One of the themes that has emerged in the discussions of the British Labour Party Fiscal Credibility Rule (which should be renamed the Fiscal Incredulous Rule) is when is the right time for a political party to show leadership and start educating the public on new ideas. The Modern Monetary Theory (MMT) project has been, in part, about educating people even if our ideas have been strongly resisted by the mainstream. The mainstream (New Keynesian) paradigm in economics is degenerative (meaning it has little empirical validation) and eventually it will fade into historical obscurity. For many of us that cannot come quickly enough. The defenders of the Rule argue that progressive politicians have to tread carefully or else the amorphous financial markets will turn on them and destroy their initiatives. The problem is that by kowtowing to the City or Wall Street, the progressive political forces become captured and redundant. Witness the electoral demise of social democratic parties over the last several decades. The conditions are ripe (see below) for a courageous head-on attack on these financial market elites and educate the public so that they allow elected governments to legislate for all rather than serving the interests of the elites, which has become the norm over the last several decades. The problem is that progressive political forces are also taking advice from mainstream economists who use the tools of neoliberalism. The upshot is that progressive political leadership is absent but desperately required.
When should political leadership be shown?
My view is that when in Opposition, especially with 5 year terms, there is ample scope to re-educate the public on matters relating to policy and economics.
The concept of being in political Opposition is to ‘oppose’ rather than just play it safe and wait for the government of the day to collapse from incompetence or unpopularity.
If the British Labour Party politicians really understood the implications of the body of work we have created which is now called Modern Monetary Theory (MMT) then they would not be advised to put out crazy documents like the Fiscal Credibility Rule.
That Rule will crucify Labour.
The advisors think they are being crafty by couching the Rule in orthodox neoliberal language so that the ‘financial markets’ will be placated.
But not only does this tactic just reinforce the public’s lack of education about monetary matters and biases them to accepting lies from the mainstream economists it also sets up a huge target when it becomes obvious the Labour government cannot operate within the rule.
I have explained all that in previous blog posts.
But the idea that a political party should wait until they attain government before they try to alter the perceptions of the voters is the trap that social democratic parties have fallen into over the last several decades.
They think that they have to express a regard for the ‘financial markets’ and the big corporations or else these elites will destroy them.
Although there is a little more to it than that. Many of these so-called progressives are, in fact, operating in league with the elites and are rewarded with sinecures and jobs when they transit back into non-political life.
Former US President Obama gave a good demonstration of how he is the thrall of the financial elites yesterday. He was campaigning for the Democrats in the upcoming mid-term elections and appeared at the University of Nevada.
In self-delusion mode, Obama told the audience (Source):
The threat to our democracy does not come from one person in the White House or Republicans in Congress or big money lobbyists. The biggest threat to our democracy is indifference.
There is only one real check on abuses of power, one real check on bad policy, it’s you and your vote.
Upon which the local Democratic official started to chant “You vote, we win”.
Which I immediately concluded would further entrench the “abuses of power”.
After all, the Democrats and Obama as President hardly did anything to stop the financial and corporate elites from running roughshod over the American people.
He had a revolving door of Wall Street banksters coming and going from his Administration.
He also had the audacity to claim that:
When you hear all this talk about economic miracles, remember who started it … I hope people realize there’s a pattern that every time [Republicans] run things into the ground and we’ve got to clean it up.
So it is unclear whether the social democratic politicians are just ignorant of the trends in the economic literature, or aware that MMT presents a superior understanding of the monetary system but reluctant to rock the boat, or, worse, in the pay of the banksters (implicitly or not).
All three options lead to a lack of leadership and the sort of decline in democratic richness that we have seen evolve over the last several decades.
That is background for the next information.
US Survey of Consumer Finances
The Federal Reserve Bank conducts a three-yearly – Survey of Consumer Finances (SCF) – which provides a wealth of information about how US families are faring and sharing in the income and wealth generated by economic activity.
The most recent survey was 2016 and I have been analysing the data that is publicly available.
The Federal Reserve, itself, has presented some of the evidence already in rather stark terms.
On September 13, 2018, they published their latest FEDS Notes – A Wealthless Recovery? Asset Ownership and the Uneven Recovery from the Great Recession – which analysed the impact of the GFC on American wealth holdings and the wealth dynamics since the recovery began.
It is harrowing reading.
1. “Between 2007 and 2009, American households as a whole lost 20 percent of their wealth.”
2. “by late 2012, aggregate household net worth surpassed its previous 2007 peak, and continued to grow through 2016.”
3. But, “wealth is highly concentrated–as of 2016, 80 percent of aggregate wealth was held by only 10 percent of households”.
4. “In 2016–well into the recovery–wealth remained below 2007 levels for all three subgroups in the Bottom 90, but the Top 10 had more wealth than in 2007
They presented the following graph to summarise the results. The Percentiles are based on “usual family income”.
So the aggregate figures indicating net wealth is now higher than it was in 2007 are highly misleading.
That result arises because of the tremendous skew in the distribution and the fact that the top 10 per cent are 11 per cent wealthier than they were in 2007 in real terms, while the rest of the families are variously much poorer.
Their analysis provides an understanding of why the recovery has only been of benefit to the top 10 per cent.
