congress is just getting warmed up. Here are eight more foreign-policy battles right around the corner,” when they get back to sinking the economic recovery even deeper this fall.

All this was punctuated last week by the one-day 513-point market drop, S&P’s downgrade of the U.S. credit rating on Friday, as well as the 634-point drop in the stock market yesterday, Monday… and all the implications toward a double-dip recession.

Another Foreign Policy expert, James Taub, warns of what the “debt-ceiling deal tells us about the Tea Party’s grim vision of American power.”

There’s a disaster ahead, Taub writes: “All Guns, No Butter … depleting the national treasury to pay for the military … when many Americans want to reduce the role of government at home and especially abroad, the debt deal just concluded is likely to preserve the country’s hypertrophied defense budget, at least if congressional Republicans get their way.”

Mitch McConnell, the GOP’s Darth Vader, is doing just that, doubling down on his vow to make certain Obama is a one-term president, intentionally ignoring the collateral damage, killing economic recovery.

How? Ol’ Mitch is already sabotaging the new congressional debt “super-committee,” vowing to appoint only Republicans who have signed Grover Norquist’s “no new taxes” pledge.

Expect more deadlocks as economists warn that recovery is impossible without new revenues.

Beyond toxic nondemocratic pledges on taxation, America really is “coming apart at the seams.”

Both parties are to blame:

• Dems for lack of strong leadership.
• The GOP and the Tea Party with their bizarre Schumpeterian conviction that destroying the economy is the only way to save America and pave the way for a revival of their anarchistic, free-market Reaganomics.

Politics sabotage economy

Yes folks, our politicians really are out of control, utterly unable to manage the economy. They’re irrational, and worse, clueless and myopic in economics.

No surprise the Dow Jones Industrial Average (DJI:DJIA) crashed 513 points in one day last week and by 634 points on Monday. Nor a surprise that pundits are pointing to high-tech multiples, warning of a new dot-com crash and double-dip recession, as well as a collapse in commodities, in emerging markets and endless debt problems for Europe.

The WARNING, in short, is that we’re headed into a perfect storm rivaling the disastrous political insanity of the 1930s that prolonged the depression, driving the economy into far reaching global problems that added fuel to an irrational zeitgeist and world war.

Over the past decade we predicted the 2000 crash, the 2008 meltdown and the short-lived 2009 rally, and now it seems quite clear that future historians will indeed look back on the 2011-20 decade as the “Worst Decade in American History.” Worse than the “Great Depression” of the 1930s. Totally predictable, totally denied.

Early this year we made 10 predictions of a chain of events that would reach a critical mass and consume America in a torrent of “creative destruction,” finally crippling • our too-greedy-to-fail monetary/banking system, • our capitalism for the super-rich and • our corrupt political system.

The recent debt-ceiling deal is a wild red flag, warning that it’ll be much worse for a long time.

Dead ahead…

• a protracted new civil war between special interests and the super-rich versus the middle class and disadvantaged,
• a wasteful internecine war that will further downgrade America as the world’s superpower, while enemies cheer loudly.
• So buckle your seat belts folks, it will get uglier and uglier for years.

10 Annual Predictions — a year-by-year look at a decade of economic battles between the haves and have-nots

So here’s an update of my 10 annual predictions, a year-by-year look at a decade of economic battles between the haves and have-nots, with no room for compromise between the three ideologies destroying our nation from within. The “wealth gap,” the greed, the entitlements, the hostilities are now so entrenched, compromise is impossible.

Only a catastrophic 1929-style collapse of capitalism, democracy and a descent into economic hell will force America to restructure.

Here’s how it will unfold in the coming 10 years:

2011: Wall Street’s super-rich control Washington

Thanks to the conservative takeover of America’s so-called democracy over the past three decades, from Reagan to Obama, our activist Supreme Court delivered the coup de grace into America’s psyche last year, overturning long-established precedent giving rich owners of zombie corporations the same rights as live citizens. That decision would have gotten a failing grade in my constitutional-law class back at the University of Virginia.

2012: Super-rich solidify absolute power over our political system

That bizarre Supreme Court decision legalized political bribery. Now, billions pass through lobbyists to politicians with one goal: a promise that every politician vote in line with their ideology. Wealth rules. America is no longer a democracy, not even a plutocracy. Today our middle class is in a rapid trickle down into Third World status, while the rich get richer and the “gap” between the super-rich and the rest steadily widens. It is now irrelevant who wins the 2012 race, because money corrupts and Obama is already a puppet of this system favoring lobbyists and wealthy donors.

