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Thursday, September 29, 2011

Red money, blue money: The making of the 2012 campaign


2012 Elections

Red money, blue money: The making of the 2012 campaign

Karl Rove

The hidden infrastructure of the 2012 campaign has already been built.

A handful of so-called Super PACs, enabled to collect unlimited donations by the continued erosion of campaign finance regulations, are expected to rival the official campaign organizations in importance this election. In many cases, these groups are acting essentially as outside arms of the campaigns.

These are America's best-funded political factions, their war chests filled by some of the richest men (and almost all are men) in the country.

More than 80 percent of giving to Super PACs so far has come from just 58 donors, according to the Center for Responsive Politics analysis of the latest data, which covers the first half of 2011. The Republican groups have raised $17.6 million and the Democratic groups $7.6 million. Those numbers will balloon, with American Crossroads, the main Republican Super PAC, aiming to raise $240 million.)

The exceptions are two public employee labor unions, whose massive donations match those of some of the largest moguls. The rest are individuals with vast fortunes at their disposal. They constitute two different tribes.

The conservative red tribe is dominated by businessmen who have built or inherited fortunes. They also include Wall Street investors, oil and gas men, construction magnates, and retail executives. Mormons are well represented.

The liberal blue tribe is dominated by men from Hollywood and media entrepreneurs -- often Jewish -- and the leaders of the American Federation of State County and Municipal Employees (AFSCME) and the Service Employees International Union (SEIU).

The Super PACs are not paragons of transparency, but what has been disclosed gives a sense of where the money is coming from and the interests of those giving it. Based on the donors and the origins of these groups, we can already discern what messages the Super PACs will generate in the home stretch of the campaign.

What follows is a pocket guide to the big money tribes of American politics, what they will tell you -- and what they won't.


Staffed by former officials from the Republican National Committee and the U.S. Chamber of Commerce and associated with Karl Rove. Many consider it more important than the RNC itself. Certainly American Crossroads and Fox News control the GOP's message in a way the Republican National Committee does not and cannot. It is not unfair to say that during a presidential election year, the Republican Party is more an adjunct to American Crossroads, than vice versa.

The funders:

  • Jerry PerenchioJerry Perenchio, the former CEO of Univision, has already given a whopping $2 million to the group. Perenchio has been attacked by some right-wing commentators for his moderate stances on immigration issues. Befitting his more moderate politics, Perenchio in August signed on to the Jon Huntsman campaign as a member of the "California finance team" to help with fundraising. That move came four months after his contribution to Crossroads. Given Huntsman's failure to pick up any steam, it's not clear at this point what role Perenchio will play in the 2012 race.
  • Bob Perry: A Texan who made a fortune in the construction business, he has given $500,000 to Crossroads. A longtime friend of Rove, he's been a huge donor to GOP causes for years. In 2010, he gave a staggering $7 million to Crossroads in a six-week period before Election Day. As for what issues he cares about, a spokesman once described his philosophy this way: "People call him and pitch him, and if he likes what he hears, he'll write a check." That includes unsavory efforts like the 2004 Swift Boat Veterans for Truth attack campaign against John Kerry, which Perry bankrolled.
  • Robert RowlingRobert Rowling: Another familiar name in the world of GOP fundraising, the Dallas billionaire has given $1 million to Crossroads -- on top of the $2 million he gave the group during the 2010 campaign. He inherited a family oil fortune and has since become a successful investor in the hotel business, among others. The fact that Rowling's company, TRT Holdings, owns Gold's Gym generated a backlash in October 2010 when gay activists pointed out that Rowling's contributions were funding "some of the most vehemently anti-gay politicians in the country." Several San Francisco Gold's franchises subsequently left the company. Interviewed on Fox at the time, Rowling suggested his support of Crossroads was all about "fiscal sanity" not "social issues."

What you'll hear: "Corrupt liberal elites squandered your hard-earned dollars on the socialist in the White House who appeases Muslims."

Look for Crossroads to focus relentlessly on economic issues. Recent Web ads by the group hitting Obama for the stimulus package, for proposing new taxes on the wealthy, and imposing too many regulations on business offer a taste of what's to come.

Crossroads' favored form is the attack ad. The group has already bought billboards and radio airtime targeting Sen. Claire McCaskill, who is seen as a vulnerable Dem in 2012, for a scandal involving unpaid taxes on her private plane.

What you won't hear: "Let's ban abortion." "George W. Bush was a good president." "Time to reinstate 'don't ask, don't tell.'"


Founded by former aides to Mitt Romney, this group is expected to maintain the minimum legal distance between itself and Romney's official campaign. Romney himself even spoke at a Manhattan fundraiser for the group, though -- apparently for legal reasons -- he left the room before an explicit appeal for money was made, the Times reported.

The funders:

  • Ed Conrad: A former executive at Bain Capital, Romney's old firm, he originally gave $1 million to Restore Our Future through a shell company, W Spann LLC, before coming forward amid media scrutiny of the transaction. Conrad is reported to be a longtime Romney friend and contributor who has otherwise not been particularly active as a GOP fundraiser or donor.
  • Steve LundSteve Lund and Jeremy Blickenstaff: The co-founder of the Provo, Utah-based skin care firm Nu Skin -- which claims to have "unlocked the science behind the secret to looking and feeling young" -- gave Restore Our Future $1 million. Lund has bankrolled Romney's political career from the very beginning: his race against Ted Kennedy in 1994. He and his wife have given tens of thousands of dollars to Romney over the years. He is also a leader in the Mormon church and reportedly owns a valuable early copy of the Book of Mormon.

    Also pitching in $1 million to Restore Our Future is Jeremy Blickenstaff, Lund's son-in-law and an attorney who has worked at Nu Skin. He does not have a history of political giving, but Blickenstaff did do a stint at the Marriage Law Foundation, a Utah-based group that "provides legal resources to defend and protect marriage between a husband and wife."
  • John Paulson: A hedge fund billionaire who placed a successful bet on the crash of the housing market, he gave Restore Our Future $1 million. He's given generously to members of both parties for years, and his firm also spent hundreds of thousands of dollars lobbying on Capitol Hill on financial regulatory matters. He was also a major figure in the SEC's fraud case against Goldman Sachs last year, which the company settled by paying a $550 million fine.
  • Paul and Sandra Edgerly: Paul Edgerly, a top executive at Bain Capital, with his wife gave $1 million to Restore Our Future. He and his wife have made well over $200,000 in political donations in the past 20 years, primarily to Romney and the national and Massachusetts Republican parties. Both Harvard Business School graduates, the Edgerlys were featured in the school's alumni magazine for building a "family clubhouse" in their backyard that features a full gymnasium, a tennis court, a batting cage, a sauna and other amenities.
  • Bob Perry: The Texas construction magnate hedged his bets with Rick Perry by giving the Romney PAC $500,000.

What you'll hear: "We need a man who has run a business running the White House."

The group is legally barred from coordinating expenditures -- such as buying ads -- with the Romney campaign, but look for it to echo Romney's message closely. Its bare-bones website, for example, declares that "It is time that we restore our future by supporting candidates who have worked in the private sector and created jobs, who understand the economy, and who believe in America, American workers, and American values." That candidate is Mitt Romney, the group made clear in its formation announcement in June:

Our nation is burdened by a struggling economy; our job creators who are tied up with red tape, and a growing federal government is stifling the private sector. President Obama has failed to fix the problems that affect Americans. ... Restore Our Future will support our next president, Mitt Romney.

Restore Our Future appears to have kept its powder dry -- so far. As of its most recent Federal Election Commission filings, which cover the first half of 2011, the group has not bought any ad time or spent money on other substantive political action.

What you won't hear: "Mitt's healthcare plan is superior to Barack's."


A Democratic response to Rove's American Crossroads, this group was founded in April by former White House deputy press secretary Bill Burton and former Rahm Emanuel aide Sean Sweeney. It will essentially function as an outside arm of the Obama reelection campaign.

