30 Oct 2011

The Instability of Inequality


NEW YORK – This year has witnessed a global wave of social and political turmoil and instability, with masses of people pouring into the real and virtual streets: the Arab Spring; riots in London; Israel’s middle-class protests against high housing prices and an inflationary squeeze on living standards; protesting Chilean students; the destruction in Germany of the expensive cars of “fat cats”; India’s movement against corruption; mounting unhappiness with corruption and inequality in China; and now the “Occupy Wall Street” movement in New York and across the United States.

While these protests have no unified theme, they express in different ways the serious concerns of the world’s working and middle classes about their prospects in the face of the growing concentration of power among economic, financial, and political elites. The causes of their concern are clear enough: high unemployment and underemployment in advanced and emerging economies; inadequate skills and education for young people and workers to compete in a globalized world; resentment against corruption, including legalized forms like lobbying; and a sharp rise in income and wealth inequality in advanced and fast-growing emerging-market economies.

Of course, the malaise that so many people feel cannot be reduced to one factor. For example, the rise in inequality has many causes: the addition of 2.3 billion Chinese and Indians to the global labor force, which is reducing the jobs and wages of unskilled blue-collar and off-shorable white-collar workers in advanced economies; skill-biased technological change; winner-take-all effects; early emergence of income and wealth disparities in rapidly growing, previously low-income economies; and less progressive taxation.

The increase in private- and public-sector leverage and the related asset and credit bubbles are partly the result of inequality. Mediocre income growth for everyone but the rich in the last few decades opened a gap between incomes and spending aspirations. In Anglo-Saxon countries, the response was to democratize credit – via financial liberalization – thereby fueling a rise in private debt as households borrowed to make up the difference. In Europe, the gap was filled by public services – free education, health care, etc. – that were not fully financed by taxes, fueling public deficits and debt. In both cases, debt levels eventually became unsustainable.

Firms in advanced economies are now cutting jobs, owing to inadequate final demand, which has led to excess capacity, and to uncertainty about future demand. But cutting jobs weakens final demand further, because it reduces labor income and increases inequality. Because a firm’s labor costs are someone else’s labor income and demand, what is individually rational for one firm is destructive in the aggregate.

The result is that free markets don’t generate enough final demand. In the US, for example, slashing labor costs has sharply reduced the share of labor income in GDP. With credit exhausted, the effects on aggregate demand of decades of redistribution of income and wealth – from labor to capital, from wages to profits, from poor to rich, and from households to corporate firms – have become severe, owing to the lower marginal propensity of firms/capital owners/rich households to spend.

The problem is not new. Karl Marx oversold socialism, but he was right in claiming that globalization, unfettered financial capitalism, and redistribution of income and wealth from labor to capital could lead capitalism to self-destruct. As he argued, unregulated capitalism can lead to regular bouts of over-capacity, under-consumption, and the recurrence of destructive financial crises, fueled by credit bubbles and asset-price booms and busts.

Even before the Great Depression, Europe’s enlightened “bourgeois” classes recognized that, to avoid revolution, workers’ rights needed to be protected, wage and labor conditions improved, and a welfare state created to redistribute wealth and finance public goods – education, health care, and a social safety net. The push towards a modern welfare state accelerated after the Great Depression, when the state took on the responsibility for macroeconomic stabilization – a role that required the maintenance of a large middle class by widening the provision of public goods through progressive taxation of incomes and wealth and fostering economic opportunity for all.

Thus, the rise of the social-welfare state was a response (often of market-oriented liberal democracies) to the threat of popular revolutions, socialism, and communism as the frequency and severity of economic and financial crises increased. Three decades of relative social and economic stability then ensued, from the late 1940’s until the mid-1970’s, a period when inequality fell sharply and median incomes grew rapidly.

Some of the lessons about the need for prudential regulation of the financial system were lost in the Reagan-Thatcher era, when the appetite for massive deregulation was created in part by the flaws in Europe’s social-welfare model. Those flaws were reflected in yawning fiscal deficits, regulatory overkill, and a lack of economic dynamism that led to sclerotic growth then and the eurozone’s sovereign-debt crisis now.

But the laissez-faire Anglo-Saxon model has also now failed miserably. To stabilize market-oriented economies requires a return to the right balance between markets and provision of public goods. That means moving away from both the Anglo-Saxon model of unregulated markets and the continental European model of deficit-driven welfare states. Even an alternative “Asian” growth model – if there really is one – has not prevented a rise in inequality in China, India, and elsewhere.

