Category Archives: Global Economics

Income Inequality and Local Politics

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My Comments: As an economist, I’ve talked consistently about the threat to society posed by income inequality. My rantings make zero difference at the national level, where if this issue is not addressed, there will be rioting in the streets.

A friend and I talked this morning about the apparent collapse of societal norms he and I have used to navigate our lives for the past 60 years. Our hope now is that with the antics of 45 now a daily happening, the backlash from within the GOP and Democratic party, coupled with inevitable demographic changes, we’ll come out OK. Unfortunately, “hope” is rarely an effective management strategy.

Meanwhile, I’ve also become more engaged with elected people at the local level. And so while I can do little more than talk about it, I’m sharing this article with people I enjoy spending time with who might collectively be called progressives.

Thursday, Dec 29, 2016 \ Theo Anderson

In 1980, the top 1 percent earned 27 times more than workers in the bottom 50 percent. Now, they earn 81 times more

The income gap between the classes is growing at a startling rate in the United States. In 1980, the top 1 percent earned on average 27 times more than workers in the bottom 50 percent. Today, they earn 81 times more.

The widening gap is “due to a boom in capital income,” according to research by French economist Thomas Piketty. That means the rich are living off of their wealth rather than investing it in businesses that create jobs, as Republican, supply-side economics predicts they would do.

Piketty played a pivotal role in pushing income inequality to the center of public discussions in 2013 with his book, “Capital in the Twenty-First Century.” In a new working paper, he and his co-authors report that the average national income per adult grew by 61 percent in the United States between 1980 and 2014. But only the highest earners benefited from that growth.

For those in the top 1 percent, income rose 205 percent. Meanwhile, the average pre-tax income of the bottom 50 percent of workers was basically unchanged, stagnating “at about $16,000 per adult after adjusting for inflation,” the paper reads.

It notes that this trend has important political consequences: “An economy that fails to deliver growth for half of its people for an entire generation is bound to generate discontent with the status quo and a rejection of establishment politics.”

But the authors also note that the trend is not inevitable or irreversible. In France, for example, the bottom 50 percent of pre-tax income grew by about the same rate — 32 percent — as the overall national income per adult from 1980 to 2014.

The difference? In the United States, “the stagnation of bottom 50 percent of incomes and the upsurge in the top 1 percent coincided with drastically reduced progressive taxation, widespread deregulation of industries and services, particularly the financial services industry, weakened unions and an eroding minimum wage,” the paper reads.

Piketty and Portland

President-elect Donald Trump’s administration promises at least four years of policies that will expand the gap in earnings. But a few glimmers of hope are emerging at the local level.

The city council of Portland, Oregon, for example, recently approved a tax on public companies that pay executives more than 100 times the median pay of workers. The surtax will increase corporate income tax by 10 percent if executive pay is less than 250 times the median pay for workers, and by 25 percent if it’s 250 and over. The tax could potentially affect more than 500 companies and raise between $2.5 million and $3.5 million per year.

The council cited Piketty’s “Capital in the Twenty-First Century” in the ordinance creating the tax. Steve Novick, the city commissioner behind it, recently wrote that “the dramatic growth of inequality has been fueled by very high compensation of a few managers at big corporations, as illustrated by the fact that 60 to 70 percent of people in the top 0.1 percent of income in the United States are highly paid executives at large firms.”

Novick said that he liked the idea when he first heard about it because it’s “the closest thing I’d seen to a tax on inequality itself.” He also said that “extreme economic inequality is — next to global warming — the biggest problem we have in our society.”

Investing in children

There is also hopeful news in the educational realm. James Heckman, a Nobel Laureate in economics at the University of Chicago who has spent much of his career studying inequality and early childhood education, recently published a paper that lays out the results of a long-term study.

In “The Life-cycle Benefits of an Influential Early Childhood Program,” Heckman and others report that high-quality programs for children from birth to age 5 have long-term positive effects across a range of metrics, including health, IQ, participation in crime, quality of life and labor income.

Predictably, perhaps, the effects of the programs weren’t limited to children. High-quality early childhood education also allowed mothers “to enter the workforce and increase earnings while their children gained the foundational skills to make them more productive in the future workforce,” a summary of the paper reads.

“While the costs of comprehensive early childhood education are high, the rate of return of [high-quality programs] imply that these costs are good investments. Every dollar spent on high quality, birth-to-five programs for disadvantaged children delivers a 13 percent per annum return on investment.”

The research is important because early childhood education has bipartisan support. Over the summer, the Learning Policy Institute released a report that highlighted best practices from four states that have successful early childhood education programs. Two of them — Michigan and North Carolina — are swing states in national politics. The others are Washington and a solidly red state, West Virginia.

Although it isn’t a substitute for other policy tools to address inequality, like progressive taxes, early childhood education has strong bipartisan support because it produces measurable payoffs for both children and the economy. One study found, for example, that the economic benefit of closing the educational achievement gaps between children of different classes would be $70 billion each year.

