posted June 30, 2012

In a few more months, it will be the fourth year since the banking crash of September 2008, the election of Barack Obama, and the deep recession and weakest recovery on record that followed. After nearly four years—and more than $3 trillion in tax cuts and spending by Obama and Congress and $9 trillion in free money given to the banks by the Federal Reserve—the U.S. economy has still not been able to generate a sustained economic recovery. Since April 2012 key sectors of the US economy are once again weakening. And with $2.2 trillion in sequestered government spending reduction scheduled to hit the economy beginning January 2013—plus the likelihood of trillions more in additional spending cuts to occur immediately after the November elections, the Eurozone’s deepening crisis, and China-India-Brazil all headed for a hard landing—the prospect of a double dip recession in the U.S. is increasing.

In the short term of the next 18 months, the continuing failure to achieve a normal economic recovery and the increasing likelihood that that faltering recovery will get even worse, remains the number one crisis confronting the U.S. In addition to that, however, over the longer term of the next decade, at least ten deep, crises in the US economy and society continue to grow worse and approach a qualitative turning point. These longer term problems afflicting the U.S. are not unrelated to the continuing economic crisis. Indeed, they are in various ways integral to it, contribute heavily to it, and are in turn exacerbated by it. But the ten are nonetheless identifiable as distinct, longer term crises apart from the shorter term economic crisis and they show no signs of abating in any significance sense.

The Continuing Economic Crisis, 2012-2013

The prediction of double dip was first raised by this writer a year ago, in this magazine’s June 2011 issue. It was reaffirmed in this writer’s latest book, ‘Obama’s Economy: Recovery for the Few’, completed November 2011 at a time when pundits and mainstream economists were all forecasting a robust rebound of the US economy over the winter. The double dip would most likely come in early 2013, it was argued, but possibly even earlier if the Eurozone and global economy experienced a second major banking crisis beforehand.

The book’s predictions were summarized in an article for this magazine written November 30, 2011, and published in its January 2012 issue. To quote from that statement six months ago: “The first quarter of 2012 will record a significant slowing of GDP growth once again. Should the Eurozone debt crisis escalate in the second quarter of 2012, the U.S. economy will weaken further. It may even slip into recession if the Euro crisis is severe. More likely, however, is the scenario of an emerging double dip recession in early 2013, when deficit cutting by Congress and the Administration intensifies.?

The forecast of a double dip was, and remains, predicated on three factors: first, the continuing inability of Obama and Congressional policies to generate a sustained recovery. Second, a growing financial crisis and deep recession in Europe spilling over to the U.S. And third, a consensus decision and action by both political parties, Republicans and Democrats, immediately after the November 2012 elections to cut spending by several additional trillions of dollars, over and above the $2.2 trillion already scheduled to begin taking effect January 2013.

The ‘grand bargain’ revived immediately after the November elections will most likely include some token initial spending for a year, more stimulus in the form of even more tax cuts for business plus more subsidies for the states, a continuation of the Bush tax cuts for another decade in most part that will cost over $4 trillion more in deficits, further cuts in the top tax rate from 35% to 25% for corporations and the rich, and, to pay for it all, massive cutting of Medicare, Medicaid, Social Security disability, education, and just about all other areas of discretionary spending, except for defense where cuts will be reduced from the $600 billion already projected in the ‘sequestration’ package of 2011.

So far as the ‘short term’ of the past three years is concerned, none of the Obama administration’s three economic recovery programs introduced 2009-11 have been able to result in a sustained economic recovery. Each has led, in succession, to three economic ‘relapses’—where the latter is defined as a dramatic loss of economic momentum across key economic sectors of the economy following short, modest and temporary rebounds. At mid-year 2012 the U.S. economy consequently now finds itself in the midst of the third such relapse, following a third (shortest and weakest) rebound that occurred November 2011-March 2012.

With the U.S. third rebound now clearly showing signs of dissipating at mid-year 2012, and the economic crisis progressively growing in scope and intensity across Europe, two of the three strategic preconditions for double dip are thus being realized. The third precondition—the aforementioned immanent turn by U.S. political elites of both parties to still more spending cuts in addition to the $2.2 trillion already scheduled this November-December—appears increasingly likely. And should that occur, along with the first two preconditions already well evolved, a double dip is assuredly on the agenda for 2013.

This writer’s 2011 forecast of a double dip in 2013 is not unique, but is shared by others, including economist, Nouriel Roubini, financial George Soros, and the Economic Cycle Research Institute (ECRI), the latter of which has had the distinction of predicting the beginning and end of the last two recessions in 2001 and 2007-09 and has been calling a recession even earlier in 2012.

