Tag Archives: Economic Growth

Human Delusion and Our Destruction of the Biosphere: We Aren’t Even Trying!

Posted on by
1

By Robert J. Burrowes

Have you heard the expression ‘climate change’? That lovely expression that suggests a holiday in a place with a more pleasant climate.

Unfortunately, only the rarest individual has the capacity to see through the elite-promulgated delusion that generated this benign expression and its twin notions that 1.5 degrees celsius (above the preindustrial level) is an acceptable upper limit for an increase in global temperature and that the timeframe for extinction-threatening outcomes of this ‘climate change’ is the ‘end of the century’.

If you believe that this 1.5 degree increase is achievable or even viable for sustaining life on Earth and that the ‘end of the century’ is our timeframe then you are the victim of your own fear, which is suppressing your capacity to seek out, analyze and comprehend the evidence that is readily available and to then behave powerfully in response to it. For an explanation, see ‘Why Violence?’ and ‘Fearless Psychology and Fearful Psychology: Principles and Practice’.

Therefore, your fear, rather than the climate catastrophe and other critical assaults on Earth’s biosphere, is the real problem.

The most casual perusal of the evidence in relation to what is happening to Earth’s biosphere – as distinct from the propaganda that is endlessly promulgated in the global elite’s corporate media – clearly indicates that the cataclysmic assault on our biosphere in a wide range of synergistic ways is now driving the sixth mass extinction event in Earth’s history and that, as a direct result of our relentless and rampaging destruction of habitat, it will take down humanity with it. Well within 10 years. See ‘Human Extinction by 2026? A Last Ditch Strategy to Fight for Human Survival’.

Now if your fear hasn’t already been triggered so that you ceased reading this article, let me offer the barest outline of the nature and extent of the assault on Earth’s biosphere and why the climate catastrophe is only one part of it which nonetheless needs to be seriously, rather than tokenistically, addressed, as is usually suggested whether by most climate lobby groups or, of course, elite-controlled governments and the IPCC.

But before ranging beyond the climate to highlight other threats to the biosphere, did you know that governments and corporations around the world are currently planning or have under construction 1,380 new coal plants? That’s right. 1,380 new coal plants. In 59 countries. See ‘NGOs Release List of World’s Top Coal Plant Developers’ and ‘2018 Coal Plant Developers List’.

For just a taste of the detail on this rapid coal expansion, try the report ‘Tsunami Warning: Can China’s Central Authorities Stop a Massive Surge in New Coal Plants Caused by Provincial Overpermitting?’ and ‘The World Needs to Quit Coal. Why Is It So Hard?’

So if we are deluding ourselves about coal, what about oil? Can we expect a dramatic reduction in oil use to compensate for the substantial increase in coal use? Well, according to the just-released report of the International Energy Agency (IEA), while there is some projected improvement in fuel economy for cars and a projected increase in the number of electric vehicles, cars only account for about one-quarter of the world’s oil consumption and there is no projected reduction in the oil used to fuel freight trucks, ships and airplanes; for heating; and to make plastics and other petrochemicals. ‘As a result, the agency expects global oil demand to keep rising through 2040.’

To summarize: the IEA report notes that global carbon dioxide emissions rose 1.6% in 2017 and are on track to climb again in 2018 and, on the current trajectory, emissions will keep rising until 2040. See ‘World Energy Outlook 2018’ and ‘Clean Energy Is Surging, but Not Fast Enough to Solve Global Warming’.

So, given that we are led to believe that there is supposed to be some sort of international consensus to limit the global temperature increase to 1.5 (which is far too high in any case) above the preindustrial level, why is this happening? Well, in relation to coal: ‘Powerful companies, backed by powerful governments, often in the form of subsidies, are in a rush to grow their markets before it is too late. Banks still profit from it. Big national electricity grids were designed for it.’ See ‘The World Needs to Quit Coal. Why Is It So Hard?’

And just to illustrate what those of us who are genuinely concerned are up against, if you want to read the latest breathtakingly delusional account of the state of the world’s climate which prodigiously underestimates the nature of the climate catastrophe and utterly fails to consider the synergistic impact of other critical environmental destruction, you can do so in the US government’s just-released report ‘Fourth National Climate Assessment Volume II: Impacts, Risks, and Adaptation in the United States’ which is summarized here: ‘Fourth National Climate Assessment Volume II: Impacts, Risks, and Adaptation in the United States; Report-in-Brief’.

This report is presented in one of the global elite’s primary propaganda outlets as follows: ‘A major scientific report issued by 13 federal agencies on [23 November 2018] presents the starkest warnings to date of the consequences of climate change for the United States, predicting that if significant steps are not taken to rein in global warming, the damage will knock as much as 10 percent off the size of the American economy by century’s end.’ See ‘U.S. Climate Report Warns of Damaged Environment and Shrinking Economy’.

At this point I must confess that despite my substantial knowledge of human psychology and widespread human insanity (and the fear that drives it), certainly afflicting the global elite, sometimes even I am impressed with the level of delusion that elites can propagate and have so many believe. See ‘The Global Elite is Insane Revisited’.

Still, as Joseph Goebbels, Nazi Minister of Propaganda and Public Enlightenment under Adolf Hitler once noted:

‘If you tell a lie big enough and keep repeating it, people will eventually come to believe it. The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State.’

What Goebbels didn’t know is that someone must be terrified – as we terrorize our children – so that they can be so victimized by propaganda as adults.

Anyway, apart from our destruction of Earth’s climate by burning coal and oil, not to mention gas, elites use geoengineering to wage war on Earth’s climate, environment and ultimately us. For the latest update on the geoengineering assault on Earth’s biosphere, listen to Dane Wigington’s latest superb ‘Geoengineering Watch Global Alert News, #172’ and read, watch and listen to the vast documentary record available on the Geoengineering Watch website which remind us how climate engineering is annihilating plants, toxifying soils and water, and destroying the ozone layer among many other outcomes. For a video explaining the role of geoengineering in the latest wildfires in California, see ‘Climate Engineering Total Desperation, Engineering Catastrophic Wildfires To Temporarily Cool Earth’.

All of the above is happening despite the existing temperature increase (about one degree) triggering the now-endless succession of deadly wildfires, droughts, cold snaps, floods, heat waves and catastrophic hurricanes (often in parts of the world where the corporate media can ignore them), as well as the out-of-control methane releases into the atmosphere that are occurring. See ‘7,000 underground gas bubbles poised to “explode” in Arctic’ and ‘Release of Arctic Methane “May Be Apocalyptic,” Study Warns’.

Moreover, these methane releases coupled with other ongoing climate impacts such as sea ice melt and permafrost thawing in the Arctic – summarized in ‘Will humans be extinct by 2026?’ – which has led to the ‘Arctic’s strongest sea ice break[ing] up for first time on record’ and the dramatic weakening of the Gulf Stream – see ‘Anomalously weak Labrador Sea convection and Atlantic overturning during the past 150 years’, ‘Observed fingerprint of a weakening Atlantic Ocean overturning circulation’ and ‘Gulf Stream current at its weakest in 1,600 years, studies show’ – threaten imminent human extinction.

So do you think we are even trying? Or are we tinkering around the edges of this accelerating catastrophe and deluding ourselves that we are doing enough?

But this is far from the end of it. There are other critical threats to Earth’s biosphere that horribly complicate the nature and extent of this catastrophe. What are these threats?

Well, to leave aside a series of threats only marginally less drastic, here are some of the key ones, all of which seriously degrade (or destroy outright) vital components of the interrelated ecosystems (‘the web of life’) that make life on Earth possible.

Rainforests

We are currently destroying the world’s rainforests, mainly by logging them for timber and burning them down to make way for cattle ranches or palm oil plantations. In an extensive academic study, more than 150 joint authors of a report advised that ‘most of the world’s >40,000 tropical tree species now qualify as globally threatened’. See ‘Estimating the global conservation status of more than 15,000 Amazonian tree species’.

