Tag Archives: Income Inequality

America’s Social Contract Is Broken

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By Charles Hugh Smith

Source: Of Two Minds

I do not claim any expertise in social contract theory, but in broad brush we can delineate two implicit contracts: one between the citizenry and the state (government) and another between citizens.

We can distinguish between the two by considering a rural county fair. Most of the labor to stage the fair is volunteered by the citizenry for the good of their community and fellow citizens; they are not coerced to do so by the government, nor does the government levy taxes to pay its employees or contractors to stage the fair.

The social contract between citizens implicitly binds people to obeying traffic laws as a public good all benefit from, not because a police officer is on every street corner enforcing the letter of the law.

The social contract between the citizens and the state binds the government to maintaining civil liberties, equal enforcement of the rule of law, defending the nation, and in the 20th century, providing social welfare for the disadvantaged, disabled and low-income elderly.

Critiques of “trickle down economics” focus on income inequality as a key metric of the Social Contract: rising income inequality is de facto evidence that the Social Contract is broken.

I think this misses the key distinction in the Social Contract between citizens and the state, which is the legitimacy of the process of wealth creation and the fairness of the playing field and the referees, i.e. that no one is above the law.

Few people begrudge legitimately earned wealth, for example, the top athlete, the pop star, the tech innovator, the canny entrepreneur, the best-selling author, etc. The source of these individual’s wealth is transparent, and any citizen can decline to support this wealth creation by not paying money to see the athlete, not buying the author’s books, not shopping at the entrepreneur’s stores, etc.

The Social Contract is broken not just by wealth inequality per se but by the illegitimate process of wealth acquisition, i.e. the state has tipped the scales in favor of the few behind closed doors and routinely ignores or bypasses the intent of the law even as the state claims to be following the narrower letter of the law.

By this definition, the Social Contract in America has been completely smashed. One sector after another is dominated by cartel-state partnerships that are forged and enforced in obscure legislation written by lobbyists. Once the laws have been riddled with loopholes and the regulators have been corrupted, “no one is above the law” has lost all meaning.

Those who violate the intent of the law while managing to conjure an apparent compliance with the letter of the law are shysters, scammers and thieves who exploit the intricate loopholes of the system, all the while parading their compliance as evidence the system is fair and just. In this way, the judicial system becomes part of the illegitimate process of wealth accumulation.

In America, political and financial Elites are above the intent of the law. Is bribery of politicos illegal? Supposedly it is, but in practice it is entirely and openly legal.

This is the norm in banana republics, whose ledgers are loaded with thousands of codes and regulations that are routinely ignored by those in power. In the Banana Republic of America, financial crimes go uninvestigated, unindicted and unpunished: banks and their management are essentially immune to prosecution because the crimes are complex (tsk, tsk, it’s really too much trouble to investigate) and they’re “too big to prosecute.”

The rot has seeped from the financial-political Aristocracy to the lower reaches of the social order. The fury of those still working legitimate jobs and paying their taxes is grounded in a simple, obvious truth: America is now dominated by scammers, cheaters, grifters and those gaming the system, large and small, to increase their share of the swag.

The honest taxpayer is a chump, a mark who foolishly ponies up the swag that’s looted by the smart operators. Everyone knows that the vast majority of wealth accumulation in America flows not from transparent effort on a level playing field, but from persuading the Central State (the Federal government and the Federal Reserve) to enforce cartels and grant monopolistic favors such as tax shelters designed for a handful of firms and unlimited credit to private banks.

When scammers large and small live better than those creating value in the real economy, the Social Contract has ceased to exist. When the illegitimate process of wealth acquisition–a rigged playing field, a bought-off referee, and an Elite that’s above the law by every practical measure–dominates the economy and the political structure, the Social Contract has been shattered, regardless of how much welfare largesse is distributed to buy the complicity of state dependents.

Once the chumps and marks realize there is no way they can ever escape their exploited banana-republic status as neofeudal debt-serfs, the scammers, cheats and grifters large and small will be at risk of losing their perquisites. The fantasy in America is that legitimate wealth creation is still possible despite the visible dominance of a corrupt, venal, self-absorbed, parasitic, predatory Aristocracy. Once that fantasy dies, so will the marks’ support of the Aristocracy.

As Voltaire observed, “No snowflake in an avalanche ever feels responsible”: every claim, every game of the system, every political favor purchased is “fair and legal,” of course. This is precisely how empires collapse.