Early childhood education fosters an “increasingly productive workforce that will boost economic growth, provide budgetary savings at the state and federal levels, and lead to reductions in future generations’ involvement with the criminal justice system,” the Economic Policy Institute recently noted. “These benefits will, of course, materialize only in coming decades when today’s children have grown up. But the research is clear that they will materialize — and when they do, they are permanent.”

Capitalism’s excesses belong in the dustbin of history. What’s next is up to us

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My Comments: Some of you will not bother to read this. Like when you’re in the car looking for a radio station and you hear classical music or country & western; you can’t stand either so you just move on.

But we all have a responsibility to our children and grandchildren. So, in my opinion, we need to better understand what we don’t like. Especially when their economic future is at stake.

So, do yourself a favor, especially those of you who recoil at the term ‘socialism’. There are forces at work like the tides at the beach. No amount of yelling will cause them to stop.

Martin Kirk/Aug 1, 2017

It’s time to dethrone capitalism’s single-minded directive and replace it with a more balanced logic, laying the foundations for a better, more equitable world

Back in February, a college sophomore called Trevor Hill stood up during a televised town hall meeting in New York and put a simple question to the House minority leader, Nancy Pelosi.

Citing a study by Harvard University that showed that 51% of Americans between the ages of 18 and 29 no longer support capitalism, Hill asked if the Democratic party would contemplate moving farther left and offering something distinctly different to dominant rightwing economics? Pelosi, visibly taken aback, said: “I thank you for your question,” she said, “but I’m sorry to say we’re capitalists, and that’s just the way it is.”

The footage went viral on both sides of the Atlantic. It was powerful because of the clear contrast: Trevor Hill is no hardened leftwinger. He’s just your average millennial – bright, well-informed, curious about the world and eager to imagine a better one. By contrast, Pelosi, a figurehead of establishment politics, seemed unable to even engage with the notion that capitalism itself might be the problem.

It’s not only young voters who feel this way. A YouGov poll in 2015 found that 64% of Britons believe that capitalism is unfair, that it makes inequality worse. Even in the US it’s as high as 55%, while in Germany a solid 77% are sceptical of capitalism. Meanwhile, a full three-quarters of people in major capitalist economies believe that big businesses are basically corrupt.

Why do people feel this way? Probably not because they want to travel back in time and live in the USSR. For millennials especially, the binaries of capitalism v socialism, or capitalism v communism, are hollow and old-fashioned. Far more likely is that people are realizing – either consciously or at some gut level – that there’s something fundamentally flawed about a system that has as its single goal turning natural and human resources into capital, and do so more and more each year, regardless of the costs to human well-being and to the environment.

Because that is what capitalism is all about; that’s the sum total of the plan. We can see it embodied in the imperative to increase GDP, everywhere, at an exponential rate, even though we know that GDP, on its own, does not reduce poverty or make people happier and healthier. Global GDP has grown 630% since 1980, and in that same time inequality, poverty and hunger have also risen.

The single-minded focus on the growth of the capital supply is why, for example, corporations have a fiduciary duty to grow their stock value before all other concerns. This prevents even well-meaning chief executives from voluntarily doing anything good, such as increasing wages or reducing pollution, when doing so might compromise the bottom line – As the American Airlines CEO, Doug Parker, found earlier this year when he tried to raise workers’ salaries and was immediately slapped down by Wall Street. Even in a highly profitable industry – which the airlines are, despite many warnings – it is seen as unacceptable to spread the wealth. Profits are seen as the natural property of the investor class. This is why JP Morgan criticized the pay rise as a “wealth transfer of nearly $1bn” to workers.

It certainly doesn’t have to be this way, and we don’t need to look backwards to socialism, or any other historical system, as an prebaked alternative. Instead, we need to evolve. The human capacity for innovation and fresh thinking is boundless; why would anyone want to denigrate that capacity by believing that capitalism is the final system we can come up with?

Martin Luther King spoke of a “higher synthesis”, that takes the best of historical systems, draws on this boundless capacity, and creates something new. There is no shortage of ideas. We can start by changing how we understand and measure progress. As Bobby Kennedy said, GDP “measures everything, in short, except that which makes life worthwhile”. We can change that. We can adopt regenerative agricultural solutions to help us to live in balance with the environment on which we all depend for our survival. We can introduce potentially transformative measures like a crypto-currency-based universal basic income that could fundamentally improve the money system.

Measures like these and many others could dethrone capitalism’s single-minded prime directive and replace it with a more balanced logic. If done systematically enough, they could consign one-dimensional capitalism to the dustbin of history.

We need our political and business leaders to go from clinging on to the myth that growth will solve all our problems, to joining the conversations that social movements, progressive forces, and young people like Trevor Hill are having about how we can lay the foundations for a better, safer, more equitable post-capitalist world. ■

GOP confronts an inconvenient truth: Americans want a healthcare safety net

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My Comments: Some of my friends continue to decry the notion of socialism. They seem to equate it with communism, a very different animal. It’s too bad they haven’t yet figured out that it’s not a rejection of capitalism. For me, because the word has accumulated so many negatives, not unlike the Confederate flag, I’ve searched for an alternative.