Why are more than 40,000 tropical tree species threatened with extinction? Because ‘Upwards of 80,000 acres of rainforest are destroyed across the world each day, taking with them over 130 species of plants, animals and insects.’ See ‘Half of Amazon Tree Species Face Extinction’ and ‘Measuring the Daily Destruction of the World’s Rainforests’. If you missed that, it was 80,000 acres of rainforest destroyed each day.

Oceans

We are destroying the Earth’s oceans by dumping into them everything ranging from excess carbon dioxide and vast amounts of synthetic poisons to plastic and the radioactive contamination from Fukushima. The oceans absorb carbon dioxide as one manifestation of the climate catastrophe and, among other outcomes, this accelerates ocean acidification, adversely impacting coral reefs and the species that depend on these reefs.

In addition, a vast runoff of agricultural poisons, fossil fuels and other wastes is discharged into the ocean, adversely impacting life at all ocean depths – see ‘Staggering level of toxic chemicals found in creatures at the bottom of the sea, scientists say’ – and generating ocean ‘dead zones’: regions that have too little oxygen to support marine organisms. See ‘Our Planet Is Exploding With Marine “Dead Zones”’.

Since the Fukushima nuclear reactor disaster in 2011, and despite the ongoing official coverup, vast quantities of radioactive materials are being ongoingly discharged into the Pacific Ocean, irradiating everything in its path. See ‘Fukushima: A Nuclear War without a War: The Unspoken Crisis of Worldwide Nuclear Radiation’.

Finally, you may not be aware that there are up to 70 ‘still functional’ nuclear weapons as well as nine nuclear reactors lying on the ocean floor as a result of accidents involving nuclear warships and submarines. See ‘Naval Nuclear Accidents: The Secret Story’ and ‘A Nuclear Needle in a Haystack: The Cold War’s Missing Atom Bombs’.

Soil

But not all of our destruction is as visible as our vanishing rainforests and contaminated oceans. Have you considered the Earth’s soil recently? Apart from depleting it, for example, by washing it away (sometimes in dramatic mudslides but usually unobtrusively) because we have logged the rainforest that held it in place, we also dump vast quantities of both inorganic and organic pollutants into it as well. Some of the main toxic substances in waste are inorganic constituents such as heavy metals, including cadmium, chromium, lead, mercury, nickel and zinc. Mining and smelting activities and the spreading of metal-laden sewage sludge are the two main culprits responsible for the pollution of soils with heavy metals. See ‘Soil-net’.

Far more common, however, is our destruction of the soil with organic based pollutants associated with industrial chemicals. Thousands of synthetic chemicals reach the soil by direct or indirect means, often in the form of fertilizers, pesticides, herbicides and other poisons that destroy the soil, by reducing the nutrients and killing the microbes, in which we grow our food (which many people actually eat, at great cost to their health). See, for example, ‘Glyphosate effects on soil rhizosphere-associated bacterial communities’.

Using genetically modified organisms, and the chemical poisons on which they rely, exacerbate this problem terribly. But two other outcomes of the use of such poisons are that the depleted soil can no longer sequester carbon and the poisons also kill many of the beneficial insects, such as bees, that play a part in plant pollination and growth.

And, of course, military contamination and destruction of soil is prodigious ranging from the radioactive contamination of vast areas to the extensive and multifaceted chemical contamination that occurs at military bases.

Partly related to military violence but also a product of using nuclear power, humans generate vast amounts of waste from exploitation of the nuclear fuel cycle. This ranges from the pollution generated by mining uranium to the radioactive waste generated by producing nuclear power or firing a nuclear weapon. But it also includes the nuclear waste generated by accidents such as that at Chernobyl and Fukushima.

Again, for just a taste of the monumental nature of this problem, see ‘Emergency Declared at Nuclear Waste Site in Washington State’, ‘Disposing of Nuclear Waste is a Challenge for Humanity’ and ‘Three Years Since the Kitty Litter Disaster at Waste Isolation Pilot Plant’.

Like destroying the rainforests and oceans, destroying the soil is an ongoing investment in future extinctions. And so is our overconsumption and contamination of the Earth’s finite fresh water supply.

Fresh Water

Whether wetland, river, creek, lake or acquifer, Earth’s fresh water is under siege. Given corporate negligence, this includes all of the chemical poisons and heavy metals used in corporate farming and mining operations, as well as, in many cases around the world where rubbish removal is poorly organized, the sewage and all other forms of ‘domestic’ waste discharged from households. Contamination of the world’s creeks, rivers, lakes and wetlands is now so advanced that many are no longer able to fully support marine life. For one summary of the problem, see ‘Pollution in Our Waterways is Harming People and Animals – How Can You Stop This!’

Beyond this, however, Earth’s groundwater supplies (located in many underground acquifers such as the Ogallala Aquifer in the United States) are also being progressively contaminated by gasoline, oil and chemicals from leaking storage tanks; bacteria, viruses and household chemicals from faulty septic systems; hazardous wastes from abandoned and uncontrolled hazardous waste sites (of which there are over 20,000 in the USA alone); leaks from landfill items such as car battery acid, paint and household cleaners; and the pesticides, herbicides and other poisons used on farms and home gardens. See ‘Groundwater contamination’.

Moreover, while notably absent from the list above, these contaminants also include radioactive waste from nuclear tests – see ‘Groundwater drunk by BILLIONS of people may be contaminated by radioactive material spread across the world by nuclear testing in the 1950s’ – and the chemical contamination caused by hydraulic fracturing (fracking) in search of shale gas, for which about 750 chemicals and components, some extremely toxic and carcinogenic like lead and benzene, have been used. See ‘Fracking chemicals’.

By the way, if you didn’t know it, our purchase and use of all of those hitech products – cars, computers, mobile phones, televisions… – coupled with our consumption of intensively-farmed animal products, all of which are produced using huge quantities of fresh, clean water, is rapidly depleting and degrading the remaining fresh water on Earth, as well as savagely exploiting the people from whose countries we take the strategic minerals and water necessary for such production. See, for example, ‘500 Years is Long Enough! Human Depravity in the Congo’.

War

In addition to the above (and many other biosphere-destroying activities not mentioned), relying on our ignorance and fearful complicity, elites have a budget of hundreds of billions of dollars annually – see the US budget for war in ‘Costs of Post-9/11 U.S. Wars to 2019: $5.9 Trillion’ – to kill huge numbers of our fellow human beings but also to destroy vast areas of Earth’s biosphere through war and other military violence. See, for example, the Toxic Remnants of War Project and the film ‘Scarred Lands & Wounded Lives’.

Unfortunately, too few activists have the awareness and courage to acknowledge the role that war plays in destroying the climate and environment, and include anti-war efforts in their campaigns. Campaigns that will fail dismally, and spectacularly, if the threatened nuclear war should eventuate. See ‘The War to End War 100 Years On: An Evaluation and Reorientation of our Resistance to War’.

Extinction beckons

In summary, our multifaceted, monumental and unrelenting assault on Earth’s biosphere is generating an extinction rate of 200 species (plants, birds, animals, fish, amphibians, insects and reptiles) each day with another 26,000 species already identified as ‘under threat’ – see ‘Red list research finds 26,000 global species under extinction threat’ – with some prominent scholars explaining how even these figures mask a vital component of the rapidly accelerating catastrophe of species extinctions: the demise of local populations of a species. See ‘Biological annihilation via the ongoing sixth mass extinction signaled by vertebrate population losses and declines’.

For further evidence from the vast literature on this subject touching only on impacts in relation to insects and its subsequent impact on birds, see ‘Death and Extinction of the Bees’, ‘Insectageddon: farming is more catastrophic than climate breakdown’ and ‘“Decimated”: Germany’s birds disappear as insect abundance plummets 76%’.

