Wednesday, January 28, 2015

Fawning Obituaries for a Saudi Monarch

U.S. officials are expressing their condolences on the death of Saudi Arabia King Abdullah bin Abdulaziz and to the people of Saudi Arabia. Obama praised him for his "enduring contribution to the search for peace in the region" and the "the courage of his convictions" noting that "the closeness and strength of the partnership between our two countries is part of King Abdullah's legacy".

This is the absolute monarch who has ruled Saudi Arabia for 20 years; a country that has earned the following summary review from Human Rights Watch in 2014:

Saudi Arabia stepped up arrests, trials, and convictions of peaceful dissidents, and forcibly dispersed peaceful demonstrations by citizens in 2013. Authorities continued to violate the rights of 9 million Saudi women and girls and 9 million foreign workers. As in past years, authorities subjected thousands of people to unfair trials and arbitrary detention. In 2013, courts convicted seven human rights defenders and others for peaceful expression or assembly demanding political and human rights reforms.

In the mainstram media there was virtually no mention of his brutal dictatorship or the routine use of beheadings as part of the criminal justice apparatus. Instead he was praised as a "man of peace".

As one critical report noted:

It’s not often that the unelected leader of a country which publicly flogs dissidents and beheads people for sorcery wins such glowing praise from American officials. Even more perplexing, perhaps, have been the fawning obituaries in the mainstream press which have faithfully echoed this characterization of Abdullah as a benign and well-intentioned man of peace.

In another, there was an interesting comparison and contrast between the US obituaries for King Abdullah versus Venezuela's Hugo Chavez, the latter a democratically elected leader. It represents a powerful lesson in the priorities of US foreign policy.

Monday, January 19, 2015

What's (Fiscally) The Matter With Kansas

When Kansas governor Sam Brownback decided to take the advice of extreme conservative supply-side economists and reform the tax code to serve the interests of the few, he promised that it would generate economic growth and “lift all boats” (sound familiar). However, as the tax cutting plan was implemented, knowledgeable observers on both the right and the left predicted dire results.

And, as predicted, revenues dropped, no economic renaissance resulted, budget deficits swelled, services and public investment were slashed, the state’s credit rating was downgraded, and the population of Kansas was royally pissed off.  

Well, as it now turns out, he is prepared to raise some taxes. Would those be taxes on the wealthy? No. How about taxes on corporations? No.  Instead he will raise taxes on liquor and cigarettes. Yes, a sales tax -- the most regressive of all taxes falling most heavily on those least able to pay.  

Has Brownback learned anything from this experience? No. Why? Because the supply-side neoliberal economic theory is faith-based economics. Empirical evidence is irrelevant. They don’t call it market fundamentalism for nothing.

And so, in addition to announcing regressive sales tax increases, there was this: “We will continue our march to zero income taxes,” the governor said Thursday in his State of the State address. “States with no income tax consistently grow faster than those with high income taxes.”
There is no end to the fiscal insanity.

What Would MLK Think and Do?

If Martin Luther King were alive today I believe he would be deeply disturbed at the socio-economic condition and policy direction of the United States in both domestic and international affairs. 

More specifically, he would be appalled that our global response to 9/11 was war, invasion, and occupation; that our domestic response to 9/11 was a so-called Patriot Act curtailing civil liberties; that our current military strategy employs targeted killing using unmanned drones; that in spite of record rates of child and family poverty our “leaders” are unable to utter the p-word; that in the midst of the worst economic crisis since the great depression there is a greater concern with cutting deficits than creating jobs; that in spite of record income inequality, raising taxes on the rich is fiercely resisted while busting labor unions is embraced; that in response to the endless string of mass shootings many Americans have chosen to stock up on additional weapons;  that in response to a failing economy that systematically marginalizes racial minorities we have chosen prisonfare over welfare, the dragnet over the safety net; and that rather than deepening democracy we have established a corporate plutocracy; and so forth, ad nauseam.

But Martin Luther King would not despair; he would organize. If alive today he would have supported the Occupy movement and would mobilize citizens in peaceful, non-violent action to agitate against existing conditions while building a vision for a more humane world.

Thursday, January 15, 2015

The Financial Oligarchy is Winning

Despite the fact that the U.S. banking and financial sector engaged in illegal, unethical, and criminal behavior which blew up the national and global economy, the weak regulatory response known as Dodd-Frank is being systematically defanged by Congress. As reported in the New York Times,

In the span of a month, the nation’s biggest banks and investment firms have twice won passage of measures to weaken regulations intended to help lessen the risk of another financial crisis, setting their sights on narrow, arcane provisions and greasing their efforts with a surge of lobbying and campaign contributions.

The continuing assault on the 2010 Dodd-Frank law has achieved remarkable success, especially compared with the repeated failures of opponents of another 2010 law, the Affordable Care Act.

 This has been accomplished not only by Republicans but also with the support of a significant number of Democrats. And, also reported and consistent with the long-running pattern, the Obama administration has been complicit in allowing the financial sector to roll back the minimal progress
Proponents of regulation say that they are badly outgunned by an army of Wall Street lobbyists, and complain that the Obama administration has been too weak in its response.