This past spring, 2012, another even more conservative source has added its voice to the prediction: the Congressional Budget Office. The CBO predicts recession in 2013 should just the $2.2 trillion in sequestered spending cuts agreed by Congress last August 2011 start taking effect in 2013. The $2.2 trillion cuts alone would be sufficient, according to the CBO, to drive the economy into recession again in 2013. Add to this the already weakening US economy and the Eurozone crisis, the scenario of double dip is therefore even more likely.

Politicians of both political parties have failed miserably over the past four years to deal with the fundamental causes and the resulting consequences of the economic crisis that erupted in 2007, morphed into the worst economic downturn in seven decades in 2008-09, followed by the weakest, most lopsided recovery on record for the past three years since 2009 that continues to date. But underlying this short term failure are a number of just as serious, if not more so, fundamental longer term crises.

Ten Long Term Crises in America

What follows are ten basic areas in which the US political economy is now mired long term. As serious as the faltering US economic recovery continues to be in the short term (2012-13), these ten longer term crises represent deep problems building for decades which political elites of both parties are not only unable to resolve but are not even beginning to address—or in some quarters are even consciously intent on making worse.

1. Chronic Failure to Create Jobs

The U.S. economy is having increasing difficulty creating jobs. Not just in the short term. Not just jobs lost due the recession that began in 2007 and the jobless recession that has followed. But jobs longer term even in non-recession periods, and especially in the last decade. This longer term problem is sometimes referred to as ‘structural unemployment’, meaning job loss or failure to create jobs apart from recession (cyclical) causes. Full time permanent jobs are being lost, churned, and replaced in the tens of millions by involuntary part time and various forms of temporary employment, sometimes referred to as ‘contingent’ employment. There are easily more than 40 million such ‘contingent’ jobs in the US today, out of a labor force of about 155 million. These are jobs that pay typically 50-70% of normal pay, with virtually no benefits. Another structural problem is the loss of jobs due to offshoring by multinational corporations. A closely related development is the loss of jobs due to free trade agreements. In the last decade alone, recent reports indicate multinationals cut 2.7 million jobs in the U.S. while hiring 2.4 million offshore. Free trade agreements since 1989 have resulted in more than 10 million jobs lost, mostly in high paying manufacturing and business professional services. Simultaneously, multinational tech companies have brought millions of non-citizens to the U.S. on H-1B and L-1 and 2 visas since the late-1990s. These are not unskilled, manual labor, agricultural jobs that Americans don’t want, but high paying technical jobs they do. New technologies are additionally displacing workers in the U.S. where jobs are not yet out- or in-sourced at rates of job loss about equal to that of free trade-offshoring effects. In general, structural forces have wiped out 20 million jobs in less than two decades.

Cyclical trends have impacted jobs no less. Following every recession the last thirty years, it has taken longer and longer to recover jobs lost. In the 1980s and 1990s, it took 25-35 months. After the 2001 recession it took 48 months. After the most recent it will take more than twice that, 96 or more months at best estimate. In recovery from every recession since 1947, hiring by state and local government has led the way, in effect offsetting and dampening private sector job loss and thereby shortening the recession. Not today. State and local governments are the ‘layoff leaders’. Nearly 700,000 such public sector jobs have been lost in just the past 3 years. Millions more workers have simply left the labor force this past decade. While the US population has risen since 2000 by more than 21 million, total private employment has not risen at all. There were 111.3 private sector jobs in May 2000; there are 111.3 million private sector jobs today.

This is not a picture of an economy able to create employment for its citizens. And stagnant job growth—short and long term—means stagnant income growth. Stagnant income means, in turn, increasing problems of maintaining consumption and economic growth in general. What is needed is a broad set of programs and policies to revitalize job markets in the U.S. by reversing the above negative long run job creation trends. In the short run, what is needed is a massive government jobs program funded by a fundamental restructuring of the tax system described as follows.

2. The U.S. Inverted Tax System

The U.S. tax system has been ‘turned on its head’ over the course of the past three decades. It begins with Reagan in 1981 and his $752 billion tax cuts (on a base GDP or only $4 trillion), the vast majority of which accrued to the wealthy and their corporations. A massive shift in income, led by (but not limited to) tax cutting effects has been the outcome. The top tax rates in 1980 were 50% and 70%, they are now nominally 35% (income and corporate) and 15% (capital gains and dividends). However, the effective federal tax rates are 16% for the rich on average, after their tax lawyers get to squeeze the IRS. And State and local taxes on the rich and corporate America have declined even more, as local governments ‘race to the bottom’ in recent decades to desperately try to attract businesses to move to their states. And let’s not forget the $1.4 trillion multinational corporations have stuffed in their offshore subsidiaries in order to avoid paying even the nominal 35%, or their periodic blackmailing of Congress to lower the 35% to 5% to bring back those profits—which they did in 2004 and are proposing once again in Congress. Not to be outdone, don’t forget the $4-$6 trillion that hedge funds, very high net worth individual US investors, and other financial institutions have squirreled away in their 27 offshore ‘tax havens’ to avoid paying the same.