In broad brush, we can trace the transition from feudalism to capitalism to the present financialized, globalized cartel-state neofeudalism and next, to a synthesis built on the opposite of neofeudalism, which is decentralization, transparency, accountability, legitimacy and the adaptive churn of competing ideas and proposals.

The Fourth Turn, Turn, Turn

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By Charles Hugh Smith

Source: Of Two Minds

The cycles of The Fourth Turning, Fischer and Turchin are all in alignment at this point in history..

The 1997 book The Fourth Turning: An American Prophecy proposed a cyclical pattern of four 20-year generations which culminate in a national crisis every 80 years. The book identifies these dates as Fourth Turnings: 1781 (Revolutionary War), 1861 (Civil War) and 1941 (global war). add 80 years and voila, 2021.

I use the term Fourth Turning generically to describe an existential crisis that decisively changes the course of national identity and history.

In other words, we don’t have to accept the book’s theory of generational dynamics to accept an 80-year cycle. There are other causal dynamics in play that also tend to cycle: the credit (Kondratieff) cycle, for example.

While each of the previous existential crises were resolved positively, positive outcomes are not guaranteed: dissolution and collapse are also potential outcomes.

David Hackett Fischer’s book The Great Wave: Price Revolutions and the Rhythm of History proposes another cycle: humans expand their numbers and consumption until they’ve exploited and depleted all available resources.

As resources become scarce, societies and economies unravel as humans do not respond well to rising prices generated by scarcities.

The unraveling continues until consumption is realigned with the resources available. In the past this meant either a mass die-off that drastically reduced human numbers and consumption (for example, The Black Plague), a decline in fertility that slowly reduced population to fit resources, mass migration to locales with more resources or the discovery and exploitation of a new scalable energy source that enabled a new cycle of rising consumption.

The 14th century Black Death reduce Europe’s population by roughly 40%, enabling depleted forests to regrow and depleted agricultural land to restore fertility.

Once the human population regained its numbers and consumption in the 17th century, wood was once again under pressure as the key source of energy, shipbuilding, housing, etc.

The development of steam power and the technologies of mining enabled the exploitation of coal, which soon replaced wood as the primary energy source.

Oil and natural gas added to the energy humans could tap, followed (at a much more modest level) by nuclear power. Despite gargantuan investments, the recent push to develop solar and wind energy has yielded very modest results, as globally these sources provide about 5% of total energy consumption. (See chart below)

It’s self-evident that despite breezy claims of endless expansion of consumption, the global human population has now exceeded the resources available for practical extraction. Energy, fresh water, wild fisheries and fertile soils have all been exploited and the easy/cheap-to-extract resources have been depleted.

(The chart below of global CO2 emissions is a proxy for energy / resource consumption.)

So once again it’s crunch-time: either we proactively reduce consumption to align with available resources, or Nature will do it for us via scarcities.

Peter Turchin proposed another socio-economic cycle of 50 years in his book Ages of Discord: in the integrative stage, people find reasons to cooperate. In the disintegrative stage at the end of the cycle, people no longer find much common ground or reasons to cooperate. Political, social and financial extremes proliferate, culminating in a rolling crisis.

In Turchin’s analysis, the previous 50-year age of discord began around 1970, and the current era of discord began in 2020. Those who lived through the domestic terrorism, urban decay, stagflation and political/social/legal crises of the 1970s recall how inter-related crises dominated the decade.

In my analysis, the last period of discord in the 1970s was “saved” by the supergiant oil fields discovered in the 60s coming online in the late 1970s and early 1980s. That oil enabled a 40-year boom which is now ending, with no new scalable source of energy available to replace oil, much less enable an expansion of consumption.

In other words, the cycles of The Fourth Turning, Fischer and Turchin are all in alignment at this point in history. We have proliferating political, social and financial extremes and a forced transition to lower consumption to align with declining energy.

Turn, turn, turn. Right when we need to cooperate on transforming a high-consumption, bubble-dependent “waste is growth” Landfill Economy to declining consumption / Degrowth, we’re beset by discord and demographic pressures, as the promises made to the elderly back when it was expected that there would always be 5 workers per retiree cannot possibly be kept now that the worker-retiree ratio is 2-to-1 and there are no limits on healthcare spending for the elderly.