The funders:

  • Jeffrey KatzenbergJeffrey Katzenberg: The Dreamworks Animation CEO and former Walt Disney Studios chief gave Priorities USA Action $2 million, making him the single biggest Super PAC donor on the Democratic side and the source of over half of Priorities USA's budget to date. He has also reportedly agreed to help raise money from others for the group, in keeping with his past as a major Democratic donor and bundler, having personally given at least $1.5 million over the past two decades. "The stakes are too high for us to simply allow the extremism of a small but well-funded right wing minority to go unchallenged," he told USA Today.
  • Mary Kay HenryService Employees International Union: The 2 million-member union known for its loyalty to the Democratic Party and President Obama -- it spent $60 million to elect him in 2008 -- gave $500,000 to Priorities USA Action. "We think we have to back this president in order to get America back to work," SEIU president Mary Kay Henry explained on C-SPAN in June. And she told the Times this week, "We're solely focused right now on trying to get the national debate focused on jobs and everybody paying their fair share. It's important for us to keep our eyes on who's standing in the way of working people. It's not President Obama. It's the corporations and the wealthy and the politicians they back who aren't willing to pay their fair share and are applauding efforts to dismantle government."
  • Fred Eychaner: He amassed a fortune of hundreds of millions of dollars through his Chicago media company, Newsweb Corp, that started out printing newspapers and eventually bought up radio and TV stations. So far he has given $500,000 to Priorities USA Action. Often described as reclusive and press-shy, Eychaner's Chicago mansion has been the site of big Democratic fundraisers for years, and last year he was rewarded by President Obama with an appointment to the board of trustees at the John F. Kennedy Center for the Performing Arts in Washington. His political roots are in the gay rights movement of the late 1970s, according to a Chicago Tribune profile. Eychaner is gay and has called his philanthropy on HIV/AIDS the "most important issue in my life."

What you'll hear: "The GOP will cut your Medicare to fund tax cuts for the rich."

It has already run a few ads, including a spot blaming Republicans for opposing economic reforms, giving tax breaks to the wealthy, and favoring a plan to "essentially end Medicare." Previewing the themes of Obama's reelection campaign if Mitt Romney is the nominee, the group bought ads in South Carolina -- timed for a visit by Romney -- attacking Romney's support of Rep. Paul Ryan's plan to end Medicare.

What you won't hear: "Maintain status quo for Wall Street." "Forever war in Afghanistan." "Yes, we can ... lead from behind."


Founded this year by former aides to Senate Majority Leader Harry Reid, Majority PAC is devoted to helping Democrats win in contested Senate races. "The best Senate strategists in the country are coming together for 2012 to make sure Senate races have every tool needed to win," Susan McCue, one of the leaders of the effort and a former Reid chief of staff, told Politico. "We are approaching this as a team led by those who know how to win in the toughest, most competitive races across the country." Reid himself along with Sen. John Kerry have sent out fundraising solicitations for the group, with Reid's pitch explicitly framing Majority PAC as a means to counter "the deep pockets and nasty tactics of Karl Rove, the Koch Brothers and their network of corporate-backed special interest groups."

The funders:

  • Steve BingSteve Bing: Another loyal Democratic donor from Hollywood, Bing inherited a family real estate fortune and has been a successful film producer through his company, Shangri-La Entertainment. He gave $250,000 to Majority PAC. Besides the millions of dollars he has given to the Democratic Party over the year, he has also put big money behind a 1998 California ballot initiative to tax tobacco products to pay for new government programs. In 2006, he spent a record $49 million to push Proposition 87, another California initiative that would have used new taxes on oil companies to develop alternative fuels. It was defeated.
  • SEIU: The union (see description above) has given $250,000 to Majority PAC so far.

What you'll hear: "Tea Party bullies want to cut your Medicare and Obamacare to pay for tax cuts for Wall Street."

Noting that 23 Senate Democrats are up for reelection in 2012 -- compared to just 10 Republicans -- Majority PAC says it will run "a transparent, low-overhead, take-no-prisoners Independent Expenditure campaign, [to] aggressively contest critical open seats, exploit opportunities to take over Republican seats and expand our firewall, and respond to attacks from Rove and his allies on Democratic Senate candidates." So far the group's website features state-specific ads from an affiliate group seizing on the GOP plan to end Medicare.

What you won't hear: "America yearns for Harry Reid's Las Vegas gravitas."


Yet another liberal Super PAC with deep ties to Democratic officialdom, it was founded this past spring by Ali Lapp, the former campaign director at the Democratic Congressional Campaign Committee, along with a couple of other former DCCC officials. The goal: win a Democratic majority in the House.

The funders:

  • AFSCME: The 1.6 million-member American Federation of State County and Municipal Employees has given House Majority PAC $200,000. It recently launched its own ad campaign arguing that passing Obama's "American Jobs Act" would also have the effect of increasing government revenues and decreasing the deficit. Expect to see the name of the public-employees union keep popping up in campaign finance reports: In 2010, it spent nearly $90 million helping Democratic candidates.
  • Donald Sussman: The head of multibillion-dollar Connecticut hedge fund Paloma Partners and the husband of Rep. Chellie Pingree, D-Maine, Sussman has given $150,000 to House Majority PAC. His giving to Democrats predates his marriage to Pingree this year: Sussman has contributed hundreds of thousands of dollars to Democratic groups and candidates in the last 20 years. He was thrust into Maine politics in 2010 when Pingree was criticized for taking trips on his private jet. He is on the board of the Israel Policy Forum, an American liberal Zionist group, and the liberal think tank the Center for American Progress.
  • SEIU: The union (see above) has given $185,000 to the House Majority PAC.
  • Fred Eychaner: The Chicago media mogul (see above) has given $100,000 to the House Majority PAC.

What you'll hear: "Eric Cantor and Tea Party bullies want to wreck government and Medicare to pay for tax cuts for the rich."

Like the other Dem Super PACs, the House Majority PAC has seized on Paul Ryan's plan to end Medicare. Its website says, "We're fighting against the recently-passed Republican budget, which provides trillions in new tax cuts for corporations and the wealthiest Americans, but ends Medicare as we know it by turning it into a voucher program and forcing seniors to find and purchase private health insurance." The House Majority PAC already ran an ad in New York's special election attacking Republican Bob Turner on Medicare, and another ad against Wisconsin Republican Sean Duffy for his vote in favor of tax cuts for the wealthy. The Duffy spot also echoed President Obama's recent focus on private jet owners.

What you won't hear: "Greenlight Israel's annexation of the West Bank." " America yearns for Nancy Pelosi's San Francisco style."

- - - - - - - - - -

Of course, the red and the blue tribes are hardly the only players in the political campaign. They have the deep pockets to dominate the airwaves with their advertising. But with the spread of the Internet, the influence of broadcast television is weakening.

There's an invisible tribe too. There are a slew of political nonprofits that will also be running campaign ads in 2012 who, because of their classification in the tax code, do not have to release donor information. So it's worth remembering there will be a lot of anonymous money in the game.

We'll look at them in a future article .

When a Paradigm Falls and Nobody Hears It

In these times. With liberty and justice for all...

London firefighters work to put the neoliberal order back together after August's riots. (Photo by: Carl de Souza/AFP/Getty Images)

When a Paradigm Falls and Nobody Hears It

The neoliberal status quo is indefensible—yet the public silently accepts its supposed legitimacy.

BY Chris Lehmann

The neoliberal dream was basically the economic version of what utopian-minded tech prophets call the singularity: the coming near-mystical convergence of forces.

Future historians will be hard-pressed to know what to make of the giddy reveries of the 1990s. It was not merely the age when sage interpreters of the world system declared the end of history, ideology and other assorted curdled leavings of the modern age; it was also the moment when the global economic order was supposed to be reaching its own great moment of singularity under the placid technocratic rubric of “neoliberalism.”

The neoliberal dream was basically the economic version of what utopian-minded tech prophets call the singularity: the coming near-mystical convergence of forces that would sort out the channels of information and production and knowledge work into a seamless, world-conquering whole.

As social paradigms go, that is plenty ambitious. But as Marxist theorist David Harvey notes, the neoliberal market consensus was also devised to shore up the far more brutish goal of restoring “power to economic elites”—a project that ultimately entails punitive top-down measures that tend to give the lie to the “liberal” side of this market-utopian formulation. Neoliberal societies are marked, he writes, by “a strong preference for government by executive order and by judicial decision rather than by democratic … decision-making.”

When we see the squeeze put on the institutions that shore up neoliberal economies, the results can look like a parody of the sort of popular sovereignty that defines plain-old liberal polities. Witness the disastrous agon that Washington conducted this past summer over the elevation of the debt ceiling: The leaders of our most popular branch of government, the House of Representatives, spun well beyond reach of anything like sane deliberation, hewing instead to a brand of market fundamentalism so extreme that it sent the markets themselves shuddering, once Standard and Poor’s downgraded the United States’ credit rating to AA+.