Conversely, taxes on the bottom 80% of US households have risen on net, when one considers the historic hikes in payroll taxes since 1985 and other increases in state and local taxes and fees. The payroll tax alone the past quarter century has raised nearly $3 trillion in federal revenue—money that did not go into the social security trust funds for long but was ‘borrowed’ by Congress every year to help pay for—you guessed it, more tax cuts for the rich and wars. The Bush tax cuts of 2001-04 alone, more than 80% of which has accrued to the top 20% and corporations, has cost nearly $3.5 trillion over the past decade. Should those tax cuts continue for another decade (which is the No. 1 goal of Republicans and corporate America after the election) it will cost the US deficit another $4.6 trillion, according to the Congressional Budget Office’s 2012 projections. The Bush tax cuts represent Reagan tax cuts ‘on steroids’.

The inverted tax system today cannot continue without even greater negative consequences for the US economy long term. It not only has resulted in a massive shift of income upward, and a stagnation in consumption for the bottom 80% households, but has served as a primary excuse for directly attacking the deficits it has produced by cutting spending on programs that are essential for continued economic growth as well.

What the inversion of the U.S. tax system over the past three decades shows is that the U.S. is ‘not broke’. There is at least $5 trillion in cash being hoarded by the rich and their corporations today as a result of the inverted tax system in America. The so-called deficit and debt problem could be cut in half immediately by simply discontinuing the Bush tax cuts as a whole; and eliminated completely by simply rolling back the tax cuts for the rich back to 1980 levels. The inverted tax system is also the no. 1 contributor to the massive income inequality that now characterizes American society. It is also a major reason why sustained economic recovery has not occurred since 2009.

What is needed is a new tax structure that takes the current inverted system and puts it back on its feet, taxing the rich and corporations at appropriate rates once again while reducing taxation for the working and middle classes in order to ‘re-redistribute’ income and to free up income to produce real consumption growth once again.

3. A Continuing Depression in Housing

The U.S. economy today remains mired in what can only be accurately called a housing depression. Once producing residential housing in the 1.4 million units a year and commercial property construction in the trillions of dollars, it has since 2008 been producing housing units consistently less than 500,000 a year. In other words, housing sector is down by two-thirds to three-fourths of what it was and has remained at those levels for more than three years.

It is important to note that in every one of the 11 previous recessions in the US since 1947, housing has led the way in terms of recovery. After three and a half years from the start of recessions in 1970s and 1980s, housing was growing 32%-35%. Today it is still not growing at all, or is still declining month to month. In other words, housing is the worst sector lagging behind virtually all others, and characterized by more than 12 million foreclosures since 2007 and with more than 10 million of the 52 million mortgages in the US in a state of ‘negative equity’. Obama administration policies toward housing since 2009 are an example of, at best, token benign neglect. Those policies have targeted subsidizing mortgage lenders and mortgage servicers (e.g. big banks) rather than homeowners—from Obama’s failed HAMP program to the most recent HARP 2.0 policy.

The longer term crisis in housing, however, is its role as a prime sector for financial speculation. The real super profits are made not on housing construction per se, but on the financial derivatives built upon the housing boom. Again and again since the 1980s financial speculators have been allowed by Republicans and Democrats alike to exploit the housing sector to realize massive profit gains from speculation. It has resulted in repeated housing ‘busts’ in the US. First, in the early 1980s, followed by an even larger savings & loan sector housing bust in the late 1980s. These housing crash dress rehearsals were followed by the ‘main event’ of the subprime mortgage debacle of 2003-07. The US economic system’s financial elites periodically gorge themselves on property-based speculation. The housing busts are followed by ‘socialism for speculators’, whereby the public and taxpayer are forced to pay the cost of the cleanup. This cycle of speculative boom-bust will continue long term so long as banks and other financial speculators are allowed to continue preying upon the housing sector. What is needed is a utility banking system based on non-profit, direct lending at the cost of capital by new government agencies to homeowners and prospective homebuyers.

The human consequences long term of the housing crisis is that fewer Americans will purchase homes and those fewer will do so later in life. Incentives for the housing sector, such as mortgage deductions will be scaled back by legislatures and eventually disappear. More younger Americans will rent and rent costs will become the new focal point for excessive inflation, as once housing values were. More youth will live with parents and for longer periods. The economic consequences are significant, as housing as a leading sector for growth and for dampening recessions will decline. The human psychological consequences will be no less significant.

The solution to the housing crisis is simply to take from the banks and private financial institutions their key role as intermediaries of the cost and availability of housing. The profit motive must be removed from residential housing by creating a utility banking system that will provide loans to homeowners at the cost of long term money based on the 30 year bond rate, which today is roughly 2.5%. To permit refinancing at the same rates for those with existing homes. And to introduce an home improvement investment tax credit of 15% for homeowners.

