By James Livingston
I know a financial planner who meets with his clients every quarter, to review and revise their portfolios. He recently met with one, a retired executive, who said (I paraphrase), “Donald Trump is a pig who turns everything he touches to shit. But he’s made me a bundle this quarter. OK, you have, by keeping me in equities. I gotta vote for him. Especially since if Bernie’s elected, the stock market loses 20% overnight. You said that.”
These remarks capture the mood of the majority just now. Nobody I know–except my friend the financial planner and his ex-wife–is deeply or directly invested in the stock market, but 59% of Americans say they’re better off than last year, and fully 76% expect better things to come. And this, according to Gallup and the Pew Research Center, even as concerns about jobs and the economy keep rising, making them the principal issues for Republicans and Democrats alike–and as, meanwhile, Bernie Sanders, who proposes to finance M4A with a tax on stock trades, remains the leader among Democratic presidential candidates.
What’s going on here? Only 10% of stockholders own 84% of shares traded on the NYSE. The rest of us occupy Wall Street at the distance of our pension funds, if we’re lucky enough to have one (most of us do not–see below). Why does anyone treat the stock market as an index of economic well-being?
David Brooks, of all people, rides to the rescue. Seriously. In a column of February 6, he nailed it: “Trump’s [SOTU] speech reframes the election around this core question: Is capitalism basically working or is it basically broken?” Well, duh, you might say. But he’s right, the Democratic candidates sort themselves by their answers. Sanders is the only one who says it’s broke, let’s fix it or, if we have to, replace it. Even so, his programs aren’t radical, they’re an updated New Deal, a moderate dose of social democracy as the cure for the disease that capitalism has become. Only he and Elizabeth Warren, who drops out of the presidential race any day now, address the fundamental question Brooks raises.***
Trump will run on the proposition that capitalism is “basically working.” He has real evidence on his side, which Brooks duly notes. The stock market is up, of course. The unemployment rate, 3.5%, is the lowest in decades. Wages are rising, if slowly. The typical family income is higher than it has ever been.
But take a closer look at these numbers, and Trump’s proposition falls apart. He defends it as his own peril, because capitalism is working for a tiny fraction of Americans (not to mention the rest of the world) Look at the stock market, for example, and you will find another slow-motion crash in the making. To be sure, corporate profits are up along with buybacks, but 40% of the companies whose stock prices have risen significantly in the last three years are losing money.
The Dow-Jones and S & P averages have climbed because the proceeds from Trump’s tax cuts for the wealthy have swamped the equities markets (and depressed returns on fixed income assets), but not because those proceeds boosted private investment–in fact, net private investment is flat or declining, as it has been since Reagan’s tax cuts of 1981 similarly failed in their stated purpose.
Once upon a time, the best bet for all this surplus capital–the “global savings glut,” as Ben Bernanke named it–generated by these cuts was in “emerging markets,” that is, in Southeast Asia and Eastern Europe; then in the domestic dot.com bubble; then in the market for bundled mortgages and collateralized debt obligations. Each new wave of speculation–“irrational exuberance,” Alan Greenspan called it–caused a global economic crisis, the worst of which was the Great Recession. Now, with interest rates low and continuously suppressed by the Fed in accordance with Trump’s infantile tweets, the only outlet for surplus capital is the stock market. This bubble, too, is bound to burst.
Unemployment is low, all right, but almost half of Americans over 25 with only a high school diploma are no longer in the labor force–that is, they’re neither employed nor seeking work. That means the actual unemployment rate is well over 10%, roughly what it was in 2009-10, in the throes of the Great Recession. The rate of private sector job creation is now lower than it was under Obama’s two terms, which was already lower than it was under Bush’s two terms. And the private-sector jobs being created in retail, restaurant, and health care are underpaid at best. Wages are rising–at barely one percent per year, about the rate of inflation–because states and cities have mandated increases in the minimum wage, not because the demand for labor has been increasing.
I’d say–indeed I have said in print–that the accelerating automation of work has finally broken the labor market. Bullshit Jobs, as David Graeber calls them, are what Millennials and their generational successors can expect from compiling their resumes, filling out the online applications, and taking those drug tests. And yes, median family income is up, but most families are $400 away from bankruptcy, just waiting on a hospital bill they can’t pay.
Speaking of bankruptcy. 500,000 Americans go bankrupt every year because they can’t pay the price of adequate medical care, which just keeps rising. If they work for Walmart or Amazon, they’re undoubtedly using emergency rooms to provide necessary health care and food stamps to keep themselves properly fed. In other words, the 99%, those of us who pay their fair share of taxes–unlike Jeff Bezos–are subsidizing corporations, like Amazon, that treat their employees like sturdy beggars, to be ignored or discarded when they’re in need or out of luck. Do I have to remind us that at least 20% of children in the US live in poverty, as officially defined by the Bureau of Labor Statistics and the Census Bureau? Or that 20% of all household income derives from government transfer payments, without which this house of cards collapses?