So severe is this assault on the biosphere that recent research warns that the ‘alarming loss of insects will likely take down humanity before global warming hits maximum velocity…. The worldwide loss of insects is simply staggering with some reports of 75% up to 90%, happening much faster than the paleoclimate record rate of the past five major extinction events’. Without insects ‘burrowing, forming new soil, aerating soil, pollinating food crops…’ and providing food for many bird species, the biosphere simply collapses. See ‘Insect Decimation Upstages Global Warming’.

So what can we do?

If you are genuinely powerful, you can stop lobbying governments to tinker with their policies, for example, in the direction of renewable energy (which, alone, cannot solve the multiplicity of ecological crises).

Governments are not the problem. And they simply do as elites direct them in any case. (If you believe that voters decide governments and their policies, and that lobbying them is effective, then your fear is deluding you again.)

The real problem is you and me. We have swallowed one of the ‘big lies’ that Joseph Goebbels talked about: we have believed and acted on the capitalist imperative to endlessly overconsume so that economic growth can rise perpetually in our finite world: a planet that has ecological limits.

But, as I noted above, the big lie only works because our fear makes us believe delusion. Why? Because we were terrorized as a child into accepting material goods as a substitute for our capacity to be our unique and powerful Self. See ‘Love Denied: The Psychology of Materialism, Violence and War’.

The monstrous assault on Earth’s biosphere, that goes far beyond the climate catastrophe, is the outcome of each of us consuming more than we need and then fearfully deluding ourselves that it is necessary (or that the harm it caused was too little to matter or justified by some other consideration). Well, you can delude yourself as much as you like but it is still just that: a fearful delusion.

And the point is simply that you can choose differently and powerfully, if you have the courage. For a start, you can forego all air travel. You can travel without owning your own car. You can eat well without consuming meat or fish (and eating biodynamically/organically grown vegetarian/vegan food instead). In essence: If the demand for planet-destroying products is reduced, corporations will not produce them (and destroy the Earth in doing so). This is how the law of supply and demand works under capitalism.

Beyond these simple but vital measures, you can consider many other powerful options, particularly including (accelerated) participation in the fifteen-year strategy outlined in ‘The Flame Tree Project to Save Life on Earth’ which provides a simple plan for people to systematically reduce their consumption, by at least 80%, involving both energy and resources of every kind – water, household energy, transport fuels, metals, meat, paper and plastic – while dramatically expanding their individual and community self-reliance in 16 areas, so that all environmental concerns are effectively addressed.

The Flame Tree Project was inspired by Mohandas K. Gandhi who identified the environmental crisis decades before it became an issue in the West, and who lived his own life in extraordinary simplicity and self-reliance, symbolized by his daily spinning of khadi. ‘Earth provides enough for every person’s need but not for every person’s greed.’ He also invited us to powerfully follow our conscience, reminding us that ‘Hesitating to act because others do not yet see the way only hinders progress.’

But, critically important though he believed personal action to be, Gandhi was also an extraordinary political strategist and he knew that we needed to do more than transform our own personal lives. We need to provide opportunities that compel others to consider doing the same.

So if your passion is campaigning for change, consider doing it strategically as outlined in Nonviolent Campaign Strategy. For example, see the Nonviolent Strategy Wheel and the list of strategic goals necessary to halt the climate catastrophe and end war. Choose one or a few goals appropriate to your circumstances and conduct a strategically-oriented nonviolent campaign, as explained on the same website, to achieve those goals.

Sound strategy is vital given the insanity driving elite behaviour (such as planning/building 1,380 new coal plants). As mentioned above, see ‘The Global Elite is Insane Revisited’.

If your fear makes it difficult to do things such as those suggested above, consider healing as explained in ‘Putting Feelings First’.

If you want your children to be able to respond powerfully in the face of the biosphere’s progressive collapse, consider making ‘My Promise to Children’.

And if you want to join the worldwide movement to end all violence against humans and the biosphere, you can do so by signing the online pledge of ‘The People’s Charter to Create a Nonviolent World’.

The bottom line is this. You can systematically and rapidly reduce your personal consumption and, one way or another, mobilize others or nonviolently compel them to do the same. Or you can let your fear delude you that the ongoing destruction of Earth’s biosphere is somehow unrelated to your personal choices about consumption and the choices of those around you.

Extinction beckons. The choice is yours.

 

Biodata: Robert J. Burrowes has a lifetime commitment to understanding and ending human violence. He has done extensive research since 1966 in an effort to understand why human beings are violent and has been a nonviolent activist since 1981. He is the author of ‘Why Violence?’ http://tinyurl.com/whyviolence His email address is flametree@riseup.net and his website is here. http://robertjburrowes.wordpress.com

Robert J. Burrowes
P.O. Box 68
Daylesford, Victoria 3460
Australia

Email: flametree@riseup.net

Websites:
Nonviolence Charter
Flame Tree Project to Save Life on Earth
‘Why Violence?’
Feelings First
Nonviolent Campaign Strategy
Nonviolent Defense/Liberation Strategy
Anita: Songs of Nonviolence
Robert Burrowes
Global Nonviolence Network

What’s Wrong with the Economy: 9 Toxic Dynamics

Posted on by
Reply

By Charles Hugh Smith

Source: Of Two Minds

These nine dynamics are mutually reinforcing.

Beneath the surface signals of an eternally rising stock market and expanding GDP, we all sense something is deeply, systemically wrong with the U.S. economy. These nine structural dynamics generate secondary dynamics, all of which are toxic to social mobility, sustainable prosperity, accountability and democracy:

1. The financialization of the economy, which transformed services, credit, risk and labor into commodities that could be traded globally. Financialization generates enormously asymmetric returns: those with access to low-cost credit, global markets and expertise in finance collect the lion’s share of gains in income and wealth.

2. The technological transformation of the economy, which has placed a substantial scarcity premium on specific tech/managerial/communication skills and devalued ordinary labor and capital. As a result, the majority of gains in wealth and income flow to those with the scarce skills and forms of capital, leaving little for ordinary labor and capital.

3. The end of cheap fossil fuels. The fracking boom/bubble has obscured the long-term secular trend: the depletion of cheap-to-access and process oil. As many analysts have observed (Nate Hagens, Gail Tverberg, Richard Heinberg, Chris Martenson et al.), the global economy only grows if energy and credit are both cheap.

4. Globalization, which transformed the developing world into the environmental dumping ground of the wealthy nations and enabled the owners of capital to offshore waste and labor.

5. The destructive consequences of “growth at any cost” are piling up. “Growth” is the one constant of all existing political-economic systems, and none of the current Modes of Production (i.e. the structures that organize production, consumption, the economy and society) recognize that “growth” is not sustainable.

The first two dynamics drive three other dynamics that have hollowed out the productive economy:

6. The dominance of debt-funded speculation as the means of “getting ahead” as opposed to producing products and services of intrinsic value that serve the core needs of communities.

7. The economy’s gains in income and wealth are concentrated in the very top of the wealth-power pyramid: the top 5%–entrepreneurs, professionals and technocrats, etc., and within this class, most of the gains go to the top 1/10th of 1% –the existing owners of wealth, and financiers/speculators with access to cheap credit.

The net result is the bottom 95% have few opportunities to “get ahead” outside of gambling in the asset bubbles du jour: the stock and housing market. While the average middle class household may be able to borrow enough to speculate in the housing bubble, two factors limit the odds of success for ordinary investors/gamblers:

A. The gains in housing are concentrated in specific markets; outside these hot markets, gains are modest.

B. Asset bubbles eventually pop, leaving those still owning the assets with losses. The risks are thus intrinsic and high. The average investor/gambler lacks the experience needed to recognize the bubble has stopped expanding and exit the market before ll the other speculators rush for the narrowing exit.

8. The devaluation of ordinary labor and capital means the bottom 60% of the economy that lacks the requisite skills with a scarcity premium in the Emerging Economy have lost easy access to the ladder of social mobility.