4. A Fundamentally Broken Retirement System

The retirement system established in the U.S. in the late 1940s is today in a state of severe collapse—and with it the incomes of most of the more than 45 million Americans presently retired and the 77 million ‘babyboomers’ that will soon do so over the next decade. That system was built upon three elements: Social Security retirement benefits, defined benefit pensions, and personal savings. Each was supposed to provide one-third of the necessary income for the retired after age 65. Each of the three elements have been consciously weakened and undermined since the 1980s.

The first attack was leveled against defined benefit pensions that guaranteed a given income stream for retirees. 401k plans were introduced in the early 1980s to replace DBPs, and progressively have done so for the past three decades. 401ks remove all liability from companies to provide guaranteed retirement benefits but retain all the tax advantages to corporations. They also allow financial institutions and stock traders to siphon off the retirement funds and speculate with the funds. In the past decade alone more than $4 trillion in value in 401k and pension funding has been ‘lost’ to financial speculation. After three decades of policies aimed at undermining DBPs and promoting 401ks, the average balance in a 401k pension in America today is roughly $18,000; and for those over 55 only $50,000. Simultaneously, DBPs providing guaranteed retirement payments were dropped by companies, raided by managements for their surplus funds, manipulated by them to avoid paying required contributions by law, and otherwise ‘dumped’ DBPs on public agencies by companies. A most recent corporate attack on DBPs—public and private—is now underway, designed to eliminate the last vestiges of such plans. Thus, the private pension one-third of income has been in effect destroyed in recent decades. The third ‘element’ of retirement, Social Security, has been under repeated attacks every decade. Under Reagan, Clinton, and George W. Bush its payroll tax-created $2.4 trillion surplus has been also ‘siphoned off’ by politicians, and spent on wars and tax cuts for the rich. And today the attack is about to renew once more with budget cutting ‘entitlement’ funding cuts that will come after the November 2012 elections. Thus the second ‘element’ is also under intensified attack. The third element, personal savings, has suffered the greatest devastation in recent decades, especially since 2000 and in accelerating fashion since 2008.

The collapse of the retirement system in America means not only severe hardship continuing, and ahead, for tens of millions, but also the elimination of a critical income growth base necessary to sustain consumption and therefore economic growth. It has meant the bottom 80% households having to turn toward more debt to maintain standards of living, to working longer hours and more part time jobs, to a greater reliance on credit cards, and ever more dis-saving and spending down past saved earnings to maintain an increasing precarious standard of living.

A basic overhaul of the retirement system is a precondition for future economic stability and growth. That means not cutting benefits and thus disposable income further. But instead an increase in social security retirement benefits, a nationalization of all 401k plans under social security, a business value added tax to fund future contributions to a national 401k pool, and policies to restore defined benefit pensions once again.

5. An Imploding Insurance Co.-Based Health Care System

The U.S. spends today more than 17% of its GDP—more than $2.6 trillion and rapidly rising—on health care. That is nearly double that paid by other advanced economies that typically pay 10% of their GDP for health care services that are also generally superior in quality than that received by the average American. That 42.6 trillion means the U.S. wastes more than $1 trillion every year on ‘middle men’ in its privately insured system—i.e. an excess $1 trillion that accrues mostly to insurance companies and other ‘paper pushers’ that don’t deliver one iota of health care services.

The fundamental causes of runaway health care costs in the U.S.—costs that are undermining economic growth long-term in the U.S.—are not overuse of services by the vast majority of Americans. The unsustainable health care cost run-up for two decades now is direct result of government encouraged and tax subsidized corporate mergers and acquisitions among health insurance companies, government subsidization of drug companies, and tax-encouraged for-profit hospital concentration—all three of which today drive health care costs all along the health care services supply chain. In other words, government policies for decades has encouraged monopolization in the industry that is the fundamental force driving health care costs. Government has not only done nothing about this trend, but has aided and abetted it since the Clinton administration and the exemption of health insurance companies from anti-trust laws.

As health costs have escalated for decades, the solution of politicians to the growing cost crisis has been to ‘socialize’ the costs (while privatizing more of the benefits) for those sectors of society less able to afford it. Thus the poorest Americans have been ‘covered’ by more resources allocated to Medicaid and Schip programs for the disabled, the poor, and for children. Working and middle class Americans in turn have been subsidized by hospital emergency rooms (who pass the costs on to insured workers), have been required to pay more and more of the total cost of private employer health insurance and/or receive less coverage, or have been forced simply to go without coverage. Retired Americans costs under Medicare have been ‘socialized’ as well: Part B Medicare rising doctor costs are paid increasingly out of general budgets and Part D prescription drugs totally out of such budgets. However, this system of perverse ‘socialization of costs’ has reached its limits. Other ways are now being considered to continue the health care cost inflation benefiting companies’ and investors’ profits, while introducing new ways to ‘socialize the costs’. Obamacare is just the latest experiment in such new methods to continue ‘socialization of costs’ on behalf of health sector corporate America.