2013: Pentagon’s global commodity wars accelerate

During the Bush presidency, Fortune analyzed a classified Pentagon report predicting “climate could change radically and fast. That would be the mother of all national-security issues.” Billions of new people spread unrest worldwide as “massive droughts turn farmland into dust bowls and forests to ashes.” Most disconcerting, from the Pentagon report, “by 2020 there is little doubt that something drastic is happening … an old pattern could emerge; warfare defining human life.” Trapped in denial, political leaders will chose war over cooperation.

2014: Global population exploding, rapidly wasting resources

America’s “conspiracy of the super-rich” drains trillions from middle-class taxpayers. The invested super-rich see global population growth exploding by 100 million annually not as a drain on scarce commodities, but as tool to get richer through free-market globalization, ignoring the tragedies triggered as the population climbs to 10 billion — all demanding more of the world’s limited, nonrenewable resources. In the end, all will be demanding payback for our failures to heed warnings of environmentalists like Bill McKibben: “It might be too late. The science is settled, the damage has already begun.” We can’t save the planet.

2015: ‘Gilded Age’ explodes America’s ‘Global Empire’

Kevin Phillips warned in “Wealth and Democracy” that around the time of the Pentagon’s prediction of WWIII in 2020: “Most great nations, at the peak of their economic power, become arrogant and wage great world wars at great cost, wasting vast resources, taking on huge debt and ultimately burning themselves out.”

Similarly, financial historian Niall Ferguson, author of “Colossus: The Rise and Fall of The American Empire,” warned that we deceive ourselves, thinking “about the political process in seasonal, cyclical terms.”

2016: Reaganomics self-destructs; crashes come

“But what if history is not cyclical and slow-moving but arrhythmic?” asks Ferguson. “What if collapse does not arrive over a number of centuries but comes suddenly,” too rapid to respond in time? The new GOP president ignores the lessons of history, like Jared Diamond’s warnings in “Collapse”: “One of the disturbing facts of history is that so many civilizations share a sharp curve of decline. Indeed, a society’s demise may begin only a decade or two after it reaches its peak in population, wealth and power.”

2017. Middle-class revolution: Buffett’s ‘rich class’ loses

The seeds were planted years ago. Warren Buffett saw the revolution coming: “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.” After the 2016 presidential election, political rage explodes into a new civil war. The income “gap” pops a bubble, there’s economic collapse and riots spread against another bailout of our “too-greedy-to-fail” banks. New depression ignites class rebellion.

2018. The Fed and Wall Street collapse, Glass-Steagall reinstated

Diamond says he’s a “cautious optimist:” Leaders need “the courage to practice long-term thinking, make bold, courageous, anticipatory decisions at a time when problems have become perceptible but before they reach crisis proportions.” They delay, fail to act boldly. This crisis triggers a cultural revolution. History tells us most leaders act by short-term self-interest, not long-term public interests, especially politicians funded by billionaires who can’t see past quarterly earnings, year-end bonuses, the next election.

2019: Global commodity wars spread, killing millions, wasting trillions

More than half our federal budget goes to the Pentagon’s war machine, limiting America’s fiscal and monetary policies. In this context, new commodity wars are ignited by an accelerating global population against a decline in the world’s scarce resources. That also forces a total rethinking of the balance between spending to protect against external enemies and a rapid deterioration of domestic programs: employment, education, health care, retirement.

2020. America’s first woman president, patriarchal dominance ends

It is clear that patriarchy — male dominance of world culture, politics and economics throughout history — has failed, bringing the world to the brink of total destruction.

Why do male leaders fail? Jeremy Grantham’s firm GMO manages $108 billion. He predicted the 2008 meltdown and now warns: Male leaders are emotional, “impatient … management types who focus on what they are doing this quarter or this annual budget.” Leadership “requires more people with a historical perspective who are more thoughtful and more right-brained.” Yet “we end up with an army of left-brained immediate doers,” which guarantees that “every time we get an outlying, obscure event that has never happened before in history, they are always to miss it,” as in 2000, 2008, 2012, 2016 and in 2020.

In the coming post-capitalism America…

Grantham’s research suggests that women leaders will naturally emerge not just because the male brain is a short-term saboteur. The bigger reason is that women’s brains have evolved naturally as superior long-term thinkers. Brain researchers tell us 75% of men are short-term left-brain thinkers, while 75% of women tend to have strong right-brain traits as forward-thinkers, more aware of the future, the big picture, with a sense of future consequences, peacemakers rather than gamer-players.

Bottom line: These 10 predictions deserve serious consideration, so invest wisely, defensively and never listen to the happy talk from males across Wall Street, Washington or from the super-rich.

– Paul B. Farrell, MarketWatch