I’m a profound believer in capitalism. But I’m smart enough to know that unfettered capitalism becomes an attack on society, where the have’s get to enslave the have nots.

There are hundreds of millions of people on this planet who benefit from social order, whether it’s rules that tell us which side of the street to drive on, or taxing the population to provide national parks. Where along the lengthy path of human development over time would anti-socialist have us return in their efforts to reject the benefits of social order? And does anyone have a suggestion for what to call it?

by Noam N. Levey – July 28, 2017 – Los Angeles Times

The dramatic collapse of Senate legislation to repeal the Affordable Care Act may not end the Republican dream of rolling back the 2010 healthcare law.

But it lay bare a reality that will impede any GOP effort to sustain the repeal campaign: Americans, though ambivalent about Obamacare in general, don’t want to give up the law’s landmark health protections.

“There may be a whole lot of Americans who are complaining about government, but that doesn’t mean they agree with eliminating the safety net,” said former Sen. Dave Durenberger, a Minnesota Republican and healthcare policy leader in the 1980s and ’90s. “We saw that with Social Security and Medicare in Reagan’s day. Now it is a much broader group of people who rely on those health protections.”

And as the Senate debate this week illustrated, Obamacare’s safety net — both guaranteed insurance for the sick and expanded Medicaid coverage for the poor — proved too valued to tear apart.

That means that, while attacks on Obamacare will probably continue, it’s increasingly unlikely that President Trump or GOP congressional leaders will be able to rip out the law “root and branch,” as Senate Majority Leader Mitch McConnell (R-Ky.) once promised.

The GOP’s failure to dismantle the expanded healthcare safety net also may provide an opening for Republicans and Democrats to cooperate on measures to help Americans who have struggled in recent years with rising premiums brought about, in part, by Obamacare.

“Now the real work lies before us,” March of Dimes President Stacey D. Stewart said Friday, following the defection overnight of three GOP senators who voted against a last-ditch Republican bill to begin unraveling the law.

“Our healthcare system and the laws that govern it are far from perfect, and many opportunities exist to find areas of common ground to make improvements,” Stewart said

The March of Dimes is among scores of patient advocacy organizations, hospitals, physicians’ groups and others who bitterly fought the GOP repeal push, warning of disastrous consequences for tens of millions of sick and vulnerable Americans.

This was not how Republicans had sketched out repeal.

For years, GOP politicians cast themselves as saviors, promising to deliver Americans from a law that former Republican presidential candidate Ben Carson, now Trump’s Housing secretary, once called the “worst thing that has happened in this nation since slavery.”

Demonizing Obamacare, initially a derisive label the GOP coined for the ACA, proved good politics. Republicans scored major victories in the 2010, 2014 and 2016 elections on pledges to roll back the law.

But the successful political message — which built off deep partisan divisions — obscured much broader support for the law’s core elements.

For example, 80% of Americans in a national survey last fall reported favorable views of allowing states to expand Medicaid to cover more poor adults, and of providing aid to low- and moderate-income Americans to help them buy health coverage, two pillars of the law.

The same proportion, according to the poll by the nonprofit Kaiser Family Foundation, liked the law’s insurance marketplaces, which allow consumers to shop among health plans that must offer a basic set of benefits.

Nearly 70% backed the law’s coverage guarantee, which prohibits insurers from turning away people due to their medical history of preexisting conditions.

“As a law, Obamacare got caught up in the politics of the time. It became the symbol of the Obama administration,” said Mollyann Brodie, who oversees polling for the Kaiser Family Foundation. “But the policies themselves have always been quite popular, even among Republicans.”

GOP politicians didn’t have to reckon with that contradiction as they took dozens of essentially meaningless repeal votes while Obama was still in the White House to veto their bills.

That changed after the 2016 elections. No longer was repeal an abstract political slogan.

It was a concrete set of plans that cut insurance subsidies for millions of Americans, slashed hundreds of billions of dollars in federal Medicaid assistance to states and weakened coverage guarantees by allowing insurers to once again charge sick people more for coverage.

That is not what Americans wanted, said Dr. Jack Ende, president of the American College of Physicians.

“No version of legislation brought up this year would have achieved the types of reforms that Americans truly need: lower premiums and deductibles, with increased access to care,” said Ende, a University of Pennsylvania primary care doctor.

Independent analyses of the GOP repeal bills by the Congressional Budget Office and others estimated they would leave tens of millions more Americans without health coverage and drive up costs for many older and sicker consumers.

In the crosshairs were not just unemployed adults whom conservative critics derided as freeloaders, but also poor children, disabled Americans and seniors who worked all their lives but depended on Medicaid for nursing home care.

Altogether, nearly 1 in 4 Americans rely on Medicaid and the related Children’s Health Insurance Program for coverage.

And as the repeal debate dragged on in Washington and in congressional districts across the country, stories of these Americans and others who rely on Obamacare’s healthcare protections brought the safety net to life.

National polls ultimately showed that fewer than 1 in 5 Americans surveyed supported the Republican repeal legislation.

