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“What was true of China in Adam Smith’s day is true of large parts of the Western world in our time. It is our laws and institutions that are the problem. The Great Recession is merely a symptom of a more profound Great Degeneration.”
–Niall Ferguson, The Great Degeneration: How Institutions Decay and Economies Die, 2012
OUR SLIDE TO ECONOMIC BANKRUPTCY: WHAT’S TO BLAME? WHO’S TO BLAME? DEBT? GLOBALIZATION? UNIONS? OBAMACARE?
Many agree that we are sliding to economic bankruptcy; so what’s to blame? Who is to blame? How do we stop this seemingly inexorable slide? Over the past week, many have sought to answer these questions.
Charles Lane writes in the Washington Post about the parallels between the debt-laden landscape of Greece and the public-debt burdened cityscape of Detroit in “Detroit’s Greek tragedy:”
Liberal economists have a ready response to conservatives who fret that U.S. debt might spiral out of control, a la Southern Europe: “America is not Greece.”
It’s true. Greece has much more public debt than does the United States, relative to economic output. Unlike Greece’s euro-denominated obligations, U.S. debt is in U.S. dollars. The U.S. economy is far more competitive than Greece’s tourism-and-tomatoes operation….
Certain parts of the United States, however, are like Greece. Just read emergency manager Kevyn Orr’s134-page report on Detroit, which has $20 billion in unpayable debt.
Couched in the workmanlike prose of a bankruptcy lawyer — which is what Orr is — the document nevertheless tells a harrowing story of institutional rot and social collapse, brought on by decades of government of, by and for special-interest groups.
Richard Wolff similarly uses Detroit as a starting point to discuss “How capitalism’s great relocation pauperized America’s middle class” in the Guardian.
Detroit’s struggle with bankruptcy might find some relief, or at least distraction, by presenting its desperate economic and social conditions as a tourist attraction. “Visit Detroit,” today’s advertisement might begin, “see your region’s future here and now: the streets, neighborhoods, abandoned buildings, and the desolation. Scary, yes, but more gripping than any imaginary ghost story.”
Wolff continues, describing the history of capitalism and its pathological cycle:
Capitalism and its driving profit motive first developed in England before spreading to western Europe, north America and then Japan. Over the last two centuries, those areas endured a growing capitalism’s mix of horrific working conditions, urban slums, environmental degradation, and cyclical instability. Capitalism also brought economic growth, wealth for a minority, labor unions and other workers’ organizations. Writers like Dickens, Zola, Steinbeck, and Gorky saw that capitalism’s workings clearly, while those like Marx, Mill and Bakunin understood it critically.
Workers’ struggles eventually forced capitalists to pay rising wages, enabling higher living standards for large sections of the working classes (so-called “middle classes”). Capitalists and their economist spokespersons later rewrote that history to suggest instead that rising wages were blessings intrinsic to the capitalist system.Capitalism and its driving profit motive first developed in England before spreading to western Europe, north America and then Japan. Over the last two centuries, those areas endured a growing capitalism’s mix of horrific working conditions, urban slums, environmental degradation, and cyclical instability. Capitalism also brought economic growth, wealth for a minority, labor unions and other workers’ organizations. Writers like Dickens, Zola, Steinbeck, and Gorky saw that capitalism’s workings clearly, while those like Marx, Mill and Bakunin understood it critically.
Workers’ struggles eventually forced capitalists to pay rising wages, enabling higher living standards for large sections of the working classes (so-called “middle classes”). Capitalists and their economist spokespersons later rewrote that history to suggest instead that rising wages were blessings intrinsic to the capitalist system.
Wolff asks, in short, if capitalism has a sustainable future:
Competition requires capitalists to raise wages instead in the newer, growing centers, where new sections of better-paid workers arise.
Will capitalism in its old centers of North America, Europe and Japan be able to hold the grudging support of their working classes, as it now delivers long-term declines of wages, working conditions, and living standards? Can capitalism achieve the social acceptance in the new centers that its first 200 years found in the old centers?