Humans are happy to expand their numbers and consumption and much less happy to consume less. They tend to start revolutions and wars in vain attempts to secure enough resources to maintain their profligate consumption and expansion.

Today’s extremes of wealth and income inequality are optimized to spark political discord and revolts. The wealthiest 20% will be able to pay higher prices, but the bottom 40% will not. The middle 40% will find their disposable income, i.e. their income left over after paying for essentials, will drop to near-zero.

When 80% of the populace are crunched financially, revolutions and the overthrow of governments follow.

As I’ve outlined in previous posts, global inequalities are widening as the Core exploits its built-in advantages at the expense of the vulnerable Periphery.

Core nations will be much better able to maintain their consumption at the expense of the Periphery nations, which will experience sharp declines in purchasing power and consumption.

Previous Fourth Turnings have been resolved one way or another within 5 to 7 years. If this Turning began in 2020, we can expect resolution by 2025 – 2027.

As I explained in my book Global Crisis, National Renewal, those nations that embrace Degrowth will manage the transition, while those that cling to the endless-expansion, bubble-dependent Waste Is Growth model will fail.

This is why I keep talking about making Plans A, B and C to preserve optionality and reduce financial commitments and consumption now rather than passively await crises over which we will have little direct control.

As I’ve endeavored to explain, those anticipating decades of time to adjust are overlooking the systemic fragilities of the current global financial/supply systems. Tightly bound systems of interconnected dependency chains have been optimized to work perfectly in an era of expansion. They’re not optimized to gradually adjust to contraction; they’re optimized to break and trigger domino-like breakdowns in interconnected chains.

We don’t control these macro-trends, we only control our response.

What’s Changed and What Hasn’t in a Tumultuous Year

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By Charles Hugh Smith

Source: Of Two Minds

Inequality is America’s Monster Id, and we’re continuing to fuel its future rampage daily.

What’s changed and what hasn’t in the past year? What hasn’t changed is easy:

1. Wealth / income inequality is still increasing. (see chart #1 below)

2. Wages / labor’s share of the economy is still plummeting as financial speculation’s share has soared. (see chart #2 below)

What’s changed is also obvious:

1. Money velocity has cratered. (see chart #3 below)

2. Federal borrowing / spending has skyrocketed, pushing federal debt to unprecedented levels. (see chart #4 below)

3. Speculation has reached the society-wide mania level. This is evidenced by record margin debt levels, record levels of financial assets compared to GDP and many other indicators. (see chart #5 below)

Interestingly, every one of historian Peter Turchin’s 3-point Political Stress Index is now checked. Recall that these are core drivers of consequential social disorder, the kind that leads to empires collapsing, the overthrow of ruling elites, social revolutions, etc.

1. Stagnating real wages (i.e. adjusted for real-world inflation): check

2. Overproduction of parasitic elites: double-triple check

3. Deterioration of central state finances: check

But what about social changes? This is an interesting topic because social changes are less easily tracked (few even ask relevant questions and compile the data). Social trends are often more difficult to discern, as surveys may not track actual changes in behavior: people may give answers they reckon are expected or acceptable.

Here are four long-term trends that may have been accelerated by the pandemic:

1. The residents of overcrowded tourist destinations are sick of tourists and are demanding limits that protect increasingly fragile environments and resident quality of life.

Here’s a typical observation of a resident in Hawaii now that tourists are coming back:

Sunday I saw a group of 30 spring break tourists littering the beach with red cups and bottles of alcohol and trash. They had a table full of booze on the beach and were happily leaving their trash everywhere. No masks and no cares for Hawaii. When they left, instead of using the beach access they all climbed over the fence into someone’s yard because it saved them a minute of walking.

No I don’t miss tourists.

This is a global phenomenon. The absence of tourists has awakened a powerful sense that the profits (which flow into elite hands, not local economies) have taken precedence over the protection of what makes the destination worth visiting.

2. Work from home is here to stay. The benefits are too personal and powerful. Corporations demanding a return to long commutes and central offices will find their most productive employees are giving them “take this job and shove it” notices as they find positions with companies that understand that you can’t turn back the clock or ignore the benefits of flexible schedules.

3. Consumer behaviors have changed and are continuing to change. This is not just an expansion of home delivery; it’s a re-appraisal of big-ticket spending on concerts, entertainment, sports events and many other sectors that depend solely on free-spending consumers who ignore the recent doubling or tripling of prices.