By contrast, 60% of Americans in a recent Pew Research Center poll said that it is the federal government’s responsibility to ensure all Americans have health coverage — the highest level in nearly a decade.

Even many Republican state leaders — including the governors of Ohio, Nevada and Arizona — balked at the congressional rush to roll back the Medicaid safety net. In a bipartisan letter to Senate leaders this week, several of these governors urged lawmakers to turn away from the repeal push.

“We ask senators to work with governors on solutions to problems we can all agree on: fixing our unstable insurance markets,” wrote the governors — five Republicans and five Democrats.

Some congressional Republicans seemed reluctant to give up the repeal campaign. “As long as there is breath in my body, I will be fighting for the working men and women of this country that are being hurt by Obamacare,” Texas Sen. Ted Cruz said after the vote early Friday morning.

And conservative activists continue to demand action. “In Washington, there are no permanent victories or permanent defeats,” said Heritage Foundation President Edwin J. Feulner.

The president, meanwhile, reiterated his threats to “let Obamacare implode,” as he said in a Twitter post after the early Friday vote.

The administration could potentially sabotage insurance markets across the country by refusing to enforce the current law’s requirement to buy insurance or withholding payments to health insurers that subsidize costs for very low-income consumers.

But at the Capitol, Democrats and some Republicans appear willing to begin considering legislation to protect those markets and help millions of American consumers who have seen insurance premiums rise dramatically in recent years.

“Simply letting Obamacare collapse will only cause even more pain,” warned Rep. Kevin Brady (R-Texas), chairman of the powerful House Ways and Means Committee.

Fixing the safety net represents a far better approach than a new push to tear it down, said Durenberger, the former GOP senator.

“Bipartisanship is the only option,” he said.

The Business Case for Fighting Growing Inequality

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My Comments: I consider income inequality the greatest existential threat to our democracy. It manifests itself as a shrinking middle class in these United States.

It has the potential to erode what we think of as rational and peaceful co-existence among nations globally. It’s what continues to drive the tensions and conflict in the Middle East where income inequality overwhelms the average young person and their hopes for the future.

This article explains why it’s also bad for business and how business would be well served to address this growing problem. It serves no purpose to build a business empire if what you sell is not affordable.

Guy Miller, Zurich Insurance, June 30, 2017

Despite the current recovery, the global economic outlook remains beset by structural issues as the fallout of the financial crisis continues to be felt a decade later. As policymakers search for solutions, social unrest and the resurgence in populism have focused attention on how economic gains are distributed. International institutions are urging governments to target more inclusive and sustainable growth.

Global concern about economic risks is underlined by the interconnections with other risks: unemployment increases pressure on state social protection systems, for example, while inequality feeds political polarization. Many economic problems undermine social cohesion. In doing so, they also contribute to conditions that are bad for future economic prospects. Business leaders should recognise that these are issues for them, as well as for politicians and economists. Spending power is squeezed, while wasted potential dampens productivity and innovation.

The UN Sustainable Development Goals include “decent work for all”. But the latest Economic Outlook of the Organisation for Economic Cooperation and Development (OECD) shows this remains a distant ambition. While global employment indicators are improving, productivity and wage growth “remain subdued”. The report upgrades the global growth forecast for 2017 from 3.3 percent to 3.5 percent but attributes this to modest cyclical expansion.

In January, the International Labour Organization’s (ILO) World Employment and Social Outlook forecast that 3.4 million more people would find themselves unemployed this year (a rise from 5.7 percent to 5.8 percent). With the rapid global growth in people looking for work, the number in vulnerable jobs is expected to rise by 11 million. Policymakers clearly have their work cut out. But as the private sector looks to mitigate economic risks, it should also play its part in creating inclusive 21st Century growth models.

Profit Sharing and Productivity

According to the OECD, the gap between rich and poor in OECD countries is the highest for 30 years and continues to grow. Changing this trend will require more equitable profit sharing. The OECD says labor’s share of income declined from 66 percent to under 62 percent in advanced economies between 1990 and 2009.

Guy Miller, Chief Market Strategist & Head of Macroeconomics, Zurich Insurance Group, said today’s high capital share may be linked to underinvestment in training and measures to improve productivity. Governments could use taxation initiatives or partnerships to encourage private investment in these areas that would also benefit the macro economy, he added.

The slowdown in productivity growth has spread to emerging markets after affecting 90 percent of OECD countries this century. Hopes that the Fourth Industrial Revolution will raise productivity have not been realised so far. Instead, technological change and the growing capture of rents by frontier firms are causing some regions in developed nations to be left behind. Christian Kastrop, Director of the Policy Studies Branch at the OECD Economics Department, said while automation will cause job losses, it could also create new jobs. “Reskilling or upskilling must become normal, so people feel included even if they lose their jobs,” he said. “Governments must take action with concrete interaction with civil society, and fostering good working relationships between business and trade unions is imperative.”

The Labor Force Learning Imperative

As growth is increasingly driven by automation and the knowledge economy, workforces will need to become more dynamic and flexible. Automation is now a threat not only to low-skilled workers but also to “mid-tier and even higher-tiered knowledge workers”, said Mr Miller. Economies need a new emphasis on life-long learning if they are to adjust.