9. The concentration of wealth and power in the hands of the self-serving few corrupts the economy and democracy. The U.S. economy is dominated by insider and elite rackets, skims, scams and cartels/quasi-monopolies, all of which corrupt the economy by creating perverse incentives for exploitation and gaming the system to benefit the few at the expense of the many.

This corruption in service of maximizing private/personal gains at the expense of the system itself also corrupts the mechanisms of governance, which are now little more than cloaking devices that protect insiders and elites from scrutiny and consequences.

The 20% above the bottom 60% may appear to have some access to social/economic mobility, but this is largely an artifact of the bubble economy since 2009. Once the bubble deflates, the illusion of social mobility for the “middle class” between the bottom 60% and the upper 20% vanishes.

The “upper middle class” between the bottom 80% and the top 5% is being squeezed by the over-production of elites, i.e. the over-abundance of those with college degrees and the relative scarcity of secure jobs within the top 5%. As a result, credential inflation is rampant, with Masters Degrees replacing Bachelors Degrees as the default for a white-collar job, and PhDs replacing Masters diplomas as the new default for positions that lack security and upward mobility.

In other words, the number of people who qualify for and desire a slot in the elite class (top 5%) far exceeds the number of slots available. As Peter Turchin has explained, this competition generates social disorder at the top of economic heap as the top 20% fight over the few positions open in the top 5%. The disgruntled, frustrated losers far outnumber the relatively few winners.

These nine dynamics are mutually reinforcing, meaning that each dynamic strengthens one or more of the others, reinforcing each other so the sum of the nine is far more powerful than a mere addition might suggest.

The New Aristocracy (the top 9.9%) (The Atlantic)

 

What Lies Beyond Capitalism and Socialism?

Posted on by
1

By Charles Hugh Smith

Source: Of Two Minds

The status quo, in all its various forms, is dominated by incentives that strengthen the centralization of wealth and power.

As longtime readers know, my work aims to 1) explain why the status quo — the socio-economic-political system we inhabit — is unsustainable, divisive, and doomed to collapse under its own weight and 2) sketch out an alternative Mode of Production/way of living that is sustainable, consumes far less resources while providing for the needs of the human populace — not just for our material daily bread but for positive social roles, purpose, hope, meaning and opportunity, needs that are by and large ignored or marginalized in the current system.

One cognitive/emotional roadblock I encounter is the nearly universal assumption that there are only two systems: the State (government) or the Market (free trade/ free enterprise). This divide plays out politically as the Right (capitalism, favoring markets) and the Left (socialism, favoring the state). Everything from Communism to Libertarianism can be placed on this spectrum.

But what if the State and the Market are the sources of our unsustainability? What if they are intrinsically incapable of fixing what’s broken?

The roadblock here is adherents to one camp or the other are emotionally attached to their ideological choice, to the point that these ideological attachments have a quasi-religious character.

Believers in the market as the solution to virtually any problem refuse to accept any limits on the market’s efficacy, and believers in greater state power/control refuse to accept any limits on the state’s efficacy.

I often feel like I’ve been transported back to the 30 Years War between Catholics and Protestants in the 1600s.

I’ve written numerous books that (in part) cover the inherent limits of markets and the state, so I’ll keep this brief. Markets are based on two premises: 1) profits are the key motivator of human activity and 2) whatever is scarce can be replaced by something that is abundant (for example, when we’ve wiped out all the wild Bluefin tuna, we can substitute farmed catfish.)

But what about work that creates value but isn’t profitable? This simply doesn’t compute in the market mentality. Neither does the fact that wiping out the wild fisheries disrupts an ecosystem that is essentially impossible to value in terms that markets understand: in a market, the supply and the demand in this moment set the price and thus the value of everything.

But ecosystems simply cannot be valued by the price set in the moment by current supply and demand.

As for the state, its ontological imperative is to concentrate power, and since wealth is power, this means concentrating political and financial power. Once bureaucracies have concentrated power, insiders focus on securing budgets and benefits, and limiting transparency and accountability, as these endanger the insiders’ power, security and perquisites.

Both of these systems share a single quasi-religious ideology: a belief that endless economic growth is an intrinsic good, for it is the ultimate foundation of all human prosperity. In other words, we can only prosper and become more secure if we’re consuming more of everything: resources, credit, energy, and so on.

The second shared ideological faith is that centralizing wealth and power are not just inevitable but good. In other words, Left and Right share a single quasi-religious belief that centralization is not just inevitable but positive; the only difference is in who should hold the concentrated wealth/power, private owners or the state.

This ideology assumes a winner take most structure of winners and losers, with the winnings being concentrated in the hands of a few at the top of the Winners. Thus rising inequality and divisiveness are assumed to be the natural state of any economy.

This ideology underpins the entire status quo spectrum. The “growth at any cost is good” part of the single ideology underpinning the status quo is captured by the 1960 Soviet-era film Letter Never Sent; in its haunting, surreal final scene, a character envisions a grand wilderness untouched by human hands transformed into an industrial wasteland of belching chimneys and sprawling factories. This was not a nightmare–this was the Soviet dream, and indeed, the dream of the “growth at any cost is good” West.

Simply put, the status quo of markets and states is incapable of DeGrowth, i.e. consuming less of everything, including credit, “money”, profits, taxes—everything that fuels both the state and the market. As I have taken pains to explain, it doesn’t matter if a factory is owned by private owners or the state: the mandate of capital is to grow. If capital doesn’t grow, the resulting losses will sink the enterprise—including the state itself.

What lies beyond “growth at any cost” capitalism and socialism? My answer is the self-funded community economy, a system that is self-funded (i.e. no need for a central bank or Treasury) with a digital currency that is created and distributed for the sole purpose of funding work that addresses scarcities in local communities.

I outline this system in my book A Radiocally Beneficial World: Automation, Technology and Creating Jobs for All.

Rather than concentrate power in the hands of state insiders, this system distributes power to communities are participants. Rather than concentrate the power to create currency for the benefit of banks and the state, this system distributes the power to create currency for the sole benefit of those working on behalf of the community, on projects prioritized by the community.

This community economy recognizes that some work is valuable but not profitable. The profit-driven market will never do this work, and the central state is (to use Peter Drucker’s term) the wrong unit size to ascertain each community’s needs and scarcities.

Clearly, we need a socio-economic-political system that has the structure to not just grasp the necessity of DeGrowth and positive social roles (work benefiting the greater community) but to embrace these goals as its raison d’etre (reason to exist).

Human activity is largely guided by incentives, both chemical incentives in our brains and incentives presented by the society/economy we inhabit. In the current system, concentrating power and wealth in the hands of the few at the expense of the many and wasting resources / destroying ecosystems are incentivized if the activity is profitable to some enterprise or deemed necessary by the state.

In the current system, the state incentivizes protecting its wealth and power and the security/benefits of its insiders, and markets incentivize maximizing profits by any means available.

As I have explained many times in the blog and my books, we inhabit a state-cartel economy: the most profitable form of enterprise is the quasi-monopoly or cartel that limits supply and competition in order to extract the maximum profit from its customers.

Monopolies (or quasi-monopolies such as Google, which holds a majority share of global search revenues, excluding China) and cartels quickly amass profits which they then use to secure protection of their cartel from the state via lobbying, campaign contributions, etc. The elites controlling the state benefit from this arrangement, and so the system inevitably becomes a state-cartel system dominated by the state and private sector cartels and incentives that benefit the wealth and power of these institutions.

Once we understand the inevitability of this marriage of state and cartel, we understand socialism and capitalism–the State and Markets–are the yin and yang of one system. Reformers may recognize some of the inherent limits of the state and the market, but they believe these problems can be solved by tweaking policies–in systems-speak, modifying the parameters of the existing subsystems of lawmaking, the judiciary, regulatory agencies, and so on.

But as Donella Meadows explained in her classic paper, Leverage Points: Places to Intervene in a System tweaking the parameters doesn’t actually change the system. For that, we must add a new feedback loop.