4. Perceptions of the wealthy are changing. I touched on this topic in The Coming War on Wealth and the Wealthy (1/5/21) and The Coming Revolt of the Middle Class (1/27/21). Inequality is America’s Monster Id, and we’re continuing to fuel its future rampage daily.

The Coming War on Wealth and the Wealthy

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By Charles Hugh Smith

Source: Of Two Minds

Here’s looking at you, Federal Reserve–thanks for perfecting ‘legalized looting’ and neofeudalism in America.

The problem with pushing a pendulum to its maximum extreme on one end is that it will swing back to the other extreme minus a tiny bit of friction.

America has pushed wealth/income inequality, unfairness and legalized looting to the maximum extreme. Now it will experience the swing back to the other extreme. This will manifest in a number of ways, one of which is a self-organizing populist war on wealth and the wealthy.

To say the system is rigged to benefit the already-wealthy and powerful is a gross understatement. Take the tax code as an example–thousands of pages of arcane tax breaks and giveaways passed by a thoroughly corrupted Congress and thousands more pages of arcane regulations and legal precedents.

How many pages apply to the bottom 95% of American taxpayers? Very few. There’s the standard deductions for mortgage interest, healthcare costs, etc., but virtually no other tax breaks. Very few pages apply to even the 99%–go talk to a CPA and you’ll find there are no more tax breaks for a sole proprietor making $500,000 in earned income than than there are for a sole proprietor making $50,000.

99.9% of the tax code benefits the top 0.1% and the corporations, LLCs and philanthro-capitalist foundations and trusts they own / control. Stripped of artifice and spin, America’s tax code is nothing but legalized looting. This is only one small slice of the entire pie of legalized looting, of course, but it’s one we can all understand.

A sole proprietor pays 15.3% in Social Security and Medicare taxes. Why don’t America’s billionaires pay 15.3% in Social Security and Medicare taxes? Aren’t Social Security and Medicare/Medicaid the bedrock social safety net programs of the American people? Then why does a struggling sole proprietor pay 15.3% tax to support these essential programs and billionaires pay essentially zero?

There’s a term for this disparity / injustice / unfairness: legalized looting. The super-wealthy pay essentially zero percent of their income and wealth to the programs that provide basic economic security for the disabled/elderly citizenry, while Jose the sole proprietor pays 15.3% of every dollar he earns.

So explain to us again why Mr. Buffett can’t afford to pay 15.3% of every dollar of his income to help fund basic economic security for the disabled/elderly. In a system of even the most basic fairness, every dollar of income would be taxed at the same rate. In a system of even the most basic fairness, those with incomes of $100 million would pay the same 15.3% Social Security and Medicare tax as the sole proprietor earning $100,000.

Needless to say, if this most basic fairness was applied to America’s wealthy and powerful, these programs would not be facing insolvency.

If Joe the sole proprietor hits the bigtime, he pays 32% federal tax over $165,000, 35% over $210,000 and 37% over $524,000. If we add 15.3% to 37%, we get 52.3%. How many of America’s super-wealthy / billionaires pay 52% in Social Security-Medicare and income taxes? Zero.

Could America’s super-wealthy / billionaires afford to pay 52%? Of course they could–they own the majority all financial assets and skim the majority of all income. But they won’t, because the system is rigged to benefit the few at the expense of the many via legalized looting.

It isn’t just the inequality of ownership of capital and power that enrages the oppressed; it’s the blatant unfairness of our neofeudal / neocolonial system. As I explained in Neofeudalism and the Neocolonial-Financialization Model (May 24, 2012) and Welcome to Neocolonialism, Exploited Peasants! (October 21, 2016), the Financial Nobility have “come home” and applied the same rapacious exploitation they perfected in colonialism to the domestic populace.

Here’s looking at you, Federal Reserve–thanks for perfecting legalized looting and neofeudalism in America.

The gulf between the lavishly praised American ideals and the putrid, corrupt reality of America’s neofeudal system is wider than the Grand Canyon. As the pendulum accelerates to an extreme equal but opposite to the current extremes of unfairness, exploitation and legalized looting, those who have suffered the consequences of this systemic inequality will find expression in whatever ways are available.

Since it’s difficult to get to the protected compounds of the super-wealthy, the signifiers of the merely wealthy will offer readily available targets. The new Tesla won’t just get keyed; it will be “reworked,” to the great satisfaction of the “workers.”