The S&P report on the downgrade insisted on the need to contain the country’s debt by raising taxes—a measure that the report’s authors rightly divined was a third rail in the present American neoliberal consensus. This point, of course, received virtually no serious attention from the major-domos of economic policy.

Meanwhile, in the eurozone—the sprawling economic bloc lovingly fashioned by the free-trade planners of continental neoliberalism—the specter of unstable debt produced a series of legitimation crises. Greek citizens rose up to protest government cuts that shred the social safety net to bolster the bottom lines of global banks. As the conservative government of Silvio Berlusconi in Italy likewise faced an austerity reckoning, the Italian prime minister-cum-media-mogul did the unthinkable and actually approved an increase in capital gains taxes, while enacting a tax surcharge on the nation’s high-income earners.

In England, meanwhile, working-class youth rioted, which led to draconian police crackdowns after the fact—since neoliberalism also thrives on punitive social control aimed at the lower orders. Because the English uprisings were far more generalized than the unrest on the continent, they betokened something profoundly unsettling to the traditional guardians of neoliberal verities. As Nouriel Roubini, the market savant who divined the onset of the global mortgage meltdown, noted in an eye-opening commentary, the summer’s popular uprisings “are all driven by the same issues and tensions: growing inequality, poverty, unemployment, and hopelessness. Even the world’s middle classes are feeling the squeeze of falling incomes and opportunities.”

Roubini stopped short of calling for the workers of the world to throw off their chains—but just barely. He raised an urgent cry for tighter regulation of “a financial system run amok” and even raised the specter of true neoliberal blasphemy: “more progressive taxation.”

When market-seers such as Roubini sound faintly like the reincarnation of Joe Hill, it seems a cause for real hope. But neoliberalism is adept at depoliticizing public discussion of economic policy. So his cri de coeur is likely to meet the same fate that has greeted neoliberalism’s critics on the left for the past three decades: deafening public silence.

Chris Lehmann, a former managing editor of In These Times, is co-editor of BookForum and senior editor of CQ Weekly magazine. He has written for The Atlantic Monthly, The Baffler, Slate.com and the Washington Post. In previous jobs for HearstCorp. and the Tribune Company, he cannot recall senior corporate managers using the words "press" and "freedom" in the same sentence.

More information about Chris Lehmann

Monday, September 26, 2011

Fundamental Political and Economic Mistakes are Speeding Up America's Decline


The new American century was swiftly throttled in three stages: 9/11 (blowback); invasion of Iraq (preemptive war); and 2008 Wall Street meltdown (casino capitalism).

More than 10 years ago, before 9/11, Goldman Sachs was predicting that the BRIC countries (Brazil, Russia, India, China) would make the world economy’s top ten -- but not until 2040. Skip a decade and the Chinese economy already has the number two spot all to itself, Brazil is number seven, India 10, and even Russia is creeping closer. In purchasing power parity, or PPP, things look even better. There, China is in second place, India is now fourth, Russia sixth, and Brazil seventh.

No wonder Jim O’Neill, who coined the neologism BRIC and is now chairman of Goldman Sachs Asset Management, has been stressing that “the world is no longer dependent on the leadership of the U.S. and Europe.” After all, since 2007, China’s economy has grown by 45%, the American economy by less than 1% -- figures startling enough to make anyone take back their predictions. American anxiety and puzzlement reached new heights when the latest International Monetary Fund projections indicated that, at least by certain measurements, the Chinese economy would overtake the U.S. by 2016. (Until recently, Goldman Sachs was pointing towards 2050 for that first-place exchange.)

Within the next 30 years, the top five will, according to Goldman Sachs, likely be China, the U.S., India, Brazil, and Mexico. Western Europe? Bye-bye!

A System Stripped to Its Essence

Increasing numbers of experts agree that Asia is now leading the way for the world, even as it lays bare glaring gaps in the West’s narrative of civilization. Yet to talk about “the decline of the West” is a dangerous proposition. A key historical reference is Oswald Spengler’s 1918 essay with that title. Spengler, a man of his times, thought that humanity functioned through unique cultural systems, and that Western ideas would not be pertinent for, or transferable to, other regions of the planet. (Tell that howler to the young Egyptians in Tahrir Square.)

Spengler, of course, captured the Western-dominated zeitgeist of another century. He saw cultures as living and dying organisms, each with a unique soul. The East or Orient was “magical,” while the West was “Faustian.” A reactionary misanthrope, he was convinced that the West had already reached the supreme status available to a democratic civilization -- and so was destined to experience the “decline” of his title.

If you’re thinking that this sounds like an avant-la-lettre Huntingtonesque “clash of civilizations,” you can be excused, because that’s exactly what it was.

Speaking of civilizational clashes, did anyone notice that “maybe” in a recent TIME cover story picking up on Spenglerian themes and headlined “The Decline and Fall of Europe (and Maybe the West)”? In our post-Spenglerian moment, the “West” is surely the United States, and how could that magazine get it so wrong? Maybe? After all, a Europe now in deep financial crisis will be “in decline” as long as it remains inextricably intertwined with and continues to defer to “the West” -- that is, Washington -- even as it witnesses the simultaneous economic ascent of what’s sometimes derisively referred to as “the South.”

Think of the present global capitalist moment not as a "clash," but a “cash of civilizations.”

If Washington is now stunned and operating on autopilot, that’s in part because, historically speaking, its moment as the globe’s “sole superpower” or even “hyperpower” barely outlasted Andy Warhol’s notorious 15 minutes of fame -- from the fall of the Berlin Wall and collapse of the Soviet Union to 9/11 and the Bush doctrine. The new American century was swiftly throttled in three hubris-filled stages: 9/11 (blowback); the invasion of Iraq (preemptive war); and the 2008 Wall Street meltdown (casino capitalism).

Meanwhile, one may argue that Europe still has its non-Western opportunities, that, in fact, the periphery increasingly dreams with European -- not American -- subtitles. The Arab Spring, for instance, was focused on European-style parliamentary democracies, not an American presidential system. In addition, however financially anxious it may be, Europe remains the world’s largest market. In an array of technological fields, it now rivals or outpaces the U.S., while regressive Persian Gulf monarchies splurge on euros (and prime real estate in Paris and London) to diversify their portfolios.

Yet, with “leaders” like the neo-Napoleonic Nicolas Sarkozy, David (of Arabia) Cameron, Silvio (“bunga bunga”) Berlusconi, and Angela (“Dear Prudence”) Merkel largely lacking imagination or striking competence, Europe certainly doesn’t need enemies. Decline or not, it might find a whole new lease on life by sidelining its Atlanticism and boldly betting on its Euro-Asian destiny. It could open up its societies, economies, and cultures to China, India, and Russia, while pushing southern Europe to connect far more deeply with a rising Turkey, the rest of the Middle East, Latin America, and Africa (and not via further NATO “humanitarian” bombings either).

Otherwise, the facts on the ground spell out something that goes well beyond the decline of the West: it’s the decline of a system in the West that, in these last years, is being stripped to its grim essence. Historian Eric Hobsbawm caught the mood of the moment when he wrote in his book How to Change the World that “the world transformed by capitalism,” which Karl Marx described in 1848 “in passages of dark, laconic eloquence is recognisably the world of the early twenty-first century.”

In a landscape in which politics is being reduced to a (broken) mirror reflecting finance, and in which producing and saving have been superseded by consuming, something systemic comes into view. As in the famous line of poet William Butler Yeats, “the center cannot hold” -- and it won’t either.

If the West ceases to be the center, what exactly went wrong?

Are You With Me or Against Me?

It’s worth remembering that capitalism was “civilized” thanks to the unrelenting pressure of gritty working-class movements and the ever-present threat of strikes and even revolutions. The existence of the Soviet bloc, an alternate model of economic development (however warped), also helped. To counteract the USSR, Washington’s and Europe’s ruling groups had to buy the support of their masses in defending what no one blushed about calling “the Western way of life.” A complex social contract was forged, and it involved capital making concessions.

No more. Not in Washington, that’s obvious. And increasingly, not in Europe either. That system started breaking down as soon as -- talk about total ideological triumph! -- neoliberalism became the only show in town. There was a single superhighway from there and it swept the most fragile strands of the middle class directly into a new post-industrial proletariat, or simply into unemployable status.