Finally, an editorial in the Wall Street Journal, “Part-time America,” analyzes the employment numbers and wonders if “Obamacare” might be the culprit behind high part-time hiring, but lower than desired full-time hiring.
The U.S. labor market may be gaining a little more steam, judging by Friday’s June jobs report. Imagine how much better it might do if ObamaCare weren’t encouraging employers to hire so many part-time workers.
BANKS NOT REALLY OUT OF CONTROL; THEY ARE BEYOND CONTROL
Likening the British establishment’s relationship with the financial sector to an alcoholic in denial, Joris Luyendijk writes another incisive article on banking culture in the Guardian.
Until 2008 there was denial over what finance had become. When a series of bank failures made this impossible, there was widespread anger, leading to the public humiliation of symbolic figures. But the scandals kept coming, and so we entered stage three – what therapists call “bargaining”. A broad section of the political class now recognises the need for change but remains unable to see the necessity of a fundamental overhaul. Instead it offers fixes and patches, from tiny increases in leverage ratios to bonus clawbacks and “electrified ring fences”.
Luyendijk continues, painting a picture of banks not as “cohesive units run by top bankers” but “loose federations of money-making franchises.” In other words, “the big banks have simply become too complex and too big to manage.”
Luyendijk describes his two year journey into the world of finance.
Before studying bankers I spent many years researching Islam and Muslims. I set out with images in my mind of angry bearded men burning American flags, but as the years went by I became more and more optimistic: beyond the frightening rhetoric and sensationalist television footage, ordinary Muslim people go about their day like all other human beings. The problem of radical Islam is smaller and more containable than Islamophobes believe.
With bankers I have experienced an opposite trajectory. I started with the reassuring images in my mind of well-dressed bankers and their lobbyists; surely at some basic level these people knew what they were doing? But after two years I feel myself becoming deeply pessimistic and genuinely terrified. This system is highly dysfunctional, deeply entrenched, and enormously abusive, both to its own workers and the society it operates in. The problem really is exactly as bad as the “banker bashers” believe.
Definitely an article worth reading. You can find it in full by clicking below.
Million dollars not enough for retirement
According to previous conventional wisdom, saving a million dollars was the benchmark for a safe retirement. Except for the most fortunate, this seemed like an impossible task. Now, Helaine Olen in the Guardian writes that perhaps the goalpost for a comfortable retirement is now even further away–and a million dollars might not be enough:
Today, $1m is not enough. And that’s the subject of the somewhat problematic article “For Retirees, a Million Dollar Illusion” published by The New York Times this past weekend.
That’s right. Even if you have $1m on hand, you can still die broke.
The issue is one of interest rates, withdrawal rates, and investing to preserve principle.
Read the full article in the Guardian here.
“Tyranny is always better organized than freedom.”
–Charles Péguy
BLEEDING THE ALREADY INDEBTED DRY
“The case for capping payday loans is overwhelming,” writes Stella Creasy in the Guardian.
The Consumer Finance Association boasts that it has “intelligent financially-savvy consumers who are making critical, proactive and positive financial decisions every day to help them live within their means whilst coping with the varied challenges of the post-credit crunch era.”
But how financially-savvy can you be to accept loans that sometimes reach 4,000%? Creasy reports:
The Citizens Advice Bureau tells a very different story. They deal with the fallout of a country where companies offering loans with rates of 4,000% cover every town centre and dominate internet and mobile phone advertising. Their experience is of an “out-of-control industry”, that has been lending to those under 18, people with mental health issues and even people who were drunk at the time of application. They speak of lenders not doing basic credit checks, and the harassment of borrowers to extend loans and repay quickly.
Those caught in this payday loan cycle have little way to get out.
Yet one in three of these loans are being used to pay off another payday loan – showing how using this credit often creates a spiral of debt. Many know such loans are toxic but have little alternative.
Read more about this disturbing trend in the Guardian here.