Please note that I am not promoting a war on wealth and the wealthy, I am merely pointing out that it is as inevitable as the gravity pulling the pendulum.

The war on wealth and the wealthy will manifest politically, socially and economically. It won’t be a tightly controlled, top-down movement. It will be spontaneous, self-organizing and unquenchable.

If you don’t understand why a war on wealth and the wealthy is inevitable, please study this chart: the way of the Tao is reversal.

The Top 10%’s Bubble Is About to Burst

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By Charles Hugh Smith

Source: Of Two Minds

When the top 10%’s bubble pops in 2021, the loss of illusions/delusions of security and wealth will be shattering to all those who believed artifice and illusory “wealth” were real.

A great many people are living in bubbles that are about to pop. The largest bubble is the one inhabited by people who complacently believe in time travel, i.e. that the world of 2019 is about to replace the nightmare of 2020 and we can all go back to our carefree debt-funded consumption frenzy and illusions of ever-greater wealth forever and ever.

The greater one’s sense of security, the more durable the bubble. Those in America’s top 10% who have reaped virtually all the gains in income and wealth of the past 20 years live in a bubble that they view as unbreakable: no matter what problems arise, their personal income and wealth is secured by the government, central bank, etc.

Put another way, the top 10% are confident their position atop the wealth-power pyramid is secure no matter what happens. Any dip in stocks, bonds, real estate, bat guano futures, etc. that causes their personal wealth to decline (horrors!) will be instantly bought because the Federal Reserve will print another couple trillion dollars and funnel it into risk assets, as it has done for the past 20 years.

Any spot of bother in the gravy trains that fund the top 10%–local and state government, universities, Big Tech, Big Pharma, Department of Defense, Wall Street, hedge funds, venture capital, etc.– will be doused with trillions of dollars borrowed or printed into existence by the Treasury or Fed. No matter what spot of bother arises, the solution–more trillions–is just a few keystrokes away.

The top 10% are supremely confident in the godlike powers of these agencies and solutions: the idea that these “solutions” become insoluble problems does not compute, just as a decline in asset valuations that doesn’t rebound within three weeks thanks to Fed intervention is firmly outside the realm of possibility.

The top 10% are also supremely confident in the rightness of their position atop the heap. That their position atop the heap is largely the result of a web of privilege and a long run of extraordinarily good fortune does not enter their bubble at all; in their bubble, their wealth, status, prestige and income are all the result of hard work and merit.

While this is certainly true for some, it is not true for all, and even those who scraped their way to the top the hard way do not recognize that their success over the past 20 years (and arguably the past 50 years) has been largely the result of a financialized rising tide raising all boats. In a Bull Market in virtually everything (except commodities), everyone is a hard-working genius who got it all via merit.

On top of this myopic belief that their success is all the result of their own endeavors rather than a tide of financialization, the top 10% are equally blind to the toxic consequences of the wealth/income inequality that has so richly benefited the few at the expense of the many. The idea that the bottom 90% might rebel against the financial / political system that has favored the already-wealthy for a generation is outside the top 10%’s realm of possibility.

But tides do not run in one direction forever, and a revolt against the unprecedented inequality that heavily favors the top 10% is not “impossible,” it’s a certainty. The top 10% are accustomed to being admired and respected for their accomplishments, expertise, wise investing and professional acumen. They are accustomed to viewing themselves as the essential technocrat class that keeps the U.S. system functioning.

The problem with this self-congratulatory perspective is the U.S. system is now in thrall to process rather than results. The technocrat class has been trained to follow needlessly complex procedures and compliance processes as the path to professional advancement while avoiding accountability for the increasingly dismal results of America’s bloated, sclerotic, insider-dominated systems.

All this needless complexity will be jettisoned once printing/borrowing trillions become the problem rather than the solution. The bottom 90% will demand not just a fairer distribution of income and wealth, they will also demand a system that actually functions for the greater social good rather than for insiders, parasites, leeches and technocrat processors who declare victory not from results but from their success in following approved processes / narratives.

Once costs must be cut and results take precedence over process, much of the technocrat class will find itself replaced by automated software. Those that remain will be valued for getting results by whatever means are available, up to and including ignoring all compliance procedures and bureaucratic box-ticking.