The status quo, in all its various forms, is dominated by incentives that strengthen the centralization of wealth and power, increase inequality and divisiveness and the permanent expansion of consumption and credit. That this path leads to implosion / collapse does not compute because the status quo is constructed on the fundamental assumption that permanent growth/expansion of consumption, credit, wealth and state power is not just possible but necessary.

As many of us have labored to show, the financial system has been pushed to unprecedented extremes to maintain the illusion that rapid growth of consumption and credit can be maintained essentially forever.

We need an alternative system that’s built on sustainable incentives and feedback loops so we have a new blueprint to follow as the current arrangement unravels in the next decade or two.

Security and prosperity are worthy goals, but the means to achieve them, as well as the definition of security / prosperity, must be reworked from the ground up. We need to include positive social roles and meaningful work as essential components of security/prosperity.

My conception of a Third / Community Economy does not replace either the state or the free-enterprise market; rather, it does what neither of the existing structures can do. It adds opportunity, purpose, positive social roles and earned income for those left out of the state/cartel/market economy.

The Singular Pursuit of Comrade Bezos

Posted on by
1

By Malcolm Harris

Source: Medium

It was explicitly and deliberately a ratchet, designed to effect a one-way passage from scarcity to plenty by way of stepping up output each year, every year, year after year. Nothing else mattered: not profit, not the rate of industrial accidents, not the effect of the factories on the land or the air. The planned economy measured its success in terms of the amount of physical things it produced.

— Francis Spufford, Red Plenty

But isn’t a business’s goal to turn a profit? Not at Amazon, at least in the traditional sense. Jeff Bezos knows that operating cash flow gives the company the money it needs to invest in all the things that keep it ahead of its competitors, and recover from flops like the Fire Phone. Up and to the right.

— Recode, “Amazon’s Epic 20-Year Run as a Public Company, Explained in Five Charts”

From a financial point of view, Amazon doesn’t behave much like a successful 21st-century company. Amazon has not bought back its own stock since 2012. Amazon has never offered its shareholders a dividend. Unlike its peers Google, Apple, and Facebook, Amazon does not hoard cash. It has only recently started to record small, predictable profits. Instead, whenever it has resources, Amazon invests in capacity, which results in growth at a ridiculous clip. When the company found itself with $13.8 billion lying around, it bought a grocery chain for $13.7 billion. As the Recode story referenced above summarizes in one of the graphs: “It took Amazon 18 years as a public company to catch Walmart in market cap, but only two more years to double it.” More than a profit-seeking corporation, Amazon is behaving like a planned economy.

If there is one story on Americans who grew up after the fall of the Berlin Wall know about planned economies, I’d wager it’s the one about Boris Yeltsin in a Texas supermarket.

In 1989, recently elected to the Supreme Soviet, Yeltsin came to America, in part to see Johnson Space Center in Houston. On an unscheduled jaunt, the Soviet delegation visited a local supermarket. Photos from the Houston Chronicle capture the day: Yeltsin, overcome by a display of Jell-O Pudding Pops; Yeltsin inspecting the onions; Yeltsin staring down a full display of shiny produce like a line of enemy soldiers. Planning could never master the countless variables that capitalism calculated using the tireless machine of self-interest. According to the story, the overflowing shelves filled Yeltsin with despair for the Soviet system, turned him into an economic reformer, and spelled the end for state socialism as a global force. We’re taught this lesson in public schools, along with Animal Farm: Planned economies do not work.

It’s almost 30 years later, but if Comrade Yeltsin had visited today’s most-advanced American grocery stores, he might not have felt so bad. Journalist Hayley Peterson summarized her findings in the title of her investigative piece, “‘Seeing Someone Cry at Work Is Becoming Normal’: Employees Say Whole Foods Is Using ‘Scorecards’ to Punish Them.” The scorecard in question measures compliance with the (Amazon subsidiary) Whole Foods OTS, or “on-the-shelf” inventory management. OTS is exhaustive, replacing a previously decentralized system with inch-by-inch centralized standards. Those standards include delivering food from trucks straight to the shelves, skipping the expense of stockrooms. This has resulted in produce displays that couldn’t bring down North Korea. Has Bezos stumbled into the problems with planning?

Although OTS was in play before Amazon purchased Whole Foods last August, stories about enforcement to tears fit with the Bezos ethos and reputation. Amazon is famous for pursuing growth and large-scale efficiencies, even when workers find the experiments torturous and when they don’t make a lot of sense to customers, either. If you receive a tiny item in a giant Amazon box, don’t worry. Your order is just one small piece in an efficiency jigsaw that’s too big and fast for any individual human to comprehend. If we view Amazon as a planned economy rather than just another market player, it all starts to make more sense: We’ll thank Jeff later, when the plan works. And indeed, with our dollars, we have.

In fact, to think of Amazon as a “market player” is a mischaracterization. The world’s biggest store doesn’t use suggested retail pricing; it sets its own. Book authors (to use a personal example) receive a distinctly lower royalty for Amazon sales because the site has the power to demand lower prices from publishers, who in turn pass on the tighter margins to writers. But for consumers, it works! Not only are books significantly cheaper on Amazon, the site also features a giant stock that can be shipped to you within two days, for free with Amazon Prime citizensh…er, membership. All 10 or so bookstores I frequented as a high school and college student have closed, yet our access to books has improved — at least as far as we seem to be able to measure. It’s hard to expect consumers to feel bad enough about that to change our behavior.

Although they attempt to grow in a single direction, planned economies always destroy as well as build. In the 1930s, the Soviet Union compelled the collectivization of kulaks, or prosperous peasants. Small farms were incorporated into a larger collective agricultural system. Depending on who you ask, dekulakization was literal genocide, comparable to the Holocaust, and/or it catapulted what had been a continent-sized expanse of peasants into a modern superpower. Amazon’s decimation of small businesses (bookstores in particular) is a similar sort of collectivization, purging small proprietors or driving them onto Amazon platforms. The process is decentralized and executed by the market rather than the state, but don’t get confused: Whether or not Bezos is banging on his desk, demanding the extermination of independent booksellers — though he probably is — these are top-down decisions to eliminate particular ways of life.

Now, with the purchase of Whole Foods, Bezos and Co. seem likely to apply the same pattern to food. Responding to reports that Amazon will begin offering free two-hour Whole Foods delivery for Prime customers, BuzzFeed’s Tom Gara tweeted, “Stuff like this suggests Amazon is going to remove every cent of profit from the grocery industry.” Free two-hour grocery delivery is ludicrously convenient, perhaps the most convenient thing Amazon has come up with yet. And why should we consumers pay for huge dividends to Kroger shareholders? Fuck ’em; if Bezos has the discipline to stick to the growth plan instead of stuffing shareholder pockets every quarter, then let him eat their lunch. Despite a business model based on eliminating competition, Amazon has avoided attention from antitrust authorities because prices are down. If consumers are better off, who cares if it’s a monopoly? American antitrust law doesn’t exist to protect kulaks, whether they’re selling books or groceries.

Amazon has succeeded in large part because of the company’s uncommon drive to invest in growth. And today, not only are other companies slow to spend, so are governments. Austerity politics and decades of privatization put Amazon in a place to take over state functions. If localities can’t or won’t invest in jobs, then Bezos can get them to forgo tax dollars (and dignity) to host HQ2. There’s no reason governments couldn’t offer on-demand cloud computing services as a public utility, but instead the feds pay Amazon Web Services to host their sites. And if the government outsources health care for its population to insurers who insist on making profits, well, stay tuned. There’s no near-term natural end to Amazon’s growth, and by next year the company’s annual revenue should surpass the GDP of Vietnam. I don’t see any reason why Amazon won’t start building its own cities in the near future.