Automation’s potential impact on unemployment, along with structural changes like the rise of the sharing economy, should focus policymakers’ minds. Employers must also recognise how funding training is likely to reap rewards in time. “A sense of learning how to learn must be more deeply embedded in our culture and throughout the career cycle,” said Steven Tobin, Team Leader of the ILO’s Labour Market Trends and Policy Evaluation Unit.

Skills mismatch is already a persistent problem in many countries. When workers lack the skills the market demands, it is a “lose-lose-lose” situation, said Steven Kapsos, Head of the ILO’s Data Production and Analysis Unit. “Workers are less productive, firms less profitable, and overall economic growth suffers,” he said. Policies that promote economic activity among women and older workers would stimulate growth in countries with ageing populations, he argued.

Closer collaboration between the public and private sectors on training and active labor market programs is vital, said Mr Tobin. “Far too often, public sector training and skills programs have been designed without consulting social partners, notably the private sector.”

The Cost of ‘Quarterly Capitalism’

Daryl Brewster is CEO of U.S.-based CECP, a CEO-led coalition of more than 200 major companies, founded “to create a better world through business”. Its members represent USD 7 trillion in revenues and USD 18.6 billion in societal investment. But Mr Brewster said 86 percent of the coalition’s CEOs feel they are too focused on what he calls “quarterly capitalism”. McKinsey Global Institute’s Corporate Horizon Index shows that companies with long-term approaches outperform peers. And CECP has launched its own initiative to enable CEOs to present long-term plans to long-term investors.

“We think it could help change the narrative from a slash and burn approach to one of building sustainable societies,” said Mr Brewster. “By taking a longer term horizon with regular updates, companies will attract better employees, enjoy more stable societal situations, and have more customers who can afford their products.”

Balancing Fiscal and Monetary Policy

A low interest rate, low yield environment has become the norm for many economies that have become reliant on central banks for economic stimulus. But mixed results have led to an increasing number of dissenting voices. The ILO argues that coordinated fiscal stimulus could “jump-start” the global economy. In doing so, it could cut unemployment and raise investment demand.

Zurich’s Mr Miller said monetary policy has disproportionately favoured the asset rich. Greater efforts are needed to show where fiscal spending is most likely to deliver high multiplier effects and long-term impact, he added. “It‘s important that when the next downturn emerges, a combination of both fiscal and monetary tools are used, ideally in a coordinated manner across regions,” Mr Miller said. He also suggested that “temporary fiscal transfers between debtor and creditor nations” should be considered in the Eurozone. Mr Kastrop said the Eurozone is an exception to the need to end reliance on monetary policy, since a change might favor Germany over weaker nations.

An Era of Equitable Growth?

The global economy may be experiencing a cyclical upturn. But the OECD says it is not “good enough to sustainably improve citizens’ well-being”. Achieving that will require concerted actions by policymakers, while Mr Brewster is also clear about the role business can play.

He said the recent socio-political climate should be a “wake-up call” for business, adding “Having more of the world participating in the economy rather than fighting against it is in companies’ best interests.”

This is true because it is often impossible to separate economic risks from social and political risks. If people feel the economy no longer offers them a fair chance, these feelings will soon come to the surface in other areas. Getting closer to the UN goal of decent work for all would surely lower the rising risk of political polarization. It would also favour international cooperation over a return to protectionism.

What is at stake goes far beyond stimulating short-term growth or meeting the next performance targets. The current recovery, combined with changes in corporate culture, offer a window of opportunity for reforms that could enable an era of more equitable growth. Both policymakers and business leaders must recognise that they have a clear interest in creating stronger economies for all.

Key takeaways

• While automation is nothing new, the pace and breadth of current change is striking. It is no longer just the low-skilled that are at risk from automation, but also many mid-tier and even high-tiered knowledge workers.

• Having a flexible workforce and one that is trained in the latest thinking and techniques can create a dynamic and proactive culture that is more suited to a changing competitive landscape. This means investing in people as well as in capital.

• Life-long learning will be vital in the digital age and the public sector must therefore consult more closely with the private sector, especially in relation to the skills companies want.

• Businesses that target long-term performance and help drive inclusive economic growth can boost their bottom line as well as social cohesion.

The Forces Behind Income Inequality in America

My Comments: Followers of my posts have heard me say that income inequality is the greatest existential threat to our society. It ranks up there with global warming.

The path we appear to be on right now, both here in the States and across the planet, will not change until this issue is addressed. It will lead to the same destructive ethos that caused communism to fail; without an economic incentive to push toward a better future, productivity disappears.

An example of this appears in the middle east today. With little chance of economic gains, young people, deprived of the chance to grow a family, live ‘normally’ with a promise of future prosperity, turn instead to religion and jihad. For many, they have nothing to lose so they embrace the myth that salvation is on the other side.

By Charles Bovaird | September 10, 2016

Several factors have come together to fuel income inequality in the United States. While many market observers have examined this rising inequality, the McKinsey Global Institute took a different approach, taking a closer look at people whose income either stayed flat or declined, compared to individuals from the past who had similar incomes or demographic profiles. Between 2005 and 2014, two-thirds of U.S. households saw their real market incomes either stall or drop.