The top 10%–the rentier-technocrat class–will find the bottom 90% can no longer pay their rent, insurance, etc.–all the “services” that employ and enrich the top 10%. In other words, the losses as unproductive complexity unravels will finally fall on the top 10%, many of whom have been protected from exposure to market forces and risk.

Lastly, the top 10%’s ownership of assets will be crushed by asset deflation as insolvency can no longer be papered over by liquidity. Assets that are the foundation of top 10% wealth (that the bottom 90% own very little of) will go bidless as phantom wealth dissipates into the thin air from whence it came.

The top 10% reckon they’re untouchable, safe and protected in their asset lifeboats, and the sinking of the 90% won’t affect them. The top 10%’s bubble is about to burst. Not only will their lifeboats prove unstable, every level of government will come after whatever is left as taxes will soar on virtually every form of income and wealth.

Unlike the bottom 60%, who have few illusions about the rampant unfairness and predation of real-world America, the top 10%’s bubble is 90% illusion seasoned with 10% absolute delusion. The comfortable are about to experience some of the discomfort that is everyday life for the bottom 60%, and an increasing percentage of the next 30% who still aspire to fantasies of middle-class security will find social mobility is an escalator down.

We cannot print wealth, or borrow it into existence. All we can print/borrow is artifice, phantom representations of illusory “wealth” that will vanish into thin air, in a reverse of how the “money” was created–out of thin air.

When the top 10%’s bubble pops in 2021, the loss of illusions/delusions of security and wealth will be shattering to all those who believed artifice and illusory “wealth” were real. What’s real is the tide of financialization and globalization reversed over a year ago. The tide is now running out, but few loading their “wealth” into lifeboats have noticed–yet.

What’s the future of U.S. democracy? More inequality, polarization and violence

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It might have been irrelevant whether Biden or Trump won this election. Yes, the problems are that bad

By Ramzy Baroud

Source: Information Clearing House

In January 2017, the Economist Intelligence Unit’s Democracy Index downgraded the state of democracy in the United States from “full democracy” to “flawed democracy.”

The demotion of a country that has constantly prided itself, not only on being democratic but also on championing democracy throughout the world, took many by surprise. Some U.S. pundits challenged the findings altogether.

However, judging by events that have transpired since, the accuracy of the EIU Index continues to demonstrate itself in the everyday reality of American politics: extreme political and cultural polarization; growing influence of armed militias and police violence; the mistreatment of undocumented immigrants, including children; the marginalization of the country’s minorities in mainstream politics, and so on.

The EIU’s Democracy Index has, finally, exposed the deteriorating state of democracy in the U.S. because it is based on 60 different indicators which, aside from traditional categories — i.e., the function of government — also include other indicators such as gender equality, civil liberties and political culture.

Judging by the number, diversity and depth of the above indicators, it is safe to assume that the outcome of the U.S. general elections this month will not have an immediate bearing on the state of American democracy. On the contrary, the outcome is likely to further fragment an already divided society and continue to turn the country’s state-run institutions — including the U.S. Supreme Court — into battlegrounds for political and ideological alliances.

While the buzzword throughout the election campaigns has been “saving American democracy,” the state of democracy in the U.S. is likely to worsen in the foreseeable future. This is because America’s ruling elites, whether Republicans or Democrats, refuse to acknowledge the actual ailments that have afflicted American political culture for many years.

Sadly, when the campaign of Sen. Bernie Sanders, former Democratic presidential candidate, insisted that massive structural adjustments were necessary at every level of government, he was dismissed by the Democratic establishment as unrealistic, and altogether “unelectable.”

Sanders was, of course, right, because the crisis in American democracy was not initiated by the election of Donald Trump in 2016. The latter event was a mere symptom of a larger, protracted problem.

These are some of the major issues that are unlikely to be effortlessly resolved by the outcome of the elections, and thus will continue to downgrade the state of democracy in the U.S.

The inequality gap: Income inequality, which is the source of socio-political strife, is one of the United States’ major challenges, spanning over 50 years. Inequality, now compounded with the COVID-19 pandemic, is worsening, affecting certain racial groups — African Americans, in particular — and women, more than others.

According to a study conducted by the Pew Research Center in February 2020, “income inequality in the US is the highest of all the G7 nations,” a major concern for 78 percent of Democrats and 41 percent of Republicans.

Political polarization: The large gap between the wealthy few and the impoverished many is not the only schism creating a wedge in American society. Political polarization — although, interestingly, it does not always express itself based on rational class demarcation — is a major problem in the U.S.