America never had to find out whether capitalism could compete with the Soviets plus 21st-century technology. Regardless, the idea that market competition can better set prices than algorithms and planning is now passé. Our economists used to scoff at the Soviets’ market-distorting subsidies; now Uber subsidizes every ride. Compared to the capitalists who are making their money by stripping the copper wiring from the American economy, the Bezos plan is efficient. So, with the exception of small business owners and managers, why wouldn’t we want to turn an increasing amount of our life-world over to Amazon? I have little doubt the company could, from a consumer perspective, improve upon the current public-private mess that is Obamacare, for example. Between the patchwork quilt of public- and private-sector scammers that run America today and “up and to the right,” life in the Amazon with Lex Luthor doesn’t look so bad. At least he has a plan, unlike some people.

From the perspective of the average consumer, it’s hard to beat Amazon. The single-minded focus on efficiency and growth has worked, and delivery convenience is perhaps the one area of American life that has kept up with our past expectations for the future. However, we do not make the passage from cradle to grave as mere average consumers. Take a look at package delivery, for example: Amazon’s latest disruptive announcement is “Shipping with Amazon,” a challenge to the USPS, from which Amazon has been conniving preferential rates. As a government agency bound to serve everyone, the Postal Service has had to accept all sorts of inefficiencies, like free delivery for rural customers or subsidized media distribution to realize freedom of the press. Amazon, on the other hand, is a private company that doesn’t really have to do anything it doesn’t want to do. In aggregate, as average consumers, we should be cheering. Maybe we are. But as members of a national community, I hope we stop to ask if efficiency is all we want from our delivery infrastructure. Lowering costs as far as possible sounds good until you remember that one of those costs is labor. One of those costs is us.

Earlier this month, Amazon was awarded two patents for a wristband system that would track the movement of warehouse employees’ hands in real time. It’s easy to see how this is a gain in efficiency: If the company can optimize employee movements, everything can be done faster and cheaper. It’s also easy to see how, for those workers, this is a significant step down the path into a dystopian hellworld. Amazon is a notoriously brutal, draining place to work, even at the executive levels. The fear used to be that if Amazon could elbow out all its competitors with low prices, it would then jack them up, Martin Shkreli style. That’s not what happened. Instead, Amazon and other monopsonists have used their power to drive wages and the labor share of production down. If you follow the Bezos strategy all the way, it doesn’t end in fully automated luxury communism or even Wall-E. It ends in The Matrix, with workers swaddled in a pod of perfect convenience and perfect exploitation. Central planning in its capitalist form turns people into another cost to be reduced as low as possible.

Just because a plan is efficient doesn’t mean it’s good. Postal Service employees are unionized; they have higher wages, paths for advancement, job stability, negotiated grievance procedures, health benefits, vacation time, etc. Amazon delivery drivers are not and do not. That difference counts as efficiency when we measure by price, and that is, to my mind, a very good argument for not handing the world over to the king of efficiency. The question that remains is whether we have already been too far reduced, whether after being treated as consumers and costs, we might still have it in us to be more, because that’s what it will take to wrench society away from Bezos and from the people who have made him look like a reasonable alternative.

Mainstream Economics Warns Out-of-Control Inequality Harms the Economy…But Corrupt Government Policy Keeps Increasing Inequality

Posted on by
2

land grap

Who’s Who of Prominent Economists Agree: Inequality Harms Economic Growth

By WashingtonsBlog

A who’s who of prominent liberal and conservative economists in government and academia have now said that runaway inequality harms economic growth, including:

  • Former U.S. Secretary of Labor and UC Berkeley professor Robert Reich
  • Global economy and development division director at Brookings and former economy minister for Turkey, Kemal Dervi
  • Societe Generale investment strategist and former economist for the Bank of England, Albert Edwards
  • Michael Niemira, chief economist at the International Council of Shopping Centers
  • Former executive director of the Joint Economic Committee of Congress, senior policy analyst in the White House Office of Policy Development, and deputy assistant secretary for economic policy at the Treasury Department, Bruce Bartlett
  • Deputy Division Chief of the Modeling Unit in the Research Department of the IMF, Michael Kumhof

Even the father of free market economics – Adam Smith – didn’t believe that inequality should be a taboo subject.

Numerous investors and entrepreneurs agree that runaway inequality hurts the economy, including:

How Bad Is It?

So how bad is it, really?

Inequality in America today is twice as bad as in ancient Rome, worse than it was in Tsarist Russia, Gilded Age America, modern Egypt, Tunisia or Yemen, many banana republics in Latin America, and worse than experienced by slaves in 1774 colonial America. (More stunning facts.)

It’s Not an Accident … It’s Policy

Extreme inequality helped cause the Great Depression, the current financial crisis … and the fall of the Roman Empire . Bad government policy – which favors the fatcats at the expense of the average American – is largely responsible for our runaway inequality.

And yet the powers-that-be in Washington and Wall Street are accelerating the redistribution of wealth from the lower, middle and more modest members of the upper classes to the super-elite.

Defenders of the status quo pretend that this inequality is something outside of our control … like a force of nature. They argue that it’s due to technological innovation or something else outside of policy-makers’ control.

In reality, inequality is rising due to bad policy.

Nobel prize winning economist Joe Stiglitz said recently:

Inequality is not inevitable. It is not … like the weather, something that just happens to us. It is not the result of the laws of nature or the laws of economics. Rather, it is something that we create, by our policies, by what we do.

We created this inequality—chose it, really—with [bad] laws …

Gaming the System to Pillage and Loot

The world’s top economic leaders have said for years that inequality is spiraling out of control and needs to be reduced. Why is inequality soaring even though world economic leaders have talked for years about the urgent need to reduce it?

Because they’re saying one thing but doing something very different. And both mainstream Democrats and mainstream Republicans are using smoke and mirrors to hide what’s really going on.

And it’s not surprising … Nobel winner Stiglitz says that inequality is caused by the use of money to shape government policies to benefit those with money. As Wikipedia notes:

A better explainer of growing inequality, according to Stiglitz, is the use of political power generated by wealth by certain groups to shape government policies financially beneficial to them. This process, known to economists as rent-seeking, brings income not from creation of wealth but from “grabbing a larger share of the wealth that would otherwise have been produced without their effort”

Rent seeking is often thought to be the province of societies with weak institutions and weak rule of law, but Stiglitz believes there is no shortage of it in developed societies such as the United States. Examples of rent seeking leading to inequality include

  • the obtaining of public resources by “rent-collectors” at below market prices (such as granting public land to railroads, or selling mineral resources for a nominal price in the US),
  • selling services and products to the public at above market prices (medicare drug benefit in the US that prohibits government from negotiating prices of drugs with the drug companies, costing the US government an estimated $50 billion or more per year),
  • securing government tolerance of monopoly power (The richest person in the world in 2011, Carlos Slim, controlled Mexico’s newly privatized telecommunication industry).

(Background here, here and here.)

Stiglitz says:

One big part of the reason we have so much inequality is that the top 1 percent want it that way. The most obvious example involves tax policy …. Monopolies and near monopolies have always been a source of economic power—from John D. Rockefeller at the beginning of the last century to Bill Gates at the end. Lax enforcement of anti-trust laws, especially during Republican administrations, has been a godsend to the top 1 percent. Much of today’s inequality is due to manipulation of the financial system, enabled by changes in the rules that have been bought and paid for by the financial industry itself—one of its best investments ever. The government lent money to financial institutions at close to 0 percent interest and provided generous bailouts on favorable terms when all else failed. Regulators turned a blind eye to a lack of transparency and to conflicts of interest.

***

Wealth begets power, which begets more wealth …. Virtually all U.S. senators, and most of the representatives in the House, are members of the top 1 percent when they arrive, are kept in office by money from the top 1 percent, and know that if they serve the top 1 percent well they will be rewarded by the top 1 percent when they leave office. By and large, the key executive-branch policymakers on trade and economic policy also come from the top 1 percent. When pharmaceutical companies receive a trillion-dollar gift—through legislation prohibiting the government, the largest buyer of drugs, from bargaining over price—it should not come as cause for wonder. It should not make jaws drop that a tax bill cannot emerge from Congress unless big tax cuts are put in place for the wealthy. Given the power of the top 1 percent, this is the way you would expect the system to work.