“The president was slow in drawing the same kind of line on financial reform that he did on health care,” said Barney Frank, the retired chairman of the House Financial Services Committee who helped write Dodd-Frank.
None of this should be surprising, if distressing, since the financial sector essentially serves as a ruling elite in determining political-economic policy. Not only were campaign contributions from the financial sector among the largest supporting Obama’s election and re-election, those appointed to oversee and re-regulate the financial sector came from the institutions that contributed to the crisis.

It is worth returning to the seminal piece by the former International Monetary Fund (IMF) official Simon Johnson, who wrote in his Atlantic piece titled “The Quiet Coup” that the U.S. is ruled by a “financial oligarchy”:
… elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.

…Of course, the U.S. is unique. And just as we have the world’s most advanced economy, military, and technology, we also have its most advanced oligarchy.
If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform.

Unfortunately, the financial oligarchy today is more concentrated and more powerful than ever.


Saturday, January 10, 2015

Sources of Wage Stagnation

With the publication of Thomas Piketty’s Capital, and the intense conversation, debate, and reviews that have followed, there has never been a greater focus on the issue of income inequality. One of Piketty’s central findings is that in capitalist economies the long term trend is one where the economic returns on capital wealth exceed the growth rate and returns to labor in wages (or in his formulation r>g). This challenges the various claims about the essential fairness of capitalism with regard to earned and unearned income, and suggests the long-term trend will be a further widening of the gap between labor and capital, the working class and the capitalist class, the 99% and the 1%.

While this may be the long-term pattern of unbridled capitalism, when one examines inequality in the United States there are some clear policy decisions and political-economic actions that have contributed to the currently record high levels of income and wealth inequality. The Economic Policy Institute has released two reports recently that illuminate some of the causes and, accordingly, point to the way political efforts and actions can either exacerbate or moderate the general tendencies of capitalism. This is important lest one assumes there is nothing that can be done to counter the natural market forces.

One report focuses, appropriately, on the specific problem of “wage stagnation”. Economies can grow, profits can be collected, Wall Street can boom, but wages can stagnate or actually decline. This has been the US pattern. Among the causes they cite a lack of commitment to full employment, declining union density, labor market policies and practices of government and business, the impact of financialization on the fortunes of the 1%, and globalization.

On the matter of full employment, the two central macroeconomic objectives – low inflation or low unemployment – have never been on an equal footing. There has always been a greater concern about high inflation than high unemployment, and the record of the Federal Reserve bears this out. There is a class basis for the preference. High unemployment does not threaten the capitalist class in the same way that inflation, and the associated decline in the value of capital assets, does. Thus, if one has to choose, it is inflation that is slayed by government policy first and foremost. It is also the case, as noted in a prior posting here, that high unemployment is more beneficial to the capitalist class than low unemployment because it keeps wages low and weakens the bargaining power of labor.

In the other report recently posted by the EPI, they take a closer look at one of these five factors – union density, which is a measure of the collective bargaining power of workers. I would regard this as one of the most important factors that is neglected in Piketty’s analysis and which helps us understand one of the central problems facing U.S. capitalism. This is the divergence between productivity and wages. This can be seen clearly in the following figure included in this report.


This would indicate that the assumption that labor is compensated on the basis of productivity is not an iron-clad law in market economies. In fact, it depends on the balance of social class power.   For the immediate post-WWII period, productivity and compensation moved in lock step together. This was also the period we associate with the “labor-capital accord” where labor, through collective bargaining agreements in major industries, was willing to concede control of the workplace to managers if they were also guaranteed regular wage increases on the basis of the rising productivity.  With the economic crisis of the 1970s, and the introduction of neoliberal economic policy, that accord was terminated and as union density decreased this wage-productivity gap also increased. 

This is further demonstrated in the second figure included in the report using state-level data:

States with the largest decline in collective-bargaining coverage, experience the smallest increases in real hourly compensation growth. A factor highly correlated with both of these variables is the decline in manufacturing employment in the states as capital shifted industry south and then abroad. Note the position of Michigan as the prototype of this pattern at the far bottom right corner, actually experiencing negative growth.

There is one policy implication that should be obvious from this analysis. Without labor power – and this can be accomplished through unionization, collective bargaining, worker ownership and control – it is unlikely that there will be any change in the long-term prevailing pattern of wage stagnation and inequality. Not only does labor organization at the workplace produce economic benefits for workers, it also politicizes and mobilizes workers which translate into greater political power in the electoral arena. Ideally, there would be a broad collation and political party that represented labor’s interests. The Democratic Party does not, cannot, and will not do this.

A final point about Piketty’s work on inequality. While largely embraced by those on the left for exposing the inherent inequality generated systemically by the workings of capitalism, Piketty operates in a conventional economic paradigm and makes no effort to address social class relations. He should not be faulted for this as he is candid about his theoretical orientation and his primary objective is to understand the long run tendencies in capitalist economies. But when you take these social class relations, and relative power positions, as given, then you end up with a certain policy prescription for addressing inequality. For Piketty, this involves taking the unequal distribution generated by the economy, and then subjecting it to a “confiscatory” tax on the rich that would allow for redistribution. One alternative, suggested by the analysis above, is to create a more equal distribution at the organizational or workplace level through greater worker bargaining power.