Any economic model that does not properly address inequality will eventually face a crisis of legitimacy. Unless the relative economic roles of the market and the state are rebalanced, the protests of 2011 will become more severe, with social and political instability eventually harming long-term economic growth and welfare.

Nouriel Roubini is Chairman of Roubini Global Economics, Professor of Economics at the Stern School of Business, New York University, and co-author of the book Crisis Economics.

The US security complex: Too big to fail

Many Americans are not aware that their tax money is being spent supporting a huge military industry.
US taxpayers are shelling out $1.2 tn. for the military, intelligence and homeland security sectors [EPA]

Think of Iraq as the AIG of wars - the only difference being that the bailout there didn't involve just three payouts. More than eight years after the Bush administration invaded that country, the bailout is, unbelievably enough, still going. Even as the US military withdraws, the State Department is planning to spend billions more in taxpayer dollars to field an army of hired-gun contractors to replace it. Afghanistan? It could have been the Lehman Brothers of conflicts, but when Barack Obama entered the Oval Office he chose the Citigroup model instead, and surged troops in twice in 2009. In other words, he double-TARPed that war, and ever since, the bailout money has been flooding in.

Until now - as the Occupy Wall Street demonstrations make clear - "too big to fail" has meant only one set of institutions: the plundering financial outfits that played such a role in driving the US economy off a cliff in 2008, looked like they might themselves collapse in a heap of bad deals and indebtedness, and were bailed out by Washington. Isn't it finally time to expand the too-big-to-fail category to include the Pentagon, the US Intelligence Community, and more generally the National Security Complex?

There is, of course, one major difference between those bailed-out financial institutions and the Complex: however powerful the banks may be, however much money financial outfits and Wall Street sink into K-Street lobbyists and the election campaigns of politicians, however much influence the US Chamber of Commerce may wield, when too-big-to-fail financial institutions totter, they have to come to the federal government hat (and future bonuses) in hand.

For the Pentagon and the National Security Complex, it's quite another matter. These days it's only a slight exaggeration to claim that they are Washington and that their very size, influence, and power protects them from the consequences of failure.

In the last decade, as "the troops" became sacrosanct, the secular equivalent of religious icons, they also helped ensure that no Congress could afford not to pour money into the Pentagon. Pay no attention to the much-touted $450 bn that institution is expected to trim over the next ten years. That sum will largely come from "cuts" in future projected growth and anything more will be strongly resisted. In that same decade - thanks largely to two hijacked planes that damaged New York beyond al-Qaeda's wildest dreams - "American safety" (narrowly defined as "from terrorists") became the mantra of the moment. Soon enough, it was the explanation of choice for any expenditure: the latest drones, surveillance equipment, high-tech motion sensors, or peeping-Tom technology at airports.

"The troops" translated into a get-out-of-jail-free card for the Pentagon, and it worked like a charm. In the three years since the economy melted down, when so much that mattered to most Americans was being cut back or deep-sixed, that budget was still merrily expanding. In the meantime, there were those constant infusions of fear for "American safety", helped along by terror plots generally too inept to do the slightest damage. All this ensured that an already massive crew of intelligence outfits would morph into a labyrinthine bureaucracy of stupefying proportions.

That same phrase fertilised the Department of Homeland Security, the homeland security state that went with it, and an immensely lucrative homeland-security-industrial complex that went with that - all growing at a remarkable clip.

An insurance policy for the National Security Complex

Imagine for a second that, at the height of the Cold War, someone had told you of a future in which the US faced no great armed power (not one) and at most a few thousand terrorists scattered across the planet, as well as modestly armed minority insurgencies in Iraq and Afghanistan. Imagine that person making this prediction as well: in budget and size, the National Security Complex of that moment would put its Cold War predecessor in the shade.

Without a doubt, you would have dismissed him as a madman. If someone had proposed such a future to those running the Cold War back then, they would have called it victory. And yet that's exactly our reality today, while victory itself has become the rarest of vintages, no longer stocked anywhere in our American world.