We learn that:
1. Home ownership rates have declined for the bottom 90 percent after the crisis.
2. First home buyers in the bottom 90 per cent have declined sharply.
3. Credit is being denied to lower income groups while rents-to-income ratios rise.
4. The bottom 90 have also seen their share holdings decline and their pension fund wealth decline.
The Federal Reserve research also tells us that:
1. The ratio of average wealth held by the Top 10 to that held by the Bottom 30 has risen from 23 in 1995, to 45 in 2007, to 72 in 2016.
2. The ratio of average wealth held by the Top 10 to that held by the Middle 30 has risen from 12 in 1995, to 17 in 2007, to 30 in 2016.
3. The ratio of average wealth held by the Top 10 to that held by the Next 30 has risen from 6 in 1995, to 7 in 2007, to 10 in 2016.
In other words, there is massive wealth inequality and it has been getting worse, particularly at the polar ends of the distribution.
Here are some graphs I produced from the latest data.
The first shows real income trends in America – 2001-2016. The blue bars are the percentage growth in real family income from 2001 to 2016 (the entire sample). The red bars show the period since the GFC (2007-2016).
The results are rather stark.
There has been virtually no growth in real income for the Bottom 20 since the crisis and subsequent recovery.
For the 2nd to 4th quintile families, their real income has declined over the entire period and most of that is due to the GFC and the failure to share in the income growth in the recovery.
And the top-end-of-town has done particularly well, especially the Top 10.
Incomes flow into wealth.
The next graph show a variation on the first graph from the Federal Reserve FEDS Note. It show the percentage change in family real net worth (wealth) by income percentile group for two periods: (a) 2007-16; and (b) 2010-16, the latter period being the recovery.
The bottom three quintiles have gone backwards over the whole period although the recovery period has harmed the poorest American families the most.
Measured over the entire period (2007-16) the fourth quintile is poorer but it has offset some of that dent on its wealth during the recovery.
The top two quintiles haven’t missed a beat.
Going back to the original question, the conservative, wait-until-we-are-in-government approach gets the progressive side of politics no where.
The fact is that the income and wealth trends in the US, while probably more extreme than in other nations, are representative of what the neoliberal era (including the so-called Great Moderation era that mainstream economists love to promote as ‘stability’) has delivered for most families.
If you then marry those trends with trends in employment quality, pay, conditions etc and other things that impact on the quality of our daily lives, it is not hard to construct a narrative that this period of history is one of the all-time great hoists by the top-end-of-town.
Despite economic growth generating massive income gains, the benefits of that growth has been expropriated by the wealthiest and highest income earners.
In turn, they wield enormous political power with the riches they have accumulated and sucked out of the system.
Hardly any of them were brought to justice during the GFC even though it was obvious that corruption and criminality was part of the story.
And, while they harangue governments about handing out pittances to poor people via income support they have their very large hands out demanding public funding for their own activities.
And, if they cannot be bothered building things themselves, they demand governments hand over public health systems, public education, public transport, public energy generation, public water supplies – at rock bottom prices and then, further demand the public purse provide ample subsidies to them to continue to supply essential services.
And, when it all f&cks up, they demand bailouts.
If that is not enough for a progressive political party like the British Labour Party to present an Oppositional manifesto that takes these parasites on front and centre then I am at a loss to understand what they would be able to do when in office.
The public are ready for progressive leadership.
They know they are being dudded.
But then their political representatives and their smug advisors wander around the countryside telling them that they can only spend if the financial markets are happy with them.
I am reading Nicholas Shaxson’s new book – The Finance Curse – at present (it only just came out).
He take apart the myths about the ‘City of London’ and demonstrates that it “is the single biggest drain our our resources; it sucks talent out of every sphere, it siphons wealth and hoovers up government time.”
The book notes that:
… we’re told we must turn a blind eye to money-laundering and appease big business with tax cuts We are told global finance is about wealth creation; the reality is wealth extraction.
He argues that root-and-branch financial market reform is required including legislating to ensure the government calls the shots not the other way around.
This includes reinstatement of capital controls when needed (I discussed these with John McDonnell at our recent meeting); breaking up of large accounting firms, making much of the speculative capital flows illegal, and more.
Just what British Labour should be putting into their Manifesto and spending the next several years educating the public on why and how.
As part of that demonstration of leadership they could also dispense with their ridiculous fiscal rule.
If now is not the time for courageous political leadership from progressives then it is hard to imagine when it would be right.
And the Wednesday Music Feature
I was listening to this suite on a plane flight yesterday and today the postman delivered the folio I had ordered with original manuscripts (hand written) for the three Gymnopédies and the corrected proof sheets for the Gnossiennes by French composer and pianist Erik Satie.
There was also some biographical information which was interesting.
Here are the six Gnossiennes played by the Dutch pianist – Reinbert de Leeuw – who has made something of a career interpreting the work of Erik Satie.
While the pieces appear deceptively simple, try getting the tempo correct and keeping it even. It is a very hard exercise. Also it is very difficult to get the clear separation between the melody and the chordal accompaniement including getting the right pedal exactly coordinated with the bass notes.
Suffice to say – Erik Satie was a genius.
Erik Satie also can be accorded the status of a post minimalist 100 years before its time. That is the way I see his compositions.
Needless to say I will be working through the corrected sheets for piano later today.
And it beats writing about stupid fiscal rules and dealing with characters who have only one defence when you expose their folly – ‘oh, he just misunderstands the rule’. Sure.
That is enough for today!
(c) Copyright 2018 William Mitchell. All Rights Reserved.