Former Sectretary of Labor Robert Reich recently noted:

When so much wealth accumulates at the top, with money comes the capacity to control politics… It’s not that people are rich, it’s that they abuse their wealth … The wealthy contribute to political candidates and the access that their contributions buy entrenches inequality by securing subsidies, bailouts and policies that lead to even greater inequality.

Bloomberg reports:

The financial industry spends hundreds of millions of dollars every election cycle on campaign donations and lobbying, much of which is aimed at maintaining the subsidy [to the banks by the public]. The result is a bloated financial sector and recurring credit gluts.

Indeed, the big banks literally own the Federal Reserve. And they own Washington D.C. politicians, lock stock and barrel. See this, this, this and this.

Two leading IMF officials, the former Vice President of the Dallas Federal Reserve, and the the head of the Federal Reserve Bank of Kansas City, Moody’s chief economist and many others have all said that the United States is controlled by an “oligarchy” or “oligopoly”, and the big banks and giant financial institutions are key players in that oligarchy.

The chairman of the Department of Economics at George Mason University says that it is inaccurate to call politicians prostitutes. Specifically, he says that they are more correct to call them “pimps”, since they are pimping out the American people to the financial giants.

Economics professor Randall Wray writes:

Thieves … took over the whole economy and the political system lock, stock, and barrel.

No wonder the government has saved the big banks at taxpayer expense, chosen the banks over the little guy, and

No wonder crony capitalism has gotten even worse under Obama than under Bush.

No wonder big Wall Street players are continuing to loot taxpayer money and public resources.

No wonder the big banks continue to manipulate every market and commit crime after crime and … and profit handsomely from it, while law-abiding citizens slide further and further behind.

Yet Obama is prosecuting fewer financial crimes than Bush, or his father, or Ronald Reagan.

No wonder:

All of the monetary and economic policy of the last 3 years has helped the wealthiest and penalized everyone else. See this, this and this.

***

Economist Steve Keen says:

“This is the biggest transfer of wealth in history”, as the giant banks have handed their toxic debts from fraudulent activities to the countries and their people.

Stiglitz said in 2009 that Geithner’s toxic asset plan “amounts to robbery of the American people”.

And economist Dean Baker said in 2009 that the true purpose of the bank rescue plans is “a massive redistribution of wealth to the bank shareholders and their top executives”.

Without the government’s creation of the too big to fail banks (they’ve gotten much bigger under Obama), the Fed’s intervention in interest rates and the markets (most of the quantitative easing has occurred under Obama), and government-created moral hazard emboldening casino-style speculation (there’s now more moral hazard than ever before) … things wouldn’t have gotten nearly as bad.

As we wrote in March 2009:

The bailout money is just going to line the pockets of the wealthy, instead of helping to stabilize the economy or even the companies receiving the bailouts:

  • A lot of the bailout money is going to the failing companies’ shareholders
  • Indeed, a leading progressive economist says that the true purpose of the bank rescue plans is “a massive redistribution of wealth to the bank shareholders and their top executives”
  • The Treasury Department encouraged banks to use the bailout money to buy their competitors, and pushed through an amendment to the tax laws which rewards mergers in the banking industry (this has caused a lot of companies to bite off more than they can chew, destabilizing the acquiring companies)

As we pointed out in 2008:

The game of capitalism only continues as long as everyone has some money to play with. If the government and corporations take everyone’s money, the game ends.The fed and Treasury are not giving more chips to those who need them: the American consumer. Instead, they are giving chips to the 800-pound gorillas at the poker table, such as Wall Street investment banks. Indeed, a good chunk of the money used by surviving mammoth players to buy the failing behemoths actually comes from the Fed.

Quantitative Easing

It is well-documented that quantitative easing increases inequality (and see this and this.)

Quantitative easing doesn’t help Main Street or the average American. It only helps big banks, giant corporations, and big investors.

The Federal Reserve has been doing quantitative easing for 5 years … and inequality has shot up over the last 5 years. It’s not a coincidence.

Subsidies to Giant, Wealthy Corporations

Massive subsidies to big corporations is also part of the problem. Indeed, some financial analysts say that the taxpayer subsidy to the giant banks alone is $780 billion per year.

The average American family pays $6,000/year in subsidies to giant corporations.

This is a direct transfer of wealth from the little guy to the big guy … which increases inequality.

Goosing the Stock Market

Moreover, the Fed has more or less admitted that it is putting almost all of its efforts into boosting the stock market.

Robert Reich has noted:

Some cheerleaders say rising stock prices make consumers feel wealthier and therefore readier to spend. But to the extent most Americans have any assets at all their net worth is mostly in their homes, and those homes are still worth less than they were in 2007. The “wealth effect” is relevant mainly to the richest 10 percent of Americans, most of whose net worth is in stocks and bonds.

AP writes:

The recovery has been the weakest and most lopsided of any since the 1930s.After previous recessions, people in all income groups tended to benefit. This time, ordinary Americans are struggling with job insecurity, too much debt and pay raises that haven’t kept up with prices at the grocery store and gas station. The economy’s meager gains are going mostly to the wealthiest.

Workers’ wages and benefits make up 57.5 percent of the economy, an all-time low. Until the mid-2000s, that figure had been remarkably stable — about 64 percent through boom and bust alike.

David Rosenberg points out:

The “labor share of national income has fallen to its lower level in modern history … some recovery it has been – a recovery in which labor’s share of the spoils has declined to unprecedented levels.”

The above-quoted AP article further notes:

Stock market gains go disproportionately to the wealthiest 10 percent of Americans, who own more than 80 percent of outstanding stock, according to an analysis by Edward Wolff, an economist at Bard College.

Indeed, as we reported in 2010:

As of 2007, the bottom 50% of the U.S. population owned only one-half of one percent of all stocks, bonds and mutual funds in the U.S. On the other hand, the top 1% owned owned 50.9%.***

(Of course, the divergence between the wealthiest and the rest has only increased since 2007.)

Professor G. William Domhoff demonstrated that the richest 10% own 98.5% of all financial securities, and that:

The top 10% have 80% to 90% of stocks, bonds, trust funds, and business equity, and over 75% of non-home real estate. Since financial wealth is what counts as far as the control of income-producing assets, we can say that just 10% of the people own the United States of America.

Tyler Durden notes:

In today’s edition of Bloomberg Brief, the firm’s economist Richard Yamarone looks at one of the more unpleasant consequences of Federal monetary policy: the increasing schism in wealth distribution between the wealthiest percentile and everyone else. … “To the extent that Federal Reserve policy is driving equity prices higher, it is also likely widening the gap between the haves and the have-nots….The disparity between the net worth of those on the top rung of the income ladder and those on lower rungs has been growing. According to the latest data from the Federal Reserve’s Survey of Consumer Finances, the total wealth of the top 10 percent income bracket is larger in 2009 than it was in 1995. Those further down have on average barely made any gains. It is likely that data for 2010 and 2011 will reveal an even higher percentage going to the top earners, given recent increases in stocks.” Alas, this is nothing new, and merely confirms speculation that the Fed is arguably the most efficient wealth redistibution, or rather focusing, mechanism available to the status quo. This is best summarized in the chart below comparing net worth by income distribution for various percentiles among the population, based on the Fed’s own data. In short: the richest 20% have gotten richer in the past 14 years, entirely at the expense of everyone else.

***

Lastly, nowhere is the schism more evident, at least in market terms, than in the performance of retail stocks:

Saks chairman Steve Sadove recently remarked, “I’ve been saying for several years now the single biggest determinant of our business overall, is how’s the stock market doing.” Privately-owned Neiman- Marcus reported “In New York City, business at Bergdorf Goodman continues to be extremely strong.”

In contrast, retail giant Wal-Mart talks of its “busiest hours” coming at midnight when food stamps are activated and consumers proceed through the check-outs lines with baby formula, diapers, and other groceries. Wal-Mart has posted a decline in same-store sales for eight consecutive quarters.