Politicians have cleverly pitted the general taxpayer against the bottom 80% households who are the victims of the system of rising health care costs for declining coverage and quality of care. The Obama administration’s 2010 health care law continues this problem, by providing no long run solution to runaway health insurance and health care costs, but instead subsidizes health insurers and drug companies at public expense, encouraging employers to dump their health insurance coverage for their workers, promotes self-rationing of health care services, and, most importantly, requiring middle and working class America to subsidize 30 plus million of the currently 50 million without any health insurance coverage. All this in exchange for a few ‘benefit improvement crumbs’ to sell the package. The main beneficiaries of it all are the health insurance and drug companies that will get 30 million plus new paying customers.

Concurrent with Obamacare and new forms of cost socialization, however, are planned massive attacks at Medicaid and Medicare. While the new form of cost socialization represented by Obamacare is introduced, the older forms of cost socialization will be reduced. The retired (Medicare) and the working poor and disabled (Medicaid) will be asked to use less and/or pay much more directly for even lower quality health services. Meanwhile, those workers still with employer provided health insurance will be dumped on the ‘market’, as employers after 2014 dismantle their employer-provided health insurance plans—leaving their workers either to be driven into the Obamacare private health insurance system or forced into the even lower quality/reduced coverage Medicaid system.

It is all further privatization of health care by another name: from employer provided health plans to individual paid personal health plans; from current Medicare-Medicaid programs to less coverage and more costly Medicare-Medicaid plans in which private insurance will play an even greater ‘supplemental’ role; and to more individual self-rationing of health care services. This new system planned by politicians will not result in less of GDP but more of GDP accruing to health care services and business profits in that sector. US households and consumers will thus pay even more of total income for health care services, resulting in a still further decline in disposable income with which to purchase other goods and services and support economic growth.

The only solution long term to the broken health services system in the U.S. is a true ‘socialization’ of the crisis—not a socialization on behalf of insurance, drug, and for profit companies. A socialization of benefits as well as costs in which everyone pays a fair share, not where wealthy investors and corporations are subsidized at pubic expense for what is a right to health care and not a privilege. A solution based on a system of ‘Medicare for All’ funded by a reasonable tax on all incomes—earned (wages) and all capital incomes alike. An elimination of health insurance companies and other middle men from the US health care system saves a minimum $1 trillion a year. Add a reasonable tax of 3%-5% on all forms of income in addition to the $1 million a year savings, and funding for a system of ‘Medicare for All’ becomes more than feasible.

6. Corporate Reorganization of the Education System

Both K-12 and college education systems in America were once the envy of the world. No longer. And the continuing decline is no where in sight, as solutions proposed by politicians, at the behest of Corporate America, fail to address the fundamental problems at both levels of the educational system and instead introduce different corporate-like policies as solutions.

At the higher education college level, the central problem is runaway costs. College administrators have become intent on acting as corporate CEOs, spending more and more money on providing CEO level pay and benefit packages for themselves and their growing management bureaucracies; expanding physical assets (buildings, facilities, programs); recruiting more and more wealthy foreign ‘customers’ (students) to help pay for it in part; and raising the price of higher education services for US students at an annual rate of more than 12%, exceeded only by escalating health care costs. This three decades-long higher education financing formula has served banks and financial institutions as well, as the latter have provided ever higher and more expensive student loans to pay for it all—with profits guaranteed by the government. Student loan debt as a result now exceeds $900 billion and represents two-thirds of all consumer credit, growing monthly faster than both credit card and auto debt combined. As there exist absolutely no programs or policies by government to bring escalating higher education costs, or student debt, under control, the future scenario remains more of the same. Fewer Americans will therefore seek and obtain higher education, more wealthy foreign students will be recruited to pay the excessive costs, and the quality of education provided in public colleges and universities will decline.

The scenario for K-12 is similarly dismal long term. Governments federal, state and local have refused to fund K-12 education commensurate with the growth of population for decades. With the recent economic crisis and the continuing slow and faltering economic recovery, even inadequate past levels of funding are now repeatedly reduced. Desperate school districts cut programs and attack teachers’ jobs, wages and benefits to make up the shortfall—or, as at the college level, now also seek wealthier foreign students from Asian countries to pay top dollar for a US high school education.

