Thursday, May 03, 2012

The Tinder-Box Society

The article below that I am citing here was written by Robert Reich and published by the Huffington Post. My regular readers must think I am out of my mind; I usually disagree completely with Reich’s and Huffington’s views. In this case, however, I think that there is some real truth in the main point he is making. On points of disagreement I have made some editorial comments in red.

Whoever succeeds Barack Obama as president has to be careful not to make too many cuts too fast; we must shrink government and reduce spending, but drastic cuts could well turn a serious recession into a serious depression.

Also, my college law professor used to tell us Business Management students that all business regulation was the result of the excesses of businessmen. I have never forgotten that. One area that needs regulation is the rapidly widening gap between factory wages and CEO remuneration. This gap has become obscene.

The Tinder-Box Society

Robert Reich May 3, 2012 Huffington Post

The Dow Jones Industrial Average hit 13,338 Tuesday, its highest since December, 2007. The S&P 500 added 16 points. Wall Street will remember May 1 as a great day.

But most of these gains are going to the richest 10 percent of Americans who own 90 percent of the shares traded on Wall Street. And the lion's share of the gains are going to the wealthiest 1 percent.

Shares are up because corporate profits are up, and profits are up largely because companies have figured out how to do more with less.

Payrolls used to account for almost 70 percent of the typical company's costs. But one of the most striking legacies of the Great Recession has been the decline of full-time employment -- as companies have substituted software or outsourced jobs abroad (courtesy of the Internet, making outsourcing more efficient than ever), or shifted them to contract workers also linked via Internet and software.

That's why most of the gains from the productivity revolution are going to the owners of capital, while typical workers are either unemployed or underemployed, or else getting wages and benefits whose real value continues to drop. The portion of total income going to capital rather than labor is the highest since the 1920s.

Increasingly, the world belongs to those collecting capital gains.

They're the ones who demanded and got massive tax cuts in 2001 and 2003, on the false promise that the gains would "trickle down" to everyone else in the form of more jobs and better wages.

NOTE: Not a false promise. During the Bush Presidency unemployment averaged less than 5%.

They're now advocating austerity economics, on the false basis that cuts in public spending -- including education, infrastructure, and safety nets -- will generate more "confidence" and "certainty" among lenders and investors, and also lead to more jobs and better wages.

None of this is sustainable, economically or socially.

It's not sustainable economically because it has resulted in chronically inadequate demand for goods and services. That's meant anemic growth punctuated by recessions. Without a larger share of the economic gains, the vast middle class doesn't have the purchasing power to buy the goods and services an ever-more productive economy can generate.

It's not sustainable socially because it has resulted in rising frustration over the inability of most people to get ahead.

NOTE: The main cause of middle class losses is excessive government interference and overregulation of our manufacturing and energy sectors – regulations mostly put in place by Democrats. The result has been an inability to compete with foreign manufacturers..

Austerity economics in Europe is fanning the flames, as public budgets are slashed on the false crucible of fiscal responsibility. In the United States, an anemic recovery and plunging home prices are taking a toll: a large portion of the public believes the game is rigged, and no longer trusts that the major institutions of society -- big business, Wall Street, or government -- are on their side. In Europe and America, 30 to 50 percent of recent college graduates are unemployed or underemployed.

Inequality is also widening in China, where the scandal surrounding Bo Xilai and his family is serving as a public morality tale about great wealth and official corruption. Students in Chile are in revolt over soaring tuition and other perceived social injustices.

It's a combustible concoction wherever it occurs: increasing productivity, widening inequality, and rising unemployment create tinder-box societies.

Public anger and frustration can ignite in two very different ways. One is toward reforms that more broadly share the productivity gains.

The other is toward demagogues that turn people against one another.

Demagogues use fear and frustration to advance themselves and their own narrow political agendas -- scapegoating immigrants, foreigners, ethnic minorities, labor unions, government workers, the poor, the rich, and "enemies within" such as communists, terrorists, or other conspirators.

NOTE: The worst demagogue and biggest divider we have ever seen is Barack Obama.

Be warned. The demagogues already are on the loose. In Europe, fringe parties on the right and left are gaining ground. In America, politics has turned especially caustic and polarized. (The right is even accusing people it doesn't like of being communists.) No one knows where China is heading, but reformers and ideologues are battling some of it out in public.

May 1 may be a good day for the Dow Jones Industrial Average, but the future depends on the job prospects and wages of the average worker.

Robert Reich, Chancellor's Professor of Public Policy at Berkeley and former Secretary of Labor, is the author of Beyond Outrage.

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