As CNN Money pointed out in 2011, “Wal-Mart’s core shoppers are running out of money much faster than a year ago …” This trend has only gotten worse: The wealthy are doing great … but common folks can no longer afford to shop even at Wal-Mart, Sears, JC Penney or other low-price stores.

Durden also notes:

Another indication of the increasing polarity of US society is the disparity among consumer confidence cohorts by income as shown below, and summarized as follows: “The increase in equity prices has raised consumer spirits, particularly among higher-income consumers. The Conference Board’s Consumer Confidence index for all income levels bottomed in February/March of 2009. The recovery since then has been notable across the board, but nowhere as much as for those making $50,000 or more.”

Business Week notes:

Barry Ritholtz, [CIO of Ritholtz Wealth, and popular financial blogger], says millions of potential investors may conclude, as they did after the Great Depression, that the market is a rigged game for insiders. Such seismic shifts in popular sentiment can have lasting effects. The Dow Jones industrial average didn’t regain its September 1929 peak of 355.95 until 1954. “You’re going to lose a generation of investors,” says Ritholtz. “And that’s how you end up with a 25-year bear market. That’s the risk if people start to think there is no economic justice.”

Americans know that the system is rigged against them. See this. We know that the government is giving Wall Street crooks a pass. 70% of Americans know that the government’s economic policies have thrown money at the banks and hosed the people.

In such an environment, the average American has largely gotten out of stocks and other investments.

Over-Financialization

When a country’s finance sector becomes too large finance, inequality rises. As Wikipedia notes:

[Economics professor] Jamie Galbraith argues that countries with larger financial sectors have greater inequality, and the link is not an accident.

Government policy has been encouraging the growth of the financial sector for decades:

https://desultoryheroics.com/wp-content/uploads/2014/03/71000-financialandnonfinancialsectors-compensationlesleopold.jpg

(Economist Steve Keen has also shown that “a sustainable level of bank profits appears to be about 1% of GDP”, and that higher bank profits leads to a ponzi economy and a depression).

Unemployment and Underemployment

A major source of inequality is unemployment, underemployment and low wages.

Corporate Profits v. Jobs

Government policy has created these conditions. And the pretend populist Obama – who talks non-stop about the importance of job-creation – actually doesn’t mind such conditions at all.

The“jobless recovery” that the Bush and Obama governments have engineered is a redistribution of wealth from the little guy to the big boys.

The New York Times notes:

Economists at Northeastern University have found that the current economic recovery in the United States has been unusually skewed in favor of corporate profits and against increased wages for workers.

In their newly released study, the Northeastern economists found that since the recovery began in June 2009 following a deep 18-month recession, “corporate profits captured 88 percent of the growth in real national income while aggregate wages and salaries accounted for only slightly more than 1 percent” of that growth.

The study, “The ‘Jobless and Wageless Recovery’ From the Great Recession of 2007-2009,” said it was “unprecedented” for American workers to receive such a tiny share of national income growth during a recovery.

***

The share of income growth going to employee compensation was far lower than in the four other economic recoveries that have occurred over the last three decades, the study found.

Obama apologists say Obama has created jobs. But the number of people who have given up and dropped out of the labor force has skyrocketed under Obama (and see this).

And the jobs that have been created have been low-wage jobs.

Low Wage Jobs

For example, the New York Times noted in 2011:

The median pay for top executives at 200 big companies last year was $10.8 million. That works out to a 23 percent gain from 2009.

***

Most ordinary Americans aren’t getting raises anywhere close to those of these chief executives. Many aren’t getting raises at all — or even regular paychecks. Unemployment is still stuck at more than 9 percent.

***

“What is of more concern to shareholders is that it looks like C.E.O. pay is recovering faster than company fortunes,” says Paul Hodgson, chief communications officer for GovernanceMetrics International, a ratings and research firm.

According to a report released by GovernanceMetrics in June, the good times for chief executives just keep getting better. Many executives received stock options that were granted in 2008 and 2009, when the stock market was sinking.

Now that the market has recovered from its lows of the financial crisis, many executives are sitting on windfall profits, at least on paper. In addition, cash bonuses for the highest-paid C.E.O.’s are at three times prerecession levels, the report said.

***

The average American worker was taking home $752 a week in late 2010, up a mere 0.5 percent from a year earlier. After inflation, workers were actually making less.

AP pointed out that the average worker is not doing so well:

Unemployment has never been so high — 9.1 percent — this long after any recession since World War II. At the same point after the previous three recessions, unemployment averaged just 6.8 percent.

– The average worker’s hourly wages, after accounting for inflation, were 1.6 percent lower in May than a year earlier. Rising gasoline and food prices have devoured any pay raises for most Americans.

– The jobs that are being created pay less than the ones that vanished in the recession. Higher-paying jobs in the private sector, the ones that pay roughly $19 to $31 an hour, made up 40 percent of the jobs lost from January 2008 to February 2010 but only 27 percent of the jobs created since then.

Alan Greenspan noted:

Large banks, who are doing much better and large corporations, whom you point out and everyone is pointing out, are in excellent shape. The rest of the economy, small business, small banks, and a very significant amount of the labour force, which is in tragic unemployment, long-term unemployment – that is pulling the economy apart.

Money Being Sucked Out of the U.S. Economy … But Big Bucks Are Being Made Abroad

Part of the widening gap is due to the fact that most American companies’ profits are driven by foreign sales and foreign workers. As AP noted in 2010:

Corporate profits are up. Stock prices are up. So why isn’t anyone hiring?

Actually, many American companies are — just maybe not in your town. They’re hiring overseas, where sales are surging and the pipeline of orders is fat.

***

The trend helps explain why unemployment remains high in the United States, edging up to 9.8% last month, even though companies are performing well: All but 4% of the top 500 U.S. corporations reported profits this year, and the stock market is close to its highest point since the 2008 financial meltdown.

But the jobs are going elsewhere. The Economic Policy Institute, a Washington think tank, says American companies have created 1.4 million jobs overseas this year, compared with less than 1 million in the U.S. The additional 1.4 million jobs would have lowered the U.S. unemployment rate to 8.9%, says Robert Scott, the institute’s senior international economist.

“There’s a huge difference between what is good for American companies versus what is good for the American economy,” says Scott.

***

Many of the products being made overseas aren’t coming back to the United States. Demand has grown dramatically this year in emerging markets like India, China and Brazil.

Government policy has accelerated the growing inequality. It has encouraged American companies to move their facilities, resources and paychecks abroad. And some of the biggest companies in America have a negative tax rate … that is, not only do they pay no taxes, but they actually get tax refunds.

And a large percentage of the bailouts went to foreign banks (and see this). And so did a huge portion of the money from quantitative easing. More here and here.

Capital Gains and Dividends

According to a 2013 study published by a researcher at the U.S. Congressional Research Service:

The largest contributor to increasing income inequality…was changes in income from capital gains and dividends.

Business Insider explains:

Drastic income inequality growth in the United States is largely derived from changes in the way the U.S. government taxes income from capital gains and dividends, according to a new study by Thomas Hungerford of the non-partisan Congressional Research Service.

Essentially, what Democrats have been saying about income inequality — that it’s in a large part due to favorable taxation and deduction policies for high income Americans — is largely right

***

The study … conclusively found that the wealthy benefitted from low tax rates on investment income, which in turn caused their wealth to grow faster.

Essentially, taxing capital gains as ordinary income would make the playing field more fair, and reduce over time income inequality.

Joseph Stiglitz noted in 2011:

Lowering tax rates on capital gains, which is how the rich receive a large portion of their income, has given the wealthiest Americans close to a free ride.

Indeed, the Tax Policy center reports that the top 1% took home 71% of all capital gains in 2012.

Ronald Reagan’s budget director, assistant secretary of treasury, and domestic policy director all say that the Bush tax cuts were a huge mistake. See this and this.