The report paid particular attention to this 10-year period, because it contrasted with the income growth that households in advanced economies have generally enjoyed since World War II.

While the report found that the financial crisis of 2007-2009 and its subsequent slow recovery played a key role in this deterioration, this event was worsened by shifts in labor market conditions and demographic trends. The falling share of gross domestic product (GDP) going to wages, the rise of workplace automation and shifting demographics all played their part.

Financial Crisis and Recovery

Following the financial crisis, the global economy suffered one of the most severe recessions since the Great Depression. Once the nations of the world emerged from this downturn, many experienced recoveries that were rather sluggish.

The United States, for example, experienced GDP growth that averaged only 2.2% between the end of the recession in June 2009 and the end of 2014. This represents the weakest expansion of the post-World War II era. The figure of 2.2% was more than 0.5% below the rate experienced during the second-weakest recovery of the last 70 years.

In addition to this modest growth, inflation-adjusted wages have increased very little during the recovery. Private payrolls’ average hourly earnings have increased an average of roughly 2.1% a year, but after adjusting for inflation, real wages have barely grown at all, according to the Center on Budget and Policy Priorities.

Falling Wage Share

The wage share, the proportion of national income that is paid in wages, experienced a sharp change following the financial crisis. Before this event, an average of 18% of U.S. GDP growth went to median household income growth, according to figures provided by the report.

This figure dropped to 4% in the seven years following the recession, additional data included in the report showed. In addition to suffering this sharp decline, the portion of national income going to wages was undermined by changes in the labor market and demographic trends.

Demographic Shifts

While the incomes of most segments of the population either stalled or declined between 2002 and 2012, some demographic groups experienced a greater impact, the McKinsey report found. Less-educated workers, younger ones in particular, took a larger hit than those in other demographics. The report also noted that women, and single mothers in particular, were more likely to show up in lower income deciles.

Labor Market Shifts

The labor market experienced some structural changes between 2005 and 2014. One major variable affecting this market was automation. The rising use of personal computers has eliminated many clerical positions, and robots have taken the place of many machine operators in factories. Past that, “smart” machines have made it possible to automate many tasks that were previously considered beyond automation.

McKinsey’s report estimated that with technologies that are available or have been announced, companies could potentially automate tasks that account for 30% of the hours spent by 60% of U.S. employees.

Summary

Several variables helped income inequality rise between 2005 and 2014, a development that took place as two-thirds of American households saw their income either stay flat or decline. In addition to a financial crisis and lackluster recovery, labor market shifts, demographic trends and falling wage share all helped fuel this growing disparity.

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“…the Nature of Capitalism”

My Comments: There are changes afoot, and 45 and his cronies seem to have few clues. Or, more likely, they don’t give a damn.

The disparity between those at the top of the economic food chain and the rest of us not at the top, is called ‘income inequality’. The different approach taken by the two primary political parties, assuming there is a motivation to govern, is that ‘income inequality’ results from laziness and social giveaways, while the other party argues there are pressures whose origins are beyond the capacity for anyone to influence.

The disparities show up now as anemic job growth numbers across the nation, to the rise in disaffected people who show up at Trump rallies, to the tension in so many communities between law enforcement and the people they are supposed to be protecting, to the tension between rural and urban populations, and on and on and on.

There are huge implication for people with years of retirement left to navigate. This is a good read and very thought provoking.

by Oscar Williams-Grut | November 5, 2016

Lord Adair Turner, the former vice chairman of Merrill Lynch Europe and ex-head of the Britain’s financial watchdog, is “increasingly worried” that advances in technology are undermining capitalism and stopping the global economy recovering from its “post-crisis malaise.”

In an interview with Business Insider, Lord Turner said: “We have an economic malaise where the capitalism system is not delivering as well or to enough people to maintain its legitimacy.

“There’s a certain sort of equality of citizenship that requires that everybody does OK. I think that may breakdown. I think it may breakdown because of the fundamental nature of technology. You have to be aware that the way that capitalism works will vary depending on the different stages of technology that we’re in.”

‘Huge returns for them and relatively low and precarious returns for an increasing percentage’

Lord Turner ran the Confederation of British Industry (CBI) in the mid-1990s, before becoming vice chairman of Merrill Lynch Europe from 2000 to 2006. He then served as head of the UK’s former financial watchdog the Financial Service Authority from 2008 to 2013, taking the jobs on the eve of the global financial crisis sparked by the US mortgage security bubble.

Lord Turner is now chairman of George Soros’ economic think thank the Institute for New Economic Thinking and this year authored “Between Debt and the Devil” on the global financial crisis. (There are those on the right who claim George Soros, despite his billions, it really a communist, interested in destroying capitalism – TK)

He told Business Insider that businesses like Facebook, Uber, and Airbnb are focusing huge amounts of wealth in the hands of relatively few people and generating fewer jobs than previous technological breakthroughs. This is undermining the fundamental promise of capitalism that advances in technology and the wider economy will bring some benefit to everyone.