Both Republicans and Democrats have succeeded in making their case to enlist the support of certain strata of American society, while doing very little to fulfill the many promises the ruling establishments of these two camps often make during election campaigns.

For example, Republicans use a populist political discourse to reach out to working-class white Americans, promising them economic prosperity. Yet there is no evidence that the lot of working-class white American families has improved under the Trump Administration.

The same is true with Democrats, who have, falsely, long situated themselves as the champions of racial justice and fairer treatment of undocumented immigrants.

Militarization of society: With socio-economic inequality and political polarization at their worst, trust in democracy and the role of the state to fix a deeply flawed system is waning. This lack of trust in the central government spans hundreds of years, thus, the constant emphasis on the Second Amendment of the U.S. Constitution regarding “the right of the people to keep and bear arms.”

Indeed, U.S. society is one of the most militarized in the world. According to the FBI, two-thirds of all local terrorism in the US is carried out by right-wing militias, who are now more emboldened and angrier than ever before. According to an October Southern Poverty Law Center report, there are about 180 active anti-government paramilitary groups in the U.S.

For the first time in many years, talks of another “American Civil War” have become a daily discussion point in mainstream media.

It would be entirely unrealistic to imagine that democracy in the U.S. will be restored as a result of any given election. Without a fundamental shift in U.S. politics that confronts the underlying problems behind the socio-economic inequality and political polarization, the future carries yet more fragmentation and, quite possibly, worsening violence.

The coming weeks and months are critical in determining the future direction of American society. Alas, the current indicators are hardly promising.

‘$2.5 TRILLION THEFT’ – STUDY SHOWS RICHEST 1% OF AMERICANS HAVE TAKEN $50 TRILLION FROM BOTTOM 90% IN RECENT DECADES

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The median U.S. worker salary would be around twice as high today if wages kept pace with economic output since World War II, new research revealed.

By Brett Wilkins

Source: Common Dreams

New research published Monday found that the top 1% of U.S. income earners have taken $50 trillion from the bottom 90% over the past several decades, and that the median worker salary would be around twice as high today as it was in 1945 if pay had kept pace with economic output over that period.

The study’s authors, Carter C. Price and Kathryn Edwards of the RAND Corporation, examined income distribution and economic growth in the United States from 1945 to the present. The researchers found stark differences between income distribution from 1945 to 1974 and 1975 to 2018.

According to the study—which was funded by the Seattle-based Fair Work Center—the median salary of a full-time U.S. worker is currently about $50,000. Adjusted for inflation using the consumer price index, workers at or below the current median income now earn less than half of what they would have if incomes had kept pace with economic growth. This means that if salaries had kept pace with economic output, the median worker pay would be between $92,000 and $102,000 today, depending on how inflation is calculated.

Had the more equitable distribution of the roughly 30-year postwar period continued apace, the total annual income of the bottom 90% of American workers would have been $2.5 trillion higher in 2018, or an amount equal to about 12% of GDP.  In other words, the upward redistribution of income has enriched the 1% by some $47 trillion—which would now be more than $50 trillion—at the expense of American workers.

David Rolf, a Seattle labor organizer, president of the Fair Work Center, and founder of Service Employees International Union (SEIU) Local 775, is more blunt. He calls this “the $2.5 trillion theft.”

“From the standpoint of people who have worked hard and played by the rules and yet are participating far less in economic growth than Americans did a generation ago, whether you call it ‘reverse distribution’ or ‘theft,’ it demands to be called something,” Rolf, who helped lead the fight for a $15 hourly minimum wage in Seattle and beyond, told Fast Company.

Remarkably, the study found that workers at all income levels would be better off today if income kept pace with output. Full-time, prime-age workers in the 25th percentile, for example, would be earning $61,000 instead of $33,000. Workers in the 75th percentile, who in 2018 earned $81,000, would be making $126,000. Even 90th-percentile workers, who earn $133,000, would be making $168,000 under the more equitable distribution.

On the other hand, had the economic pie been divided more equitably, the income of the top 1% would fall from around $1.2 million to a still-affluent $549,000.

“We were shocked by the numbers,” said Nick Hanauer, a venture capitalist and self-described “zillionaire” who, along with Rolf, came up with the idea for the study. “It explains almost everything,” Hanauer told Fast Company. “It explains why people are so pissed off. It explains why they are so economically precarious.”