If neoliberalism is the victor for now, it’s because no realist, alternative developmental model exists, and yet what it has won is ever more in question. Meanwhile, except in the Middle East, progressives the world over are paralyzed, as if expecting the old order to dissolve by itself. Unfortunately, history teaches us that, at similar crossroads in the past, you are as likely to find the grapes of wrath, right-wing populist-style, as anything else -- or worse yet, outright fascism.

“The West against the rest” is a simplistic formula that doesn’t begin to describe such a world. Imagine instead, a planet in which “the rest” are trying to step beyond the West in a variety of ways, but also have absorbed that West in ways too deep to describe. Here’s the irony, then: Yes, the West will “decline,” Washington included, and still it will leave itself behind everywhere.

Sorry, Your Model Sucks

Suppose you’re a developing country, shopping in the developmental supermarket. You look at China and think you see something new -- a consensus model that’s turning on the lights everywhere -- or do you? After all, the Chinese version of an economic boom with no political freedom may not turn out to be much of a model for other countries to follow. In many ways, it may be more like an inapplicable lethal artifact, a cluster bomb made up of shards of the Western concept of modernity married to a Leninist-based formula where a single party controls personnel, propaganda, and -- crucially -- the People’s Liberation Army.

At the same time, this is a system evidently trying to prove that, even though the West unified the world -- from neocolonialism to globalization -- that shouldn’t imply it’s bound to rule forever in material or intellectual terms.

For its part, Europe is hawking a model of supra-national integration as a means of solving problems and conflicts from the Middle East to Africa. But any shopper can now see evidence of a European Union on the verge of cracking amid non-stop inter-European bickering that includes national revolts against the euro, discontent over NATO’s role as a global Robocop, and a style of ongoing European cultural arrogance that makes it incapable of recognizing, to take one example, why the Chinese model is so successful in Africa.

Or let’s say our shopper looks to the United States, that country still being, after all, the world’s number one economy, its dollar still the world’s reserve currency, and its military still number one in destructive power and still garrisoning much of the globe. That would indeed seem impressive, if it weren’t for the fact that Washington is visibly on the decline, oscillating wildly between a lame populism and a stale orthodoxy, and shilling for casino capitalism on a side street in its spare time. It’s a giant power enveloped in political and economic paralysis for all the world to see, and no less visibly incapable of coming up with an exit strategy.

Really, would you buy a model from any of them? In fact, where in a world in escalating disarray is anyone supposed to look these days when it comes to models?

One of the key reasons for the Arab Spring was out-of-control food prices, driven significantly by speculation. Protests and riots in Greece, Italy, Spain, France, Germany, Austria, and Turkey were direct consequences of the global recession. In Spain, nearly half of 16- to 29-year-olds -- an overeducated “lost generation” -- are now out of jobs, a European record.

That may be the worst in Europe, but in Britain, 20% of 16- to 24-year-olds are unemployed, about average for the rest of the European Union. In London, almost 25% of working-age people are unemployed. In France, 13.5% of the population is now officially poor -- that is, living on less than $1,300 a month.

As many across Western Europe see it, the state has already breached the social contract. The indignados of Madrid have caught the spirit of the moment perfectly: “We’re not against the system, it’s the system that is against us."

This spells out the essence of the abject failure of neoliberal capitalism, as David Harvey explained in his latest book, The Enigma of Capital. He makes clear how a political economy “of mass dispossession, of predatory practices to the point of daylight robbery, particularly of the poor and the vulnerable, the unsophisticated and the legally unprotected, has become the order of the day.”

Will Asia Save Global Capitalism?

Meanwhile Beijing is too busy remixing its destiny as the global Middle Kingdom -- deploying engineers, architects, and infrastructure workers of the non-bombing variety from Canada to Brazil, Cuba to Angola -- to be much distracted by the Atlanticist travails in MENA (aka the region that includes the Middle East and Northern Africa).

If the West is in trouble, global capitalism is being given a reprieve -- how brief we don’t know -- by the emergence of an Asian middle class, not only in China and India, but also in Indonesia (240 million people in boom mode) and Vietnam (85 million). I never cease to marvel when I compare the instant wonders and real-estate bubble of the present moment in Asia to my first experiences living there in 1994, when such countries were still in the “Asian tiger,” pre-1997-financial-crisis years.

In China alone 300 million people -- “only” 23% of the total population -- now live in medium-sized to major urban areas and enjoy what’s always called “disposable incomes.” They, in fact, constitute something like a nation unto themselves, an economy already two-thirds that of Germany’s.

The McKinsey Global Institute notes that the Chinese middle class now comprises 29% of the Middle Kingdom’s 190 million households, and will reach a staggering 75% of 372 million households by 2025 (if, of course, China’s capitalist experiment hasn’t gone off some cliff by then and its potential real-estate/finance bubble hasn’t popped and drowned the society).

In India, with its population of 1.2 billion, there are already, according to McKinsey, 15 million households with an annual income of up to $10,000; in five years, a projected 40 million households, or 200 million people, will be in that income range. And in India in 2011, as in China in 2001, the only way is up (again as long as that reprieve lasts).

Americans may find it surreal (or start packing their expat bags), but an annual income of less than $10,000 means a comfortable life in China or Indonesia, while in the United States, with a median household income of roughly $50,000, one is practically poor.

Nomura Securities predicts that in a mere three years, retail sales in China will overtake the U.S. and that, in this way, the Asian middle class may indeed “save” global capitalism for a time -- but at a price so steep that Mother Nature is plotting some seriously catastrophic revenge in the form of what used to be called climate change and is now more vividly known simply as “weird weather.”

Back in the USA

Meanwhile, in the United States, Nobel Peace Prize laureate President Barack Obama continues to insist that we all live on an American planet, exceptionally so. If that line still resonates at home, though, it’s an ever harder sell in a world in which the first Chinese stealth fighter jet goes for a test spin while the American Secretary of Defense is visiting China. Or when the news agency Xinhua, echoing its master Beijing, fumes against the “irresponsible” Washington politicians who starred in the recent debt-ceiling circus, and points to the fragility of a system “saved “ from free fall by the Fed’s promise to shower free money on banks for at least two years.

Nor is Washington being exactly clever in confronting the leadership of its largest creditor, which holds $3.2 trillion in U.S. currency reserves, 40% of the global total, and is always puzzled by the continued lethal export of “democracy for dummies” from American shores to the Af-Pak war zones, Iraq, Libya, and other hot spots in the Greater Middle East. Beijing knows well that any further U.S.-generated turbulence in global capitalism could slash its exports, collapse its property bubble, and throw the Chinese working classes into a pretty hardcore revolutionary mode.

This means -- despite rising voices of the Rick Perry/Michele Bachmann variety in the U.S. -- that there’s no “evil” Chinese conspiracy against Washington or the West. In fact, behind China’s leap beyond Germany as the world’s top exporter and its designation as the factory of the world lies a significant amount of production that’s actually controlled by American, European, and Japanese companies. Again, the decline of the West, yes -- but the West is already so deep in China that it’s not going away any time soon. Whoever rises or falls, there remains, as of this moment, only a one-stop-shopping developmental system in the world, fraying in the Atlantic, booming in the Pacific.

If any Washington hopes about “changing” China are a mirage, when it comes to capitalism’s global monopoly, who knows what reality may turn out to be?

Wasteland Redux

The proverbial bogeymen of our world -- Osama, Saddam, Gaddafi, Ahmadinejad (how curious, all Muslims!) -- are clearly meant to act like so many mini-black holes absorbing all our fears. But they won’t save the West from its decline, or the former sole superpower from its comeuppance.

Yale’s Paul Kennedy, that historian of decline, would undoubtedly remind us that history will sweep away American hegemony as surely as autumn replaces summer (as surely as European colonialism was swept away, NATO’s “humanitarian” wars notwithstanding). Already in 2002, in the run-up to the invasion of Iraq, world-system expert Immanuel Wallerstein was framing the debate this way in his book The Decline of American Power: the question wasn’t whether the United States was in decline, but if it could find a way to fall gracefully, without too much damage to itself or the world. The answer in the years since has been clear enough: no.

Who can doubt that, 10 years after the 9/11 attacks, the great global story of 2011 has been the Arab Spring, itself certainly a subplot in the decline of the West? As the West wallowed in a mire of fear, Islamophobia, financial and economic crisis, and even, in Britain, riots and looting, from Northern Africa to the Middle East, people risked their lives to have a crack at Western democracy.