Corporate interests meanwhile lead the effort to prevent any tax increases at the state and local level to adequately fund education. Their answer is to ‘privatize’ the public education system. Charter schools represent one form of such privatization in education. Bush’s ‘No Child Left Behind’ (NCLB) is another. Before the education system can be successfully molded in a corporate image, its product must be standardized. That was the primary focus of NCLB. Obama’s subsequent ‘Race to the Top’ (RTT) in turn represents a shift in the strategy to achieve that standardization—unlike trying to achieve it all at once and everywhere, as with NCLB, the ‘Race to the Top’ attempts to focus it first on a subset of the education system by providing payment to those school districts that do it first. But the ultimate goal is the same: Both NCLB and RTT, are corporate in spirit and plan, both designed to further standardize and centralize K-12 education. The longer run consequences of transforming public K-12 education into a corporate image is cost-cutting in lieu of adequate funding. Represented perhaps best by the views of Bill Gates and others—the future goal once the classroom is fully standardized is to introduce massive amounts of new technical hardware and software into the classroom. Profits for tech companies rise as costs of providing education decline. The role of teachers as we know it disappears, and with it their unions and current wage and benefits. In their place are teachers as machine operators, who will teach to the standardized curricula delivered by the hardware and software technology. What is taught and how it is taught will no longer be determined by the teacher but by the centralized, standardized formula. Contingent employment (part time and temporary) will become the rule in the K-12 classroom, thus mimicking the current situation in higher education where more than half of instructors are ‘contingent’ as a way to reduce costs. Contingent K-12 labor is labor paid one-half to two-thirds current rates without benefits. That is the longer run scenario and objective of the corporatization of American education that is being planned for public education in America in the decades ahead.

7. Accelerating Income Inequality

In 1978 the wealthiest 1% households earned roughly 8% of all annual income produced in America that year. That percentage remained more or less the same since the early 1940s, when top income tax rates were 91%. Commencing 1981, however, those rates were dramatically reduced, tax loopholes broadened, and IRS enforcement moderated. The consequence was a steady escalation of the wealthiest share of national income to a level of 24% in 2006-07, only temporarily interrupted by the crisis of 2008-09 and subsequently restored quickly by 2011. In contrast, the median annual household weekly earnings, adjusted for inflation, remains less today than it was in 1982.

The fundamental causes of this dramatic shift in income inequality have been twofold: first, a slowing of wage growth for the bottom 90% households the past 30 years due to multiple factors (deunionization, offshoring, free trade, contingent labor, lagging minimum wage, inflation, etc.); and, second, an accelerating growth of capital incomes over the same period due to a separate set of factors, not least of which has been the financialization of capital and capital-derived incomes (capital gains, dividends, interest, etc.) over the period.

The long run trend in income inequality in America is not only growing but growing at an escalating rate. During the Reagan expansion 1982-87 the wealthiest 1% households (today 700,000 out of a total 130 million households) garnered nearly half of all the growth in income. During the Clinton expansion, 1993-2000, they obtained 45%. During the Bush period, 2002-07 it was 65%. Their share of income during the recessions of 1981-82, 1990-91, 2001 feel briefly but more than recovered quickly within a year. They took 93% of all the income gain in their ‘recovery’ year of 2010. Their gains in 2011 will likely prove even greater, as stock and bond markets—the major source of income of the wealthiest 1%–rose even further in 2011. Thus income inequality in America is not only increasing, but increasing at an increasing rate.

The long run economic consequence of this trend is a continuing stagnant-to-low-growth economy, as consumer households lack income growth to finance normal rates of consumption (70% of the US economy) necessary for a more robust and sustained economic recovery. Another consequence is consumers are forced to take on more debt to pay for consumption. Higher consumer household debt levels in turn further constrict consumption, growth and recovery. A still further consequence is business investment (and hiring) never recovers fully as well. Business consequently turns even more to offshore investing, or investing in financial instruments—neither of which creates jobs or income for the 99%.

Since the fundamental causes of escalating capital incomes and stagnating and falling wage incomes are not being addressed at all today by politicians of either party in the U.S., it can only be assumed the income inequality in America will continue to grow in the foreseeable future as well. So too will all the negative economic consequences associated with that continuing inequality trend.

What is needed is a broad set of programs and policies that will, in effect, ‘re-redistribute’ income in America. At the top of the list of such policies must be a fundamental restructuring of the tax system noted above, major institutional changes in the labor markets to restore real household income growth, and a redirection of capital incomes away from offshore and speculative financial investing and toward public investing in the U.S.

8. Declining U.S. Global Economic Dominance

From 1944 to 1973 the US maintained economic hegemony in the global economy. The US dollar was the prime currency for trading and reserve purposes. This dominance was challenged in the post-1973 period briefly, however, as the US economy experienced an economic crisis at that time. The institutional arrangements by which the US retained dominance from 1944 to 1973 were restructured and rearranged. The US economy and its world dominance was restored in a new set of arrangements and relationships with other states and economies starting the 1980s. The U.S. led a drive to end controls on international money capital flows and the rest of the world followed. That event made possible in turn free trade, rapid growth of US foreign direct investment offshore, globalization and the financialization of the US economy. The symbol of that economic dominance, the US dollar, after having seriously weakened in the 1970s was restored again to unchallenged status as the global currency in the 1980s and after.