And let us now consider personal savings and retirement, which matters for an aging population, and even more for those who follow, the Millennials, their siblings, their offspring, Gen X, Gen Z, all of us–because somebody’s got to pay for those who can’t work, unless we relinquish any claim to human feeling, and with it, any practical alternative to a war of all against all. Or plain old class war, armed struggle against the oligarchs. See you at the barricades?
32% of Americans have a 401k, although only 14% of employers offer one, and 79% of the labor force works for companies that offer one (all large corporations). These are weird numbers, but why? Because people can’t afford the tax-free deductions from their paycheck–they need every net dollar to spend on everyday life. Of those who are saving through a 401k, people over 65 have roughly $200K, people under 25 have roughly $4K. The average is $96-98K.
At $200K, at 65, you’re looking at 25 more years of life, at $8,000 a year. With an average Social Security benefit of $1360, you live on $24,320 a year. You live in poverty, maybe worse if the Republicans keep cutting Social Security and Medicare and Medicaid, the last of which you’d be eligible for as you sunk into poverty. But you will have company, because, according to the Government Accounting Office, of those 55 or older, 48% have no retirement income in a 401k or in a pension plan. All they have is Social Security. See you on the streets. Bring a sleeping bag.
The elephant in the locker room from which Trump’s every utterance sucks more oxygen is, of course, global warming, a.k.a. “climate change.” This phenomenon, obvious and measurable and verified by scientific consensus, threatens to turn every part of the planet, the USA included, into a funeral pyre that can’t be escaped except by acknowledging that capitalism is broken and must be fixed or replaced.
The fossil fuel industry, aided and abetted by all those banks that were too big to fail–the ones we bailed out in 2009–cannot abide the fundamental political and economic changes needed to avert, or at least modify, global warming. A Green New Deal is their “existential crisis” because it replaces a restless search for profits from underground with an equitable quest for equilibrium out in the open, where everybody, including those “persons” we call corporations, can measure their carbon footprint.
We’re in one of the longest economic booms ever, according to the National Bureau of Economic Research, which calculates these things, and Trump will try to take credit for it. David Brooks wants us liberals and leftists to turn this moment into a moral opportunity, on the grounds posited by Benjamin Friedman, a Harvard economist, who says, “Economic growth bears moral benefits,“ presumably because we don’t have to fight over pieces of the income pie if the size of that pie is expanding–I get to keep my share, so I don’t need to enlarge mine at your expense.
Well, David, and Donald, also Benjamin, we have now seen a decade of economic growth, reduced unemployment, rising wages, low inflation, and so forth, but we have seen no moral benefits. Instead, we have seen that inequality has gotten worse, especially here in the US, and that the ideologues who now run the White House and control the Senate will dismiss the problem–simply because they believe that to address it would be to demand more government regulation and less private enterprise.
Children at our southern border have been separated from their parents and caged like animals. The president has praised racist thugs and appointed avowed misogynists to the federal bench, even to the Supreme Court. Hard-won women’s rights, gay rights, trans-gender rights, have been trampled or trashed with the approval of the Republican Party.
Food stamps and Medicaid have been gutted, and now Obamacare, Social Security, and Medicare are on the block. The planet keeps burning, the ice keeps melting, and the civil wars keep us running from each other. We’re all refugees from the fire this time.
And you want to tell me about the moral benefits of economic growth? Let’s reverse the logic. This thing we call capitalism isn’t merely a market made of business transactions, it’s a social system comprised of social, cultural, and intellectual determinants, which include the moral universe markets presuppose and create. Marx himself always insisted that economic change was a function of social movements.
Sure, capitalism is morally questionable. It’s also dysfunctional and destructive in every other way. Let’s say so, and thus appeal to the self-interest of every social stratum. Capitalism is broken. Let’s fix it, or replace it, because if we don’t come together and get that done, the 1% wins. The rest of us, including our children and theirs, will lose.
***In demonstrating that capitalism is broken, I assume that:
(1) Democracy is impossible in the absence of markets and competition between firms, where arm’s length bargaining and decentralized consumer choices determine the allocation of resources (which are not strictly material or merely economic). Why? Because political control of such allocation can be, and often is, arbitrary, inequitable, and oppressive. Think of the hordes of lobbyists who crowd the halls of Congress, clamoring for crony capitalism. They’re not seeking release from political control of the economy, they’re demanding it.
(2) Markets and capitalism are not the same thing. Markets, money, commodities, trade, banks, credit, accounting, advertising, etc. etc., preceded capitalism, and will outlast it. Markets are “social constructions,” as Alan Greenspan put it in his memoir, malleable devices that can serve many purposes. We can “make markets,” as the traders say, in the name of our social goals, decided democratically rather than by money channeled through Citizens United (2010), the Supreme Court decision that redefined free speech as corporate donations to political causes.
(3) Markets necessarily break down and create social crises precisely because they have no central dispatcher. Investors, producers, and consumers can disagree on what is desirable and/or affordable, and that disagreement makes for mistakes, which in turn lead to confusion, panic, and collapse. By now, however, we know that investment follows the demand curve–not vice versa–or, what is the same thing, consumer choices are the engine of economic growth. We also know how to manage those crises when they inevitably come.