Of course, that dream has been at least partially derailed, thanks to the medieval House of Saud and its Persian Gulf minions barging in with a ruthless strategy of counter-revolution, while NATO lent a helping hand by changing the narrative to a “humanitarian” bombing campaign meant to reassert Western greatness. As NATO’s secretary-general Anders Fogh Rasmussen put the matter bluntly, “If you’re not able to deploy troops beyond your borders, then you can’t exert influence internationally, and then that gap will be filled by emerging powers that don’t necessarily share your values and thinking.”

So let’s break the situation down as 2011 heads for winter. As far as MENA is concerned, NATO’s business is to keep the U.S. and Europe in the game, the BRICS members out of it, and the “natives” in their places. Meanwhile, in the Atlantic world, the middle classes barely hang on in quiet desperation, even as, in the Pacific, China booms, and globally the whole world holds its breath for the next economic shoe to drop in the West (and then the one after that).

Pity there’s no neo-T.S. Eliot to chronicle this shabby, neo-medievalist wasteland taking over the Atlanticist axis. When capitalism hits the intensive care unit, the ones who pay the hospital bill are always the most vulnerable -- and the bill is invariably paid in blood.

Pepe Escobar is the roving correspondent for Asia Times and a TomDispatch.com regular. His latest book is Obama does Globalistan (Nimble Books, 2009). To listen to Timothy MacBain’s latest Tomcast audio interview in which Escobar reflects on the fate of the global economy click here, or download it to your iPod here. He may be reached at pepeasia@yahoo.com.

Saturday, September 24, 2011

Thanks to Speculative Investors, the Food Market Will Be the Next Bubble to Burst


Private investment firms are betting on hunger, and their reasoning, unfortunately, is sound.

Residential real estate may be slumping, but ag land is booming. In Iowa, farmland prices have never been higher, having increased a whopping 34 percent in the past year, according to The Des Moines Register. The boom is driven in part by agribusiness expansion, but also by a new player in the agriculture game: private investment firms. Both are bidding up land values for the same reason: the price of food.

They're betting on hunger, and their reasoning, unfortunately, is sound. This is bad news for would-be small farmers who can't afford land, and much worse news for the world's hungriest people, who already spend 80 percent of their income on food.

Thanks to the world's growing population of eaters and the fixed amount of land suitable for growing food to feed them, supply and demand tilts the long term forecast toward higher prices. More immediate concerns -- like increasing demand for grain-intensive meat and the rise of the corn-hungry ethanol industry -- have fanned the flames of a speculative run-up in agricultural commodities like corn, wheat, and soy. Add cheap money to the mix in the form of low interest rates, along with an army of traders chasing the next bubble, and you've got a bidding war waiting to happen.

The Commodity Futures Modernization Act of 2000 allowed the bidding to begin by allowing the trade of food commodities without limits, disclosure requirements, or regulatory oversight. The Act also permitted derivatives contracts whereby neither party was hedging against a pre-existing risk; i.e. where both buyer and seller were speculating on paper, and neither party had any intention of ever physically acquiring the commodity in question.

Agricultural commodities markets were created so that traders of food could hedge their positions against big swings in prices. If you're sitting on a warehouse full of corn, it's worth making a significant bet that the price will go down, just in case it does, and makes your corn worthless. That way at least you make money on the bet. Derivatives can add leverage to your bet, so you don't need to bet the entire value of your corn in order to protect it.
Derivatives, it turns out, are also really cool if you want to make a ton of money by betting just a little. And if you can bet a lot, even better, as long as you keep winning. The golden years of commodities trading lasted from 2002 to 2008, when prices moved steadily, but not manically, upward. Then they crashed. And then they rose even higher than before. This is the kind of volatility, except worse, that commodities trading was created to prevent.

UN Special Rapporteur on the Right to Food Olivier De Schutter recently released a "Briefing Note" titled, "Food Commodities Speculation and Food Price Crises."

As he sees it, "Beginning at the end of 2001, food commodities derivatives markets, and commodities indexes in particular began to see an influx of non-traditional investors, such as pension funds, hedge funds, sovereign wealth funds, and large banks. The reason for this was simply because other markets dried up one by one: the dotcoms vanished at the end of 2001, the stock market soon after, and the U.S. housing market in August 2007. As each bubble burst, these large institutional investors moved into other markets, each traditionally considered more stable than the last."

In those years, the market value of agriculture commodities derivatives grew from three quarters of a trillion in 2002 to more than $7.5 trillion in 2007, while the percentage of speculators among agriculture commodities traders grew from 15 to 60 percent. The total number of commodities derivatives traded globally increased more than five-fold between 2002 and 2008.

The rush of speculators into agricultural commodities created something like a virtual food grab. While a traditional speculator might drive up the price of a commodity by physically hoarding it, now speculators, fund managers, sovereign nations, and anyone else with the money can do the same by hoarding futures contracts for food commodities, but with no expectation that they will have to physically deal with actual commodities. No messing with deliveries, maintaining warehouses, trapping mice, or other reality-based headache unless they happen to truly want the commodity.

Americans may not be starving, but we are feeling the pinch, paying upwards of a dollar for an ear of sweet corn at farmers markets, while in the southwest, dried corn chicos, a local delicacy, have doubled in price. In D.C., a group of livestock producers addressed the House Agriculture Committee last week, seeking the elimination of federal mandates for ethanol use in gasoline. The meat makers blame high corn prices on the biofuels industry.

If this was just about corn, I would say let the cows and cars fight over it. They can have it. After all, whatever corn doesn't get converted to chicken feed and gasoline probably isn't going to be made into chicos anyway. It's going to be made into corn syrup for the young and the obese.

But the commodities markets of the world are connected, running together in a herd, which makes this about a lot more than corn. It is likely that increased demand for meat and the rise of ethanol were indeed a trigger in rising corn prices, De Schutter says, dragging the rest of the grain markets into the bubble. But it was deregulation that opened the doors to betting on hunger.

A logical place to start calming food prices would be to un-deregulate them. And there's hope of that happening. The United States, by far the biggest player on the commodities stage, just made a step in that direction with the passage of the recent Dodd-Frank Wall Street Reform and Consumer Protection Act. The Act puts size limits on individual holdings, including agriculture commodities and derivatives.

Unfortunately, given the global nature of capital, even if the U.S. were to completely shut down speculation, it would just move offshore. International regulation is what's needed, and since the U.S. opened this Pandora's box of speculative horrors with deregulation, we have the moral responsibility, not to mention the political firepower, to shut it. With financial regulators underfunded and understandably distracted, a strong show of public support could help get their attention. But if our biggest inconvenience is higher prices for meat and sweet corn, that public display might be hard to come by. Especially if our retirement portfolio, wisely diversified with commodity index funds and ag land holdings from Iowa to Ethiopia, is growing.

Ari LeVaux writes a syndicated weekly food column, Flash in the Pan.

Rank-and-File Economics: Fighting for a Wage- and Job-Led Recovery

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Rank-and-File Economics

Fighting for a Wage- and Job-Led Recovery

By Katherine Sciacchitano | September 13, 2011

Riddle 1: When is a recovery not a recovery?
Answer: When profits are at record levels, corporations are sitting on $1.7 trillion in cash, and unemployment is still at 9.2% and rising.

Riddle 2: When is a stimulus not a stimulus?
Answer: When it’s less than one-fourth the size of the hole in the economy it is intended to fill.

Riddle 3: When will it be possible to rebuild the economy?
Answer: When the U.S. labor movement joins with community and international labor allies to demand global economic development, jobs, and rising wages.

When the U.S. housing bubble burst in 2008, putting jobs first was a no-brainer. Global unions demanded immediate action. The G-20—the group of 20 nations charged with coordinating a global response to the crisis—agreed. Governments rushed to do stimulus spending. The worst was prevented.

Then in the spring of 2010 the Greek debt crisis hit. Markets plummeted. The G-20 pulled back and told countries to cut spending. Greece, Ireland, Spain, Portugal, and the U.K. have since enacted austerity packages with drastic spending and wage cuts.

The global jobs crisis is now worse than ever. Between 2007 and 2010, 30 million workers lost their jobs worldwide. In the United States, GDP is falling, jobs have declined since the recovery started, and the unemployment rate is rising again as federal stimulus funds fade and layoffs mount in the states. The Brookings Institution estimates it will take over ten years to return to normal employment levels, even at pre-crisis growth rates. Now, real wages are falling as well.

