As an addendum to a previous post, I include three charts from an essay by Martin Wolf in the Financial Times. He favors a stronger Keynesian response to our economic doldrums than Congress or the White House proposes. Indeed, the Republican-controlled Senate and House cling to the mistaken belief that deficits are the problem, along with the usual suspects—viz., Those People dependent on government largesse.
We live in an era of negative interest rates. Firms and large investors are actually paying the federal government to park their cash. The second graph above shows the glut of capital, dollars that are being hoarded rather than invested in productive activities. Meanwhile, central governments have tightened belts, the antithesis to Keynesian prescriptions. We see this pronounced in the Eurozone.
The next chart shows U.S. real GDP and federal government investment and spending, expressed as percentage change from preceding period (quarters).
Investors save rather than spend because they know that demand is too low to support increased production of goods and services. Wages for the many have stagnated or declined, while incomes of the few explode. Idle cash, mountains of it, against unemployment and underemployment yields a toxic yet fertile soil for the likes of both Trump and Sanders, the former a faux populist, the latter a very genuine article.
Donald Trump has won the support of disaffected white workers who used to toil at blue-collar jobs but have now been displaced by “immigrants” or “globalization.” Hitler’s Jews have become Trump’s Mexicans.
And Republicans have succeeded in undermining Americans’ support for unions, which in more sophisticated countries provide bargaining power to workers and a countervailing force to excessive capitalism such as practiced in the U.S. Here’s Paul Krugman in his NY Times column this morning:
…As a member of the European Union, Denmark is subject to the same global trade agreements as we are — and while it doesn’t have a free-trade agreement with Mexico, there are plenty of low-wage workers in eastern and southern Europe. Yet Denmark has much lower inequality than we do. Why?
Part of the answer is that workers in Denmark, two-thirds of whom are unionized, still have a lot of bargaining power. If U.S. corporations were able to use the threat of imports to smash unions, it was only because our political environment supported union-busting. Even Canada, right next door, has seen nothing like the union collapse that took place here.
Krugman adds that Denmark provides a stronger social safety net than our miserly Congress deigns for the Rest of Us. Republicans, again, deride those in need rather than helping them.
As part of the conservative assault on the Rest of Us demonizing anything public stands out. But it seems obvious that if we are to overcome our economic doldrums, we need more public and less private. We need more government spending on transportation infrastructure, education, environmental protection, and, yes, a stronger social safety net. The last thing we need is to put even more money into the pockets of the very rich, who will simply sit on it. The wealthy do us no good.
When Republicans counter with fear-mongering debts and deficits, what they are really saying is “screw you.” Besides, if you are a “loser,” it’s your own damn fault.
Sanders knows that “the system is rigged.” The evidence clearly supports this view. Remarkable, though, how the extremely wealthy succeeded in convincing so many Americans that the solution for what ails them is further rigging.