The dimensions of the National Security Complex now beggar the imagination. In fact, everything about it should make it the global yardstick for "too big to fail". The Pentagon budget is, for instance, about 50 per cent higher today than the Cold War average and accounts for nearly half of all military expenditures globally. And yet it has kept right on growing; and if bailed-out bankers continue to take home their bonuses as thanks for practically sinking the country, top Pentagon types continue to take home their golden pensions with future revolving-door opportunities in the military-industrial complex always available.

If you really want to grasp the enormity of the National Security Complex, just consider this stat: today, 4.2 million federal workers and employees of private contractors have security clearances - about, that is, the population of New Zealand or Lebanon.

Whatever Washington turned over to the banks, the Complex has it so much easier. After all, its managers essentially pay themselves more or less what they desire in the name of supporting the troops and promoting American safety. Yes, our congressional representatives officially dole out the money, but they have little choice when it comes to offering less than what's asked of them. And presidential election campaigns always lock candidates into yet more of the same.

So here's a basic American reality in the second decade of the twenty-first century: the Complex has an insurance policy unavailable to other Americans, while a vast blanket of secrecy in the name of national security ensures that most Americans have no idea what's being done with their money. The Complex's funding is safe and its employees are above the law, no matter what acts they may commit. Notoriously, the Pentagon has never even passed an audit. By default, we guarantee the Complex that, whatever happens to other Americans, its institutions and employees will remain safe. That's the real definition of American security - and doesn't it sound something like the banks and bankers who just can't fail?

Don't ask, don't tell

In such circumstances, cost is no object. To pick a random example, one of the - count them - 17 outfits that make up the US Intelligence Community is the National Geospatial-Intelligence Agency. Of course, like 99.9 per cent of Americans, you've never heard of it, and yet it has 16,000 employees, a "black budget thought to be at least $5bn per year," and a new, nearly Pentagon-sized headquarters complex in Virginia that's cost you, the taxpayer, a nifty $1.8bn.

And what does it do? Protect you, of course. Ensures your safety, naturally. Beyond that, don't ask how it uses your money. As writer Gregg Easterbrook explains, that's highly classified information. The agency does claim to provide "timely, relevant, and accurate geospatial intelligence in support of national security". Be satisfied.

And that's no anomaly. Your taxes regularly bail out the Complex. You ensure its wellbeing, and no one even bothers to give you an explanation. In 2008, economists Joseph Stiglitz and Linda Bilmes did the numbers and offered a "conservative" estimate of the ultimate costs of the Iraq War: $3tn. Now that Washington increasingly looks like it is giving up hope of keeping any significant number of troops stationed in Iraq, you might ask just what that phenomenal sum bought Americans. But no answer will be forthcoming. On Iraq, mum's the word, nor will anyone in Washington be held accountable.

Oh, and don't bother to ask, because no one who matters thinks you need to know. Meanwhile, talking about golden parachutes, the president who took us into Iraq and kept us there is overseeing the creation of a library named after him and by last accounting had already raked in $15m on the lecture circuit at $100,000 to $150,000 a pop; the vice president, who was a key player in the decision to invade and the war that followed, took home more than $2m for his bestselling memoir; the national security adviser, who offered her keenest advice to the president on the subject of Iraq, garnered a guaranteed $2.5m on a three-book contract and now charges up to $150,000 an appearance for speaking engagements, while settling into posts at Stanford University and the Hoover Institute; and the secretary of state who went to the UN to infamously defend the coming invasion with a pack of lies has pulled in a similar $150,000 ($5,000 a minute) for his lectures - and those are just the first few names on a far longer list.

By the way, in case you think it's over in Iraq, think again. Washington's stimulus bill for that country is still in effect. Foreign Service Officer Peter Van Buren writes at the Huffington Post that the State Department is now asking Congress for $5bn over five years to create jobs for police officers - Iraqi police officers, that is.

A recent report from Brown University's Watson Institute for International Studies estimated that the ultimate cost of both the Afghan and Iraq wars could range up to $4.4tn (with another vast stimulus package going to the Afghan police and military for years to come). And keep in mind that those trillions don't include the global war on terror or spending on the rest of the national security complex.

Chris Hellman of the National Priorities Project did the maths for TomDispatch and found - again, a conservative estimate - that US taxpayers are shelling out at least $1.2tn a year for the vast military, intelligence, and homeland security combine that operates in their name.