Union reps negotiating contracts with state and local governments are on the frontlines of the resulting battles. Flanked as they are by terrified members on one side, and angry tax payers and state legislatures attacking wages, benefits, and bargaining rights on the other, their problems go far beyond what can be solved at the bargaining table.

The out-of-the-box solution would be to organize for a comprehensive program of job creation. Blueprints for jobs-based recoveries do exist. But such blueprints need “rank-and-file economists” to turn them into brick and mortar. With Democrats and Republicans actively vying to impose austerity, those rank-and-file economists—community organizers as well as union reps—must tell, not ask, our elected representatives what we need. Then they have to engage in the drawn-out battle to make what we need a reality.

A major obstacle to struggle is the widespread belief—even among many union members—that there is little that government can do besides cut spending, and that only the private sector can create jobs.

Yet the fact that so many are frustrated with government over the high unemployment is evidence that on some level people do believe government action is not only possible but necessary. A rank-and-file economics needs to channel that frustration and nurture that belief. It needs to explain why the “free market” isn’t going to create the jobs that are needed. It needs to educate people about the real causes of the crisis. And it needs to convince community and union members that a positive agenda for long-term growth still exists.

First, we have to arm ourselves by educating ourselves.

The Private Sector Can’t Do It Alone

Here in the United States, people are surrounded by the narrative that only the private sector can create jobs. Even those who acknowledge that we need to rebuild our infrastructure and that rebuilding would create jobs are likely to say that we can’t afford public investment right now. Instead, the argument goes, we should cut taxes and let corporations create the jobs and the investment we need: too much public spending got us where we are; every tax dollar spent by the government is one less dollar business could be used to create jobs.

There are three main responses to these arguments.

First, corporations already have enough cash to invest; tax cuts for corporations and the wealthy aren’t going to lead to more job creation.

The Bush tax cuts didn’t boost job creation, they didn’t boost wages, and they didn’t boost investment in the real economy. What they boosted was corporate profits and the deficit. Today businesses are sitting on record profits and $1.7 trillion in cash that they don’t want to invest. What investment is being done is aimed at boosting productivity and cutting labor costs—that is, cutting jobs. The jobs problem is not due to businesses not having enough cash to invest. Further enriching corporations with tax cuts isn’t going to fix it.

Second, the deficit didn’t cause the crisis; the crisis caused the deficit.

Calls to cut government spending in order to spur growth ignore the fact that the economic crisis we’re in has nothing to do with government spending. The deficit didn’t cause the crisis. The crisis caused the deficit. The spike in the deficit is principally due to the drop in revenues as people lost jobs and businesses lost sales. What additional spending we have done in the past three years—for the stimulus program and for TARP—was temporary. And as economist Dean Baker from the Center for Economic and Policy Research (CEPR) has calculated, in the long run the U.S. budget deficit would virtually disappear if it brought its health-care spending in line with other industrialized countries, all of which have universal health coverage.

Third, there are times when government spending is essential to help the economy over a crisis and when failure to spend will make the deficit worse.

In the short term, the best way to reduce the deficit without increasing unemployment is to recover from the crisis, not cut spending and create more joblessness while the economy is still weak. This is a lesson we should have learned from the last great global economic collapse, the Depression of the 1930s.

Before the 1930s, most economists believed that economies recovered naturally from recessions: in a downturn, either prices would fall and stimulate spending, or wages would fall and stimulate hiring, or both. But when consumers and businesses stopped spending during the Depression, falling wages and prices made the economy worse. It took the New Deal to get the economy growing. From 1933 through the end of the Depression, GDP rose and fell with government spending. By 1936 unemployment had fallen from 23% to 9%. But in 1937 unemployment rose again after Roosevelt cut the budget to reduce the deficit. After that it took massive spending for World War II to return the economy to full employment.

Stimulus Isn’t Enough Either

Given the lessons from the Depression of the 1930s, why didn’t the Obama stimulus plan work better than it did?

One reason is that the housing bubble drained nearly $1.4 trillion in annual spending, yet the Obama administration proposed a stimulus that was only $825 billion spread over several years. Congressional Republicans then reduced that number to $727 billion. They also cut proposed spending for infrastructure, green energy, and aid to states so they could increase tax cuts, even though tax cuts are known to create fewer jobs.

But the deeper reason the Obama stimulus failed is that the administration misunderstood the nature of the crisis. The country needs more than stimulus spending for recovery. It needs a sustained program for rebuilding the real economy and raising wages. The problem isn’t just that cutbacks over the past decades have left us with a shortage of over two trillion dollars in infrastructure spending. It’s that growing inequality has created too big a hole in demand.

During the boom following World War II, the United States regularly used government spending to ease recessions. The idea was that instead of waiting for unemployment to push down wages in the hopes that low wages would boost hiring, the government should boost job creation, and hence wages, by plugging holes in private consumption with public expenditures.

This worked because during the post-war boom, wages as a matter of policy rose with productivity. Recessions were due to short-term policy missteps or the “business cycle”—production temporarily getting ahead of demand. When that happened, businesses made fewer profits and investment would fall. Government spending would boost demand. And demand would spur investment.

In the current economy, stimulus spending can’t accomplish what it did in the post-war economy. Not only have we just had a massive financial crisis rather than a dip in the business cycle, but the crisis happened after decades of stagnating wages. Since the 1980s, demand has been based not on rising wages, as it was in the post-war era, but on household debt backed by the rising prices of assets such as stocks and real estate.

With the bursting of the housing bubble, 28% of homeowners are now under water. Under these circumstances, households that get a temporary bump in disposable income from a stimulus package are as likely to pay down debt as they are to increase spending. Even households that aren’t in debt may save instead of spending because of fear of unemployment. The economy may get a small boost. But businesses correctly see that demand isn’t there and hold back from investing. The economy remains in a hole unless the government embarks on a sustained program of rebuilding wages, jobs, and the real economy.

How We Unlearned Equality

To understand what it will take to rebuild the economy, we have to understand the strength of the post-war economy and how it was reversed.

The great economic lesson of the post-war era was the importance of equality for economic growth and stability. The period before the Great Depression had been marked by steep inequality, debt, and bubbles. Following World War II, the governments of the United States and most of Western Europe made commitments to full employment and rising wages in order to avoid another similar collapse. Global growth reached record rates. Inequality declined. And there were no serious global financial crises.

In the United States, real hourly wages roughly doubled during this period. The policies that made this wage growth and stability possible included corporate acceptance of collective bargaining; a strong social safety net; high quality public services; regulation of business; progressive tax systems—where corporations and the wealthy are taxed at higher rates—to help pay for public services and the cost of regulation; deficit spending to stimulate the economy during economic downturns, thereby preventing wages from falling; and a willingness to lower interest rates when unemployment rose.

Corporate tolerance for these pro-labor policies was transitory and grudging: it lasted as long as the extraordinary post-war levels of profit lasted. Once global profit rates slowed, corporations fought to reverse wage growth and restore profit rates under the guise of the policy mix that came to be known as neoliberalism. They attacked labor rights, the minimum wage, and unemployment insurance. They pushed to reduce taxes on corporations and the wealthy, shifting the tax burden to working people instead. They lobbied to privatize public services and deregulate industries—opening opportunities for profits, denigrating the role of government, and increasing the likelihood of financial crises. The rhetoric of balanced budgets and self-reliance replaced support for a strong safety net and stimulus spending to stabilize wages during recessions. And interest rate hikes were used to minimize inflation—now touted as a primary threat to living standards—by raising unemployment and keeping wages low.

There were changes in international policy as well. After World War II, U.S. trade policy had focused on opening up markets for U.S. exports, which meant not only higher profits but higher domestic employment. Under neoliberalism, boosting profits meant moving production to lower cost areas overseas and exporting back to the United States. It meant cutting jobs at home as well as and pushing down wages abroad.

In short, while the post-war strategy supported rising incomes in the United States and much of the rest of the world, the strategy from the 1980s onward was built on stagnating or falling wages for workers generally. The result was that the global rate of profit rose while hourly wages stagnated or fell, with few exceptions, throughout the globe—not just in the United States and developing countries, but in Europe as well.

To compensate for stagnating purchasing power, U.S. consumers borrowed, and the finance industry made credit more available: between 1981 and 2007, the last year of the housing bubble, household debt doubled as a percentage of GDP. The U.S. consumer became the consumer of last resort for the world. And the global economy balanced precariously on U.S. consumer debt and the dollar.