Another consequence of these new structures, relationships and arrangements was the rise of the U.S. ‘twin deficits’—the trade deficit and the US budget deficit. Beginning from the early 1980s, under Reagan and subsequently every president thereafter, the US ran growing trade deficits. These trade deficits made possible and enabled corresponding chronic and ever growing domestic budget deficits. The trade deficits meant US dollars flowed out of the US economy at an accelerating rate. But new arrangements meant the dollars would flow back to the US, as foreign economies and governments ‘recycled’ the dollars back to the U.S. to purchase US government bonds. First European and Petro-economy allies. Then Japan. Then via North American free trade agreements with Canada, Mexico and others, and not least, after 1999, increasingly China as well.

The growing trade deficits ‘financed’ the US budget deficit in the following manner: because the new post-1980 arrangements between the US and other economies meant the dollars from the trade deficit that accumulated offshore would be consistently ‘recycled’ back to the US, policy makers could now count on spending those dollars above spending based only on US tax revenues. The ‘recycling’ grew and was so large by the 1990s and after, that the deficit-recycled dollars permitted massive tax cutting for businesses and investors and the funding of wars in the middle east since 2001 without paying for them through taxation. $3.4 trillion in tax cuts after 2001 were passed, 80% of which accrued to the wealthy and corporations. And $2.1 trillion in excess war spending was paid for out of deficits—the first time in US economic history wars were financed only by deficits.

But the globalization and financialization unleashed by the new arrangements introduced by the US after 1980 had unanticipated and increasingly severe consequences as well over time. Globalization, financialization, and the twin deficits meant growing global financial instability and financial busts of growing frequency and magnitude in the world economy in the late 1980s and 1990s, the most recent of which was 2007-09. With massive trade and budget deficits already the norm before 2007, the bailing out of banks, Wall St., and corporate America in general pushed the twin deficits to unsustainable levels long term.

The restructuring of the global economy in the 1980s, led by the United States (and a junior partner the U.K.) has now run its course. Once the unchallenged global currency, the US dollar is once again facing challenge as the dominant global currency. The focal point of that challenge, today and in the years ahead, is China and its currency, the Yuan.

Already China’s share of global manufacturing is at least equivalent to the United States’, about 25% each. China has currency reserves approaching $3 trillion and is matching US in foreign direct investment around the world. The Yuan is becoming a de facto global trading and reserves currency. Initially it is doing so with its main economic partners, Russia, India, Brazil and So. Africa (i.e. the BRICS), but will soon do so with Europe as well. China is also slowly but steadily extricating itself from the ‘twin deficits’ and recycling dollars to the US arrangements. It is recycling fewer and fewer dollars back to buy US government bonds. As that arrangement declines, the US economy will not be able to ‘deficit spend’ on as massive a scale as it has been over the past decade. It will have to either cut social spending or defense spending on a massive scale, or retract the equally massive multi-trillion tax cuts for the wealthy, investors, and their corporations. Corporate America and its investors are intent upon cutting social spending, including entitlements, to avoid having to give up their tax cuts of the past three decades. That is the fundament, driving force behind emerging austerity proposals in the U.S. today.

As prior international economic arrangements fade, and their consequences further multiply, the US dollar will decline as the premier world currency in trade and as a reserve. This long run process has already begun, and as it develops it will mean over the long run even greater deficit cutting, bigger political fights in the US over who pays taxes, and a serious further restraint on US domestic economic growth and economic recovery.

9. Growing Corporatization of Government and Politics

As the US economy has continued to falter since 2000, both domestically and globally, the response of corporate America and their political elites has been increasingly to prepare to impose more draconian economic measures on the rest of American society to protect their capital incomes and economic interests. To achieve that, even the historically limited form of Democracy in the U.S. is no longer tolerable. To successfully implement these more draconian measures, corporations, wealthy investors, and politicians must first deepen even further their control of the key levers of the political system and its governments. This means the policy-making apparatus of legislatures and bureaucracies, the executive apparatus of presidents and governors, the electoral process, and the opinion-making structures like the broadcast media, internet, and social media. This is not to say that corporate America has had only minimal influence over the political system in the past and is only now moving to deepen its influence and control. That influence has always been significant. However, it was deepened qualitatively after the 1970s economic crisis, in anticipation of the restructuring of the economy that was implemented in the 1980s and lasted until 2007 (sometimes referred to as ‘Neoliberalism’ or the ‘Washington Consensus’). But a new general crisis in the US and globally erupted circa 2007, and a new attempt to once again restructure the US and global economy is in its early stages since 2009. In turn, that means a new political restructuring—with less Democracy—to accommodate the new economic and the new draconian measures.