He said: “Look at Facebook — it now has a market cap of about $370 billion. It only employs 14,000 people and it had to do very little investment in order to get there. The reason is this technology has this extraordinary feature that once you develop one copy of software, the next billion copies don’t cost you anything.

“There’s zero marginal cost of replication. That is just completely different from the world of electromechanical machinery. Once Henry Ford had built one factory, if he wanted another he’d have to build it all over again. He had to put in lots of millions of stock.”

Technological innovations, such as industrialisation, have traditionally generated more jobs than they destroyed. But research by Citi and Oxford University earlier this year found a “downward trend in new job creation” from the 1980s onwards, with technology generated fewer, lower-skilled jobs than past revolutions.

The World Economic Forum has already forecast that 5 million jobs could be eradicated by technology by 2020 and 57% of all jobs across the OECD are at risk of automation, according to research by Citi and Oxford University.

Lord Turner says: “The problem is this: I think we probably are on the verge of a wave of automation and robotisation and the application of big data etc., which will tend to create an economy of huge returns for the people clever enough to create the software, do the big of data analytics, create the computer game, create the new business model or the data system that sits at the centre of Airbnb or Uber.

‘One of the things is it does seem to be driving inequality’

Multi-billion dollar tech platforms like Airbnb and Uber pitch themselves as part of the “gig economy,” which they say helps people earn extra money through either flexible work or renting out their assets.

But British economist Guy Standing argues that most of the people who work on these types of platforms are part of what he terms the “precariat” — low-paid workers with precarious job security. He claims these types of platforms that connect workers with employers are part of a wider trend of low-paid agency work.

Tech platforms’ role in society has been in focus recently, with a British employment tribunal ruling that Uber drivers were in fact staff rather than freelancers on the platform. As a result, they are legally be entitled to things like holiday pay and sick pay.

Lord Turner says: “I think we’re just at the beginnings of understanding what deep things this [technological change] does. One of the things is it does seems to driving of inequality. This information and communication technology enables huge wealth creation with very little investment for some categories of people in the economy and creates jobs that are very low pay for others.”

Lord Turner thinks this tech-driven inequality has contributed to the popular resentment for elites and mainstream politics that drove the Brexit vote and support from Donald Trump in the US elections.

He says: “I think we may be at a turning point in the nature of capitalism. Our assumption for the last 200 years has been that although there are ups and downs year by year, broadly speaking decade-by-decade capitalism delivers an increase in GDP per capita and although it’s not an equal system, some people do better than others, on average over a couple of decades everybody does OK.”

‘I am increasingly convinced and worried there are more fundamental forces at work’

Lord Turner suggested that a solution the tech-driven equality could be a universal basic income — a flat wage paid to all citizens that is enough for them to live on. Experiments with this are being carried out in Holland and Kenya.

An alternative could be that the government ensures people are paid a “living wage” for essential human roles such as health and social care, Lord Turner says.

He told BI: “There are many jobs that we need to do in our society, care etc., that you can’t automate and you wouldn’t want to automate. They need to be done but it may be that if you leave those entirely to the private sector or the state in trying to buy them, using competitive bidding processes to continually drive the price down, those things where we do need people to do the job will be at rates so low that it doesn’t give people enough income and dignity.

“Does that mean that we just have to accept that the state has to say through the social care system and health care system it’s going to employ people and pay people at a rate which it considers reasonable — a living wage or whatever — rather than at the lowest rate at which it can put it out to competitive bidding?”

But Lord Turner added: “I think it’s a fundamental social issue that we will increasingly have to debate and I think we don’t really know what the policy levers there are.”
Lord Turner believes that finding a solution to the problems presented by the new tech economy are essential not just to repairing global trust in capitalism but also in repairing the global economy itself.

Lord Turner argued in his book, “Between the Debt and the Devil”, that the global economy’s painfully slow recovery from the 2008 crisis has been caused by the huge debt overhang created by a half century of loose credit conditions in the run up to the crash.

But he told BI: “Whereas soon are 2008 I felt our problem was fundamentally just an enormous debt overhang generated by an out of control credit boom, I am increasingly convinced and increasingly worried that there are some more fundamental forces at work which is why it’s taking so long to get out of, and why we’re still not out of, this post-crisis malaise.”

Growth Is Not Dead, But It Is Dying

My Comments: My post on May 26th last about Demographics and Money suggested reasons why economic growth in long established nations will be nothing to brag about going forward. Despite the current Administration suggesting a return to not just 3% annual growth for the US economy, but wait for it, 4% annual growth, it’s just not going to happen.

The tax plan outlined by the White House the other day makes the basic assumption that with high growth, tax revenues will grow to pay for everything. What is not said is that without significant growth, the hole we are in now will simply get deeper.

Right now the Federal deficit is almost $20T. That’s a staggering amount. Pretty soon, the annual cost to service that debt will be $1T per year. That money has to come from tax revenues, which means you and I. Are you prepared to pay your share when the top 1% get more tax breaks?