Sen. Bernie Sanders (I-Vt.), who made correcting economic inequality a pillar of both of his presidential bids, lamented the “h-u-g-e redistribution of income in America” in a Monday tweet.

The researchers’ findings, which come amid a deadly coronavirus/Covid-19 pandemic, shine light on the injustice of an economy—by far the wealthiest in the history of civilization—in which essential workers struggle mightily, and often in vain, to survive while the richest people grow ever richer at their expense.

According to Americans for Tax Fairness, the total wealth of U.S. billionaires increased by $792 billion, or 27%, during the first five months of the Covid-19 pandemic. During this period, Amazon CEO Jeff Bezos, the world’s wealthiest person, has become the world’s first multi-centibillionaire, with a net worth now surpassing $200 billion. Meanwhile, his employees struggle to make ends meet, and Amazon workers who speak out against poor pay and hazardous working conditions during the pandemic have been fired and derided by company executives.

Compared to other most-developed nations, the U.S. has done a relatively poor job of taking care of its people during the pandemic. In addition to the U.S. being the only developed nation without universal healthcare, its workers have received less in direct payments and government support than people in many comparable countries.

The gap between the richest and poorest U.S. households is now wider than it has ever been in the past 50 years, according to the most recently available data from the U.S. Census Bureau. The pandemic has only exacerbated the situation, as around half of lower-income American households have reported a job or wage loss due to Covid-19.

Internationally, the U.S. ranks 39th out of over 150 nations in income inequality, according to Gini coefficient data compiled by the CIA, placing it roughly on par with nations like Peru and Cameroon. Among Organization for Economic Cooperation and Development (OECD) nations, the U.S. has the seventh-highest level of income inequality.

The U.S. has the highest poverty rate among the world’s most-developed nations, and the fourth-highest poverty rate among OECD nations after South Africa, Costa Rica, and Romania. According to UNICEF, the U.S. also has the second-highest rate of childhood poverty in the developed world behind Romania, with more than one in five U.S. children—and over one in four Latinx children, and nearly one in three Black and Native American children—living in poverty.

This year, more than 54 million Americans, or roughly one in every six people—including 18 million children—may experience food insecurity, according to the nonprofit group Feeding America.

The 5-Step CEO pay scam

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Grossly widening inequalities of income and wealth cannot be separated from grossly widening inequalities of political power in America. This corruption must end.

By Robert Reich

Source: Nation of Change

Average CEO pay at big corporations topped 14.5 million dollars in 2018. That’s after an increase of 5.2 million dollars per CEO over the past decade, while the average worker’s pay has increased just 7,858 dollars over the decade. 

Just to catch up to what their CEO made in 2018 alone, it would take the typical worker 158 years.

This explosion in CEO pay relative to the pay of average workers isn’t because CEOs have become so much more valuable than before. It’s not due to the so-called “free market.”

It’s due to CEOs gaming the stock market and playing politics.

How did CEOs pull this off? They followed these five steps:

First: They made sure their companies began paying their executives in shares of stock.

Second: They directed their companies to lobby Congress for giant corporate tax cuts and regulatory rollbacks.

Third: They used most of the savings from these tax cuts and rollbacks not to raise worker pay or to invest in the future, but to buy back the corporation’s outstanding shares of stock.

Fourth: This automatically drove up the price of the remaining shares of stock.

Fifth and finally: Since CEOs are paid mainly in shares of stock, CEO pay soared while typical workers were left in the dust.

How to stop this scandal? Five ways:

1. Ban stock buybacks. They were banned before 1982 when the Securities and Exchange Commission viewed them as vehicles for stock manipulation and fraud. Then Ronald Reagan’s SEC removed the restrictions. We should ban buybacks again.

2. Stop corporations from deducting executive pay in excess of 1 million dollars from their taxable income – even if the pay is tied to so-called company performance. There’s no reason other taxpayers ought to be subsidizing humongous CEO pay.

3. Stop corporations from receiving any tax deduction for executive pay unless the percent raise received by top executives matches the percent raise received by average employees.

4. Increase taxes on corporations whose CEOs make more than 100 times their average employees.

5. Finally, and most basically: Stop CEOs from corrupting American politics with big money. Get big money out of our democracy. Fight for campaign finance reform.

Grossly widening inequalities of income and wealth cannot be separated from grossly widening inequalities of political power in America. This corruption must end.