By the early 2000s, balancing on U.S. consumer debt meant balancing on the housing bubble: dollars exited the country to pay for imports and were recycled back, not as demand for U.S. exports, but as demand for investment in U.S. mortgage securities and other financial assets. The world found out how painful a balancing act this was when the U.S. housing bubble burst, homeowners defaulted on mortgages, and the banking system nearly collapsed, cutting off the supply of easy credit. Global demand plummeted. It hasn’t recovered since. Tackling Inequality Head-on In its own terms, neoliberalism worked: it increased profits, suppressed wages, and shifted tax burdens from the wealthy to lower income workers. Proponents have seized on the deficits created by the crisis to slash social spending, helping insure against future tax increases for those at the top.

The contradictions should be obvious to all: suppressing wages suppresses demand, and balancing consumer spending on debt rather than wages destabilizes the U.S. economy and the global economy. Cutting government spending before we rebuild private demand will throw the country and the world back into recession. It will keep U.S. unemployment at Depression-era levels. And it will result in larger, not smaller, deficits.

Yet the contradictions don’t register because people have a deep-seated belief that the very inequality that is crashing the system is essential to growth and jobs—that by limiting inequality we are limiting our ability to generate wealth.

To build momentum for a jobs- and wage-based recovery, the labor movement has to tackle the belief in inequality head on. It needs to show that the jobs crisis can only be addressed by rebuilding and rebalancing the national and global economies with higher wages and greater equality.

Rebuild and Rebalance

A broad consensus is developing within the global labor movement on how this rebuilding and rebalancing needs to take place. There are three main goals:

Raise wages, raise demand. The most pressing economic problem today isn’t government debt or deficits. It’s the hole in demand left by 30 years of wage suppression, and the danger of another period of bubble-fueled growth. To be sustainable, demand has to be based on wages, not on household debt. Inequality isn’t just painful for workers. It’s destabilizing for the global economy. Correcting inequality isn’t a matter of charity. It’s a matter of economic survival.

First and foremost, rebalancing the global economy means correcting the global wage imbalance by creating jobs and raising wages. This imbalance isn’t primarily about high- versus low-income countries. It’s about the share of national incomes going to workers wages and the share going to profit. Since 1980, the share of income going to labor has fallen steadily in all regions of the world, with the possible exceptions of East and Central Asia. The decline hasn’t been due to shifts to low-wage occupations. It hasn’t been limited to low-wage countries. And it has occurred at all income levels. It’s also getting worse. In the current recovery, U.S. corporations captured a whopping 88% of the growth in national income through the beginning of 2010, while only 1% went to labor. Compare that to the recovery after the 1991 recession, when 50% of the growth in national income went to labor.

Replace growth based on low-wage exports with wage- and demand-led growth around the world. As U.S. corporations moved overseas in the eighties and nineties, the U.S. government used the carrot and the stick—as well as its powers over the IMF and the World Bank—to persuade destination countries to cut government spending, let wages fall, remove regulations on movement of foreign capital known as “capital controls,” and “devalue” currencies to artificially force down the price of exports. The result was intensified global competition and the emergence of an “export-led” model of growth: economies grew not because rising wages grow domestic demand, but because suppressed wage growth (or falling wages) pushed down the price of exports. Regardless of their income level, countries that adopt the export-led model suppress both wage growth and demand for imports. They export more than they import. And they run permanent trade surpluses while their trading partners lose jobs and run deficits.

European countries that are sharply reducing deficits to deal with the current crisis and letting wages stagnate or fall are turning to the export-led growth model in hopes of becoming “more competitive.” This kind of “competitiveness” as a primary strategy for global growth isn’t the solution for lagging incomes. It’s a recipe for an intensified race to the bottom and permanently depressed wages. It’s also impossible for a majority of the world to “export” its way out of the crisis and back to growth; for every country that exports, another must be able to import. The solution, whether in Europe or the developing world, is to trade in the model of export-led growth for one based on rising wages and domestic demand.

Create a global model for economic development and decent work. The idea of stimulus spending is that it “jumpstarts” a cycle of demand, investment, and job creation when a basically healthy economy stalls. Today, living on the “other side” of the export-led model the United States helped create, U.S. consumers are too mired in debt, corporations too addicted to outsourcing and cutting jobs and wages, and the country too far behind in infrastructure spending for this kind of stimulus to be effective. We need to rebuild, not “jumpstart,” the U.S. economy. The same is true overseas. Developing countries mired in the export-led model also suffer from a long-term lack of public investment and infrastructure.

To replace the export-led growth model unions need to demand a global agenda for decent work. This in turn requires a program for sustainable development that includes support for public services such as education and health care, funds for infrastructure, and support for sustainable manufacturing and green energy in both advanced and developing countries. The jobs and wages created by this investment will in turn build the base of demand needed for sustained demand-led growth.

Closer Than We Think

There are ways out of the current jobs crisis. Budget-cutting, austerity, and intensified wage competition aren’t among them. Unionists need to keep their eyes on the ball: The chief barrier to recovery is the lack of global demand. A main cause of the current crisis is a multi-decade, multi-pronged strategy of wage suppression across the world. And the response must include global coordination for economic development—a global New Deal.

Governments committed to neoliberal policies won’t be the prime movers behind a global New Deal. That’s labor’s job. So is forging the ties with other labor movements that will be needed to carry on the struggle both nationally and internationally (see sidebar).

This struggle must take place country by country. Over the past decade U.S. unionists have fought successful battles for living wage ordinances. They have won community benefits agreements from corporations receiving public funds, locking in pledges to create jobs and respect labor rights. They’ve renewed the battle for single-payer health care and made common cause with immigrant workers working at the margins of the U.S. economy. There is crucial organizing for a national infrastructure bank, withdrawal from Iraq and Afghanistan, putting a floor on foreclosures, and taxing the wealthy. Learning new strategies is not going to be the hard part of U.S. labor. Nor will forging international linkages with unions in other countries—a process which will deepen understanding of common problems and exponentially increase the energy and clarity of struggle.

The hard part will be unlearning the indoctrination we’ve received about the crisis, the role of government in the economy, and the free market. Once we do that, we can build successful movements at home and abroad. We’re closer than we think to the army of rank-and-file economists that we need.

Going Global: Coordination, not Competition

Jobs debates tend to focus on national needs. We’re told repeatedly that competition is the key to a country’s economic success: increase productivity, decrease labor costs, hone our technology, and we’ll beat out the other guy to get the jobs. But the kind of development the world needs for recovery isn’t a zero-sum game. U.S. labor needs healthy manufacturing and wage growth in other countries every bit as much as we need a revival of manufacturing and wages in the United States.

Achieving the objectives proposed in this article—rising wages, demand-led growth, and global development—will require both struggle and international coordination. Labor is familiar with many of the economic tools that will be needed to achieve these core objectives, but it is used to applying them in a national context only, not advocating for their use as part of a global development agenda. Here are a few of the most familiar tools that will be needed and what labor can add by pressing for international coordination:

Fiscal and monetary policy to support employment growth. Governments need to return to wider use of fiscal and monetary policy to stimulate demand and put a floor on unemployment. But in a global economy, stimulus spending can end up “leaking” out of a country when consumers buy imports. Stimulus is most effective when countries act together so one country can’t “steal” demand from another by keeping its wages and demand low while another country raises wages and expands demand.

Labor rights and employment regulation to raise wages. Using fiscal and monetary policy to put a floor on unemployment can help keep wages from falling. But wage growth needs a vigorous commitment to collective bargaining, social benefits such as health care and pensions, minimum and living wage laws, and a strong safety net for unemployed and underemployed workers. These policies are most effective when widely adopted, both because widespread adoption raises global demand and also because it discourages low-wage competition.

Tax reform to provide adequate revenues. Tax reform is needed to ensure that the wealthy and corporations pay their share of the costs for the economic crisis, and to provide revenue for rebuilding and development. Corporate tax reform in particular needs to be coordinated to prevent corporations from gaming differences in countries’ tax rates by relocation or transfer pricing. Since the crisis began, a vigorous global movement has sprung up for a financial transaction tax, which could raise hundreds of billions globally from the finance industry.