The State and government will be drawn even closer into the corporate world as part of the new institutional arrangements. The preparatory steps are already evident with the Citizens United court decision that has opened the floodgates of deeper corporate influence over US electoral, legislative and executive institutions and political processes. This has included thus far: more corporate direct funding aimed at takeovers of State governorships. The pending destruction of public employee unions, targeting first and foremost their influence over state and local governments, is also part of this process. Widespread attempts to restrict voter registration, introduction of new forms of poll taxes, and limitations on voter eligibility in many states. The ‘ALEC’ phenomenon of billionaire financed deeper influence of legislative agendas on a national, corporate coordinated basis. The buying of Congress outright by offering them privileged access to new stock IPOs. Countless measures at state and local levels to further isolate third party challenges, despite a non-parliamentary system of U.S. government that already is strongly biased in favor of a two-wing single party system. A plan to tighten political control over internet and new media forms of communications. National coordination of police actions against ‘Occupy’ and other protest movements. Increasing restrictions on public assembly and public speech at all levels. And the planned widespread introduction of drones in US cities and even on US college campuses, both already in early stages, as means of more effective public protest control. These multiple developments represent something more than ad hoc development and normal evolution of political institutions and practices. They represent a broad attempt to restrict even the muted forms of Democracy and democratic participation that existed in the U.S. —a development that is in significant part related to the economic crises short and longer term noted above.

10. Narrowing of Democracy and Civil Liberties

Concomitant with the developments to project deeper corporate control over institutions, government, and political processes as a requisite for a new economic restructuring in the image of 21st century corporate America, is the restriction of general civil liberties as well. Democracy cannot be successfully narrowed without the accompanying further restriction of civil liberties of its citizens. The process began with the imposition of the Patriot Act in 2001. That Act was publicized at the time as temporary, but has been continued for more than a decade and, in some cases, even expanded. Further measures that limit citizen rights of privacy have also expanded over the past decade.

Government spying on its citizens has been broadened and deepened steadily over the decade. National Security Agency, military, and FBI monitoring of websites has become very widespread. Wiretaps and cellphone interceptions no longer require normal court orders. Plans for social media access periodically arise and are reported. The initially derided ‘Total Information Awareness’ program of Admiral Poindexter that was authorized by the original Patriot Act, has become an institutionalized fact. Federal budgets for Homeland Security, averaging $40 billion a year over the last decade, have recently been proposed to grow to an average of $80 billion a year for 2012-17, despite the ‘official’ ending of the Iraq and Afghanistan wars and the assassinations of virtually all the top Al-Qaeda leadership globally. Most of that increase is earmarked for internal US domestic surveillance. Overall defense spending is thus not planned for reduction in 2013; it is just being redeployed to fund other electronic surveillance and cyber warfare measures (now the fifth military command officially, in addition to space, land, sea and air) and redistributed among different departments and parts of the US budget.

The rights of US citizens to assemble and to free speech are also being further restricted, as events involving protests this past spring in Chicago demonstrated. And in what is perhaps the most ominous recent sign of forthcoming plans to further restrict civil liberties, the Defense Authorization Act passed December 2012, signed by President Obama, authorizes the government “to order the military to pick up and imprison people, including U.S. citizens, without charging them or putting them on trial?, according to the American Civil Liberties Union (ACLU). To repeat, that is the US military to pick up, incarcerate, and without trial—not your local police force or even the FBI. Drafted by a small group of Republicans and Democrats in Congress last fall, in secret, some have appropriately called it ‘Patriot Act on Steroids’. In signing the bill, Obama said he did so ‘with serious reservations’ and pledged not to use it on US citizens without trial. Just as he pledged not to break up immigrant families by deportations, and put bankers who helped cause the economic crisis by fraudulent means on trial, and stop price gouging health insurance companies, and all the rest of the list of broken and shelved campaign promises too long to bother to mention.

From the Patriot Act of 2001 to the Defense Act of 2011-12, there is a thus clear pattern emerging of increasing restrictions on US citizens rights and civil liberties. That limitation of rights and liberties is not an isolated development. It is the other side of the coin of limiting democratic activity and expression. And that limitation of Democracy is a reflection of the growing new forms of ‘corporatization’ of American government and society now being forged to ensure that, whatever new economic restructuring comes out of the current economic crises, measures can be successfully implemented that secure and protect the accumulated wealth of the 1%, their corporations, and their institutions in the decade ahead.

Jack Rasmus
Copyright June 2012
Jack is the author of the recently published, “Obama’s Economy: Recovery for the Few? April 2012, published by Pluto Books worldwide and distributed by Palgrave-Macmillan in the U.S. , which may be ordered from this website at discount. His blog is, where he continues to write on shorter term events (see latest on the Euro banking crisis and summit).

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