Tuesday, January 6, 2015

Greek Austerity and the Fight Back

Following on the last posting linking neoliberal macroeconomic fiscal policy with public health, it is noteworthy that the International Federation for Human Rights issues a scathing report denouncing the austerity measures imposed on the Greek population. Titled “Downgrading Rights: The Costs of Austerity In Greece” the Federation’s press release highlights the main findings:

It depicts a country where economic hardship and austerity combined have threatened human rights and democratic standards across different sectors, from social and economic rights, to civil and political ones…the report signals that what has been shrinking alongside public budgets, in Greece and elsewhere in Europe, is the space for individual rights and freedoms.

Like the institutionalization of the neoliberal political-economic model generally, the imposition of austerity generates a predictable mass response that must be controlled through increasingly authoritarian measures.

As it pertains to the issue of public health, the report notes that:

Access to basic healthcare has also been severely impaired by the cuts to the public health budget and essential public health services and programmes. Doctors revealed that they sometimes had to refuse patients or postpone important surgeries due to a reduced number in hospital beds and cuts in an already understaffed and strained workforce, amongst other things. This, coupled with increased difficulties to contract health insurance, especially for the unemployed, has severely hindered access to healthcare, despite recent reforms aimed at ensuring access to public services to the uninsured. Again, vulnerable groups including women, migrants and the youth suffer a disproportionate burden, as the report shows.

The people of Greece have not sat by passively in the face of these brutal policies. There have been protests, riots, and now the emergence of a social and political movement that may ultimately take political control. Organized originally as the Coalition of the Radical Left, the SYRIZA party which triumphed in May elections over the conservative New Democracy party and, if successful in the upcoming January 25th elections, will be able to form a new left government. The dramatic rise of the movement and the party is almost solely due to the reaction of large segments of the population to the austerity policies that have produced economic and social dislocation.

As reported by the New York Times “Greek Patience with Austerity Nears Its Limit”,

Nowhere have austerity policies been more aggressively tried — and generally failed to live up to results promised by advocates — than in Greece. After more than four years of belt tightening, patience is wearing thin, and tentative signs of improvement have not yet trickled down into the lives of average Greeks…
But at the street level in Greece, there is little debate anymore, if there ever was. The images of suffering here have not been that different from the grainy black and white photos of the United States in the 1930s. Suicides have shot up. Cars sit abandoned in the streets. People sift garbage looking for food.
About 900,000 of the more than 1.3 million who are out of work have not had a paycheck in more than two years, experts say.

The case of Greece is worth keeping an eye on since it represents a clear popular rejection of the austerity orthodoxy that has prevailed across all Western nations, including the United States, through a democratic electoral process (though a multi-party system versus the U.S. duopoly). One can only hope that it will set an example for other countries looking to put the interests and needs of the people over the global creditors.

Sunday, January 4, 2015

The Political Economy of Public Health

The field of public health is gradually broadening its conceptual and theoretical models to include non-individual level factors shaping the health outcomes of the population. This now includes macroeconomic policy as a powerful structural predictor. The interdisciplinary thrust of this movement has been mostly widely felt through the Place Matters initiative that links health disparities to socio-economic conditions that exist in one’s immediate neighborhood and community.

More recently, this has expanded to include political economic conditions that shape fiscal policies. One of the best examples of this work is represented by the research of David Stuckler and Sanjay Basu. In their book The Body Economic: Why Austerity Kills, the researchers demonstrate how nations respond to economic and financial crises can impact the life and death of their populations. More specifically, as the title suggests, when governments try to manage crises through austerity – the primary prescription of the neoliberal economic model – it has devastating effects on the health of the population as cutbacks in government spending sharply curtail the resources devoted to public health – physical and mental. Examples are provided from Greece, Britain, Spain, and the United States where suicides and HIV infections increased as a result of fiscal policy. A powerful counterexample is the case of Iceland which suffered a severe financial meltdown but it was managed, successfully, without sacrificing the health of the population. The authors note that if austerity had been subjected to a clinical trial, "It would have been discontinued. The evidence of its deadly side-effects – of the profound effects of economic choices on health – is overwhelming."

There is now evidence that similar misguided macroeconomic policies contributed to the severity of the Ebola outbreak. In this case the International Monetary Fund has played a major role in shaping the fiscal priorities of Guinea, Liberia, and Sierra Leone. As the researchers note:
Since 1990, the IMF has provided support to Guinea, Liberia, and Sierra Leone, for 21, 7, and 19 years, respectively, and at the time that Ebola emerged, all three countries were under IMF programmes. However, IMF lending comes with strings attached—so-called “conditionalities”—that require recipient governments to adopt policies that have been criticised for prioritising short-term economic objectives over investment in health and education. Indeed, it is not even clear that they have strengthened economic performance.

These developments in public health research are a welcome corrective to the “healthy choices” approach that assumes that individual health outcomes are solely the product of individual behaviors and lifestyles. The “structural turn” will have policy implications that will more successfully address the source of health disparities, rather than the symptoms.