I’m far from a pacifist, but do we really need to keep paying more annually for our military than the next seven nation’s combined spending? Yes, some of that spending filters back into the economy and functions as a stimulus, but the Administration wants to spend more than we do now.

May 28, 2017 Lorenzo Fioramonti

Growth is dying as the silver bullet for success. Why this may be good thing

The idea that the economic “pie” can grow indefinitely is alluring. It means everybody can have a share without limiting anybody’s greed. Rampant inequality thus becomes socially acceptable because we hope the growth of the economy will eventually make everybody better off.

In my new book “Wellbeing Economy: Success in a World Without Growth” I point out that the “growth first” rule has dominated the world since the early 20th century. No other ideology has ever been so powerful: the obsession with growth even cut through both capitalist and socialist societies.

But what exactly is growth? Strangely enough, the notion has never been reasonably developed.

For common sense people, there is growth when – all things being equal – our overall wealth increases. Growth happens when we generate value that wasn’t there before: for instance, through the education of children, the improvement of our health or the preparation of food. A more educated, healthy and well-nourished person is certainly an example of growth.

If any of these activities generate some costs, either for us individually or for society, we should deduct them from the value we have created. In this logical approach, growth equals all gains minus all costs.

Paradoxically, our model of economic growth does exactly the opposite of what common sense suggests.

Negative values of growth

Here are some examples. If I sell my kidney for some cash, then the economy grows. But if I educate my kids, prepare and cook food for my community, improve the health conditions of my people, growth doesn’t happen.

If a country cuts and sells all its trees, it gets a boost in GDP. But nothing happens if it nurtures them.

If a country preserves open spaces like parks and nature reserves for the benefit of everybody, it does not see this increase in human and ecological wellbeing reflected in its economic performance. But if it privatises them, commercialising the resources therein and charging fees to users, then growth happens.

Preserving our infrastructure, making it durable, long-term and free adds nothing or only marginally to growth. Destroying it, rebuilding it and making people pay for using it gives the growth economy a bump forward.

Keeping people healthy has no value. Making them sick does. An effective and preventative public healthcare approach is suboptimal for growth: it’s better to have a highly unequal and dysfunctional system like in the US, which accounts for almost 20% of the country’s GDP.

Wars, conflicts, crime and corruption are friends of growth in so far as they force societies to build and buy weapons, to install security locks and to push up the prices of what government pays for tenders.

The earthquake in Fukushima like the Deep Water Horizon oil spill were manna for growth, as they required immense expenditure to clean up the mess and rebuild what was destroyed.

Disappearing growth

Against this pretty grim depiction, you may ask yourself: where is the good news? Well, the good news is that growth is disappearing, whether we like it or not. Economies are puffing along. Even China, the global locomotive, is running out of steam.

And consumption has reached limits in the so-called developed world, with fewer buyers for the commodities and goods exported by developing countries.
Energy is running out, particularly fossil fuels, and even if polluting energy sources were endless – as some supporters of shale gas, or fracking, suggest – global agreements to fight climate change require us to eliminate them soon.

As a consequence, mitigating climate change forces industrial production to contract, thus limiting growth even further. What this means is that, on the one hand, growth is disappearing due to the systemic contraction of the global economy. On the other, the future of the climate (and all of us on this planet) makes a return of growth, at least the conventional approach to industry-driven economic growth, politically and socially unacceptable.

Window of opportunity for change

Even the International Monetary Fund and mainstream neoliberal economists like Larry Summers agree that the global economy is entering a “secular stagnation”, which may very well be the dominant character of the 21st century.

This is a disastrous prospect for our economies, which have been designed to grow – or perish. But it is also a window of opportunity for change. With the disappearance of growth as the silver bullet to success, political leaders and their societies desperately need a new vision: a new narrative to engage with an uncertain future.

In my new book, I argue that as we begin to recognize the madness behind growth, we start exploring new paths. These include: forms of business that reconcile human needs with natural equilibria; production processes that emancipate people from the passive role of consumers; systems of social organisation at the local level that reconnect individuals with their communities and their ecosystems, while allowing them participate in a global network of active change makers.

This is what I call the “wellbeing economy”. In the wellbeing economy, development lies not in the exploitation of natural and human resources but in improving the quality and effectiveness of human-to-human and human-to-ecosystem interactions, supported by appropriate enabling technologies.

Fulfilling lives

Decades of research based on personal life evaluations, psychological dynamics, medical records and biological systems have produced a considerable amount of knowledge about what contributes to long and fulfilling lives.

The conclusion is: a healthy social and natural environment. As social animals, we thrive thanks to the quality and depth of our interconnectedness with friends and family as well as with our ecosystems. But of course, the quest for wellbeing is ultimately a personal one.

Only you can decide what it is. This is precisely why I believe that an economic system should empower people to choose for themselves. Contrary to the growth mantra, which has standardised development across the world, I believe an economy that aspires to achieve wellbeing should be designed but those who live it, in accordance with their values and motives.

Source article: http://theconversation.com/growth-is-dying-as-the-silver-bullet-for-success-why-this-may-be-good-thing-78427