All of this to keep you safe from the next underwear bomber. Of course, if you live in Topeka or El Paso or Sacramento or Juneau, you have about the same chance of being endangered by a terrorist as meeting an angel. Which means that whoever's safety net that money is going to, it's not yours. Those trillions don't secure your home from going "underwater", or your income from falling off a cliff, or your pension from evaporating, or your job from going down the drain or overseas, or the teachers in your community (not to speak of the police) from being given pink slips, or the library in your neighborhood from closing, or that "extra" firehouse in your vicinity from being shut down.

Too safe to fail?

When a country spends "more on defence than the next 17 top-spending countries combined" and can't win a war, you should know that something's wrong, and that "too big" and "fail" do stand in some relation to each other. Washington, however, doesn't.
"The United States is preparing 'dramatic' cuts to its defence budget so European allies will have to take on greater role within NATO", US Defence Secretary Leon Panetta said [EPA]

Right now, the United States is still involved in conflicts, declared or undeclared, overt or covert, in Iraq, Afghanistan, Pakistan, Libya, Somalia, and Yemen. Only last week, President Obama upped the ante, by announcing that he would send the (first) 100 Green Berets on an armed "advise and assist mission" to Uganda and three other African countries that most Americans couldn't locate on a map.

They are to help ferret out the Lord's Resistance Army, a grim, if small, guerrilla force that has been doing terrible things for years (but has in no way endangered the United States). This is, in part, payback for the way Ugandan troops have helped advance the US war on terror in Somalia. Whatever else it may be, it also threatens to be yet another small-scale conflict without end - and of course another potential payday for the National Security Complex.

The only problem: unless you're inside that Complex or involved in making weapons or other equipment for it, it's not your payday, just your payout. You, the taxpayer, bailed out AIG, Goldman Sachs, Bank of America, Citigroup, JPMorgan Chase, and a host of other tottering financial firms. You saved their skins and their bonuses (and got nothing in return). The only bright spot: those were one-time, two-time, or three-time deals.

The Complex is forever (at least as its managers see it). Despite modest rumblings in Washington about the Pentagon and intelligence budgets and the deficit, it's not just considered too big to fail, but generally too big to question, and too deeply embedded to think much about.

No wonder TARPing war has become a Washington pastime.

Tom Engelhardt, co-founder of the American Empire Project and the author of The American Way of War: How Bush's Wars Became Obama's as well as The End of Victory Culture, runs the Nation Institute's TomDispatch.com. His latest book, The United States of Fear (Haymarket Books), will be published in November.

The views expressed in this article are the authors' own and do not necessarily reflect Al Jazeera's editorial policy.
Al Jazeera

2 Oct 2011

Epoca Modernităţii Himerice: Falimentul Noului Liberalism Utopic si democratizarea post-corporatistă a economiei inechităţii


The Age of Ghost-Modernism: The New Liberal Utopianism and the Post-Corporatist Democratization of its Inequitable Economy


It is this thesis’ contention that the hollow closure of post-modernity’s formative context and codifying social practices is aptly described as the Age of ‘Ghost-modernism’ [originator]. Beyond political-correctness and/or alleged attempts at axiological neutrality, the brutal truth revealed by the current economic crisis is that its profit-seeking perpetrators (whom I describe as “utopian liberal agents”) have unleashed a barrage jamming of morally and ethically bankrupt signifiers (reducing critical thinking to its lowest common denominator) to delay capitalism's inevitable denouement. Such agents promote the “free” marketeering cult of eco-cidal growth, turning humans into human resources, disfiguring the environment while fragmenting society into a virtual mass of alienated, credit-dependent consumers as the ultimate meta-narrative to be had.

In this inquiry, Weber’s Zweckrationalität (instrumentally rational) framework for social action is employed to critique Ghost-modernity’s Hegelian specificity and socio-historical relativism as revealed by the corporate agents running the Military-Industrial Complex’s Permanent War (on “Terror”) Economy. In doing so, it affirms a Wertrationalität (value-rational) framework whose values prioritise people’s welfare over the technocrats’ inequitable financial profits – benefits accrued by reducing former social actors to the exploitable/subaltern status of (merely) human resources while a microscopic kleptocracy “privatises” the profits made after mortgaging this underclass’ future on a bankrupt episteme offered as collateral.

Moreover, the bounded rationality of the consumer system’s ideologically-modified, “turbo-capitalist” dystopia is critically deconstructed to delegitimize its seemingly perennial symbolic order and proceed to replace this post-liberal, corporate utopian order with a Pareto-efficient society.