Industrial policy to nurture high-wage manufacturing sectors. Ultimately, strong job growth is needed to support strong wage growth. Countries that have developed successfully—including the United States and Britain in their early years, Europe and Japan after World War II, the Asian Tigers in the 1980s, and now China—have done so by using industrial policies to nurture infant industries and growth. These policies have included such measures as regulation of the movement of capital in and out of the country; government investment in infrastructure, education, research and development; requirements that corporations purchase inputs locally and train local workforces; and facilitating the availability of credit for key industries and sectors. Since the eighties and nineties, neoliberal policies and trade agreements have sought to ban many of these policies and make countries dependent on transnational corporations instead. International labor campaigns to eliminate these bans will be critical for reversing this dependence and the advantage it gives corporations over labor. Freeing countries to use industrial policy will in turn be critical for the growth of green manufacturing and energy production as the world grapples with climate change.

KATHERINE SCIACCHITANO is a former labor lawyer and organizer. She is also a professor at the National Labor College and a freelance labor educator. She can be reached at sciacchitano1—at—gmail—dot—com.

SOURCES: Gerald Friedman, Bernanke’s Bad Teachers, Dollars & Sense, July/August 2009 (stimulus spending during the Depression); Michael Greenstone and Adam Looney, The Great Recession’s Toll on Long-Term Unemployment, Brookings Institution UP Front Blog, November 5, 2010; Dean Baker, The Economic Illiterates Step Up Attacks on Social Security and Medicare, August 2, 2011 (inadequate size of the Obama stimulus); Dean Baker, Barack Obama’s Big Stimulus, Jan 19th, 2009 (original composition of the Obama stimulus); Katherine Sciacchitano, W(h)ither the Dollar?, Dollars & Sense, May/June 2010; Resolution on a Sustainable and Just Development Model for the 21st Century, International Trade Union Confederation, 2nd World Congress, Vancouver, 21-25 June 2010 (2CO/E/6.4 final); Francisco Rodriguez and Arjun Jayadev, The Declining Share of Labor Income, UNDP Human Development Research Paper 2010/36; Steven Greenhouse, The Wageless, Profitable Recovery, New York Times, June 30th, 2011; Andrew Sum, Ishwar Khatiwada, Joseph McLaughlin and Sheila Palma, The “Jobless and Wageless” Recovery from the Great Recession of 2007- 2009: The Magnitude and Sources of Economic Growth Through 2011 I and Their Impacts on Workers, Profits, and Stock Values, Center for Labor Market Studies Northeastern University Boston, Massachusetts, May 2011; National Infrastructure Development Bank press release, May 20, 2009; Ha Joon Chang, Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism (Bloomsbury Press, 2008); Thomas I. Palley, “The Rise and Fall of Export-led Growth," Levy Economics Institute of Bard College, Working Paper No. 675, July 2011.

Thursday, September 22, 2011

Reaganomics: The Biggest Ponzi Scheme of All Time

At the end of the Cold War, historian Francis Fukuyama stirred a few months of lively controversy — and eventually embarrassed himself — by declaring the “end of history.” Despite Fukuyama’s example, however, I suspect the first person to declare 2011 the beginning of the “end of economics” will be seen as a prophet


The gradual death of economics as a serious element of public policy dates to 1981, when new president Ronald Reagan embraced the supply-side ideas of George Gilder. “Reputable economists” mocked Gilder’s theory as “trickle-down economics.” But it scored a big hit among free-market fundamentalists who saw too much money churning through the U.S. economy without first passing through their sticky fingers.

In spite of reality, supply-side theory is still with us. Skeptics, of course, were right. In 30 years, nothing has trickled down. I haven’t gotten a penny. Neither have you. Money directed to the rich, as it turns out, clings to the rich.

Meanwhile, the average U.S. family’s net wealth — adjusted for inflation —has not changed. At all. The top one percent of earners are 176 percent better off than they were pre-Gipper, but income for the middle of America’s middle class grew just 21 percent, or about 0.8 percent a year. Better than nothing? Maybe, except that most of this growth came from one-income families becoming, by necessity, two-income families.

The current evolution of trickle-down incorporates a kind of bleak magical thinking. Right-wing economics today conjures intimations of Alice growing small by drinking a potion and then growing freakishly large by eating a cupcake.

This conservative solution includes six elements: a) tax-free corporate power, b) unregulated financial speculation, c) offshore manufacturing (and engineering, and design, and R&D, and customer service, and banking), d) unchecked development and e) union-busting, with f) no government role whatsoever. You could say (if you were cynical) that the 21st-century Lobbyist State has swallowed the Security State whole, after which it got the Welfare State drunk, sodomized it and drowned it in the bathtub.

Among the Lobbyist State’s victories have been the housing bubble, the Crash of 2008, the near-death of the U.S. auto industry and the nation’s rollercoaster plunge from a $230 billion surplus (in 2000) to a $1.3 trillion deficit.

Since the outset of the Bush Depression in 2008, the standard conservative plan for rescue has been austerity for the masses, an approach tested by Herbert Hoover from 1929-1932 and, recently, by governments in Britain and Greece. In both countries, the results have been a no-growth economy accompanied by riots in the streets, accompanied by teargas and collateral fatalities. In other words, Herbert Hoover all over again.

OK, but this is only half the story. While right-wing theories have been discrediting themselves in practice, right-wing propagandists have labored tirelessly to trash all other economic remedies. And they’ve done a bang-up job — destroying the reputation of programs like, for instance, President Obama’s national recovery act.

“Reputable economists” estimate that the stimulus created some two million jobs. They say it prevented a double-dip recession and kept unemployment under 12 percent. The same guys faulted Obama for compromising on a stimulus that was too small. It worked, they say, but only well enough to halt the decline, not turn it around.

This is not a popular perception. For three tiresome years, the public has heard louder voices — Rush Limbaugh on talk-radio, the minions of Roger Ailes on Fox News, plus Romney, Paul, Palin, Perry, etc. — shouting over and over — without evidence — that the stimulus “failed,” creating no jobs and worsening the recession.

But never mind. Propaganda always prevails. Its next target is Obama’s jobs plan, which blends tax cuts, public works, budget cuts, and the wonderful idea of an infrastructure investment bank. “Reputable economists,” as well as public opinion, tend to agree that all this is pretty good (except, again, it’s not big enough).

The right wing, preferring chaos, cries foul. Obama’s GOP critics insist that, in a healthy economy, government never raises taxes on the rich or stops punishing the rest of us for our sins. It does nothing to close the loopholes that guarantee annual IRS refunds to GE and Bechtel. Nor does it wage the sort of “class warfare” that might imperil the jet set’s comfort or lessen the day-to-day fear that haunts 15 percent of American working families who are trying to survive on less than $22,500 a year.

The current right-wing attitude, as Obama notes, is “my way or the highway.” And the right wing is going to win — to the dismay of “reputable economists,” for whom Republican intransigence conjures the theater of the absurd. Call it Ionesconomics? The invisible hand of Samuel Beckett? Or are we all just trapped in a Lewis Carroll spoof?

I write “reputable economists” in quotes because, ay, there’s the rub. Ain’t no such thing any longer. Theories that have more or less helped us understand the economy over the years — from Adam Smith to John Maynard Keynes to Milton Friedman and Paul Krugman — are roadkill. They’ve been hit, and run over, by our so-called “Tea Party” nihilists and their politician sock-puppets. We are captives of a cult whose economic philosophy makes “survival of the fittest” sound like “blessed are the merciful.”

Until sometime this year, capitalist theory reluctantly presumed some government role in the economy — for taxation, interstate commerce, the common welfare, etc. In today’s end-of-economics Tea Party era, we kiss all that goodbye. Virtually every elected Republican in Washington has signed in blood Grover Norquist’s lifetime pledge never to approve any tax for any reason (a pledge which, if it had been in effect in 1941, would have prevented us from counterattacking after Pearl Harbor).

America has somehow fallen into a rabbit hole down which no economist is reputable. Our econ profs now are a mad hatter named Boehner and a big white bunny named McConnell. They keep saying (and we keep believing) that if we make everything smaller, pretty soon everything’s — boing! — gonna get bigger.

Or, as Lewis Carroll once said to Grace Slick: “DRINK ME… EAT ME.”

David Benjamin

David Benjamin is a novelist and journalist. Originally from Madison, Wisconsin and a graduate of Beloit College, he now lives in Brooklyn. He is the author of The Life and Times of the Last Kid Picked. His latest book, released in 2010 by Tuttle Publishing, is SUMO: A Thinking Fan's Guide to Japan's National Sport. He blogs at http://benjaminsmess.blogspot.com/