Broken Bonds and World Economies

The current world is one in which lenders are actually paying large amounts of people to borrow money from them. On first glance this use of negative interest rates sounds like a terrific thing — debt caused by high interest rates remains a crushing force and notable source of human suffering. Upon closer look, however, the reason that lenders are actually paying people to borrow their money for a return is due to economic weakness and some pessimistic expectations that it’ll continue into the future. It is in some sense a major anticipation of a bleak future, and it’s related to what’s known as an inverted yield curve, a term that’s being used much more frequently in the news these days.

An inverted yield curve basically means that a long-term return (yield) on a bond is less than the short-term return. (This turns the supposed logic of the system on its head since we’d naturally expect someone who puts their money away for a longer period of time to be rewarded more.) It has long been a signal that a recession is coming, although the annual revision to the monthly jobs data by the Bureau of Labor Statistics has historically tended to be a more reliable indicator of recession or economic weakness, and many news outlets don’t mention that historically an inverted yield curve has preceded a recession by about 22 months.

A recession is what many people rightfully understand as bad or at least not so good economic times, but the more technical definition is at least two consecutive quarters where the economy contracts rather than grows. More sensibly, a recession is a lack of demand (where demand is people’s ability to purchase goods and services), and the sensible governmental officials among us have for decades understood this and how to escape or mitigate recessions. It’s simple enough — if a recession is a lack of demand, demand must be boosted, such as through increasing government spending and/or cutting taxes. This creates more ability for people to make purchases, which has a positive effect on important economic indicators such as employment.

Accompanying the inverted yield curves of today is negative interest rates, something that has gone from — in the words of one commentator — a curiosity to a market mainstay. As even university business professors are admitting, this is a sign of something seriously wrong with the economies of the world. They are basically dysfunctional in some sense and seriously flawed to create such a structure. To keep economies moving along decently, interest rates now often have to be negative to keep enough money flowing in the system (in people’s pockets) and demand at somewhat acceptable levels. High interest rates are of course a problem for the burden they tend to cause the vast majority of people, but negative interest rates are an indication that the economies of the world have very fundamental problems.

The market structures of many world economies has been deliberately structured in ways that benefit the upper class at the expense of everyone else. The propaganda is regularly that inequality was caused by a natural outcome of the market, but that is the opposite of the truth. Policies such as rules on copyrights and patents aren’t the free market at work — they’re government intervention, aka structuring of the market. It is simple enough to prove in example after example how the markets were rigged to redistribute income upward and create unjust outcomes. Patents on goods such as prescription drugs increase their prices significantly, which takes too much money from the pockets of many people and redistributes it to the the upper class people who own stock in pharmaceutical companies. There is an immense barrier to entry for foreign doctors in the U.S. (one has to complete a U.S. residency program to practice medicine there), which pushes the wages of U.S. doctors to twice what doctors make in other countries and adds up to over $500 per family annually (while there is a shortage of doctors). Public pension funds in the U.S. have been structured to provide too many fees to high class managers. The list goes on — there are lots of ways that markets were deliberately structured against the benefit of the majority of the population.

What happens when too much money flows to the top is that the upper class — the now famous 1 percent — tend to spend much less of it as a percentage than the average person would. Saving money is to a significant extent a virtue, but what happens when the 1 percent (who spend less as a percentage of their income than working-class people) don’t spend all that money is that much of the money then sits idly, not purchasing goods or services and therefore not creating jobs. There is less demand in the economy this way, and the 1 percent benefiting from a market rigged in their favor means less money for everyone else to spend, and it of course creates the curious to mainstay phenomena such as negative interest rates.

It’s becoming more well-known all the time that the system isn’t right, and there are those that argue to reform it and those who argue that fundamental change is needed. The lack of real democracy in the economic system is an interesting note for countries such as the United States that supposedly value democracy so much. The economy is valuable to discuss in politics because it is fundamental and covers much of life, and its current indicators are revealing that it needs change that’s truly fundamental.

Advertisements

Analysis: Sanders Raise the Wage Act Would Benefit 40 Million People

The federal minimum wage hasn’t been raised since 2009, and wages for most American workers have been largely stagnant for decades. There’s been a significant upwards redistribution of income from most workers to the wealthiest people in society, which was caused by deliberate policy.

If the minimum wage had kept pace with productivity growth (gains in worker output and technological advancement) since the early 1970s, it actually would be at about $20 an hour today. The Sanders legislation on raising the minimum wage (which would not necessarily increase unemployment, as seen by some of the highest minimum wage states having some of the lowest unemployment) would thus provide a substantial standard of living increase for many.

By increasing the federal minimum wage over the next five years, the Raise the Wage Act of 2019 would boost the incomes and improve the lives of an estimated 40 million Americans, according to an analysis out Tuesday from the Economic Policy Institute (EPI).

Introduced last month by Sen. Bernie Sanders (I-Vt.) and Rep. Bobby Scott (D-Va.), the bill would raise the federal hourly minimum wage from $7.25—which Sanders calls “a starvation wage”—to a living wage of $15 by 2024. It would also require employees to pay the new minimum to tipped workers, who currently can make as little as $2.31 an hour.

[…]

In addition to helping millions of Americans escape poverty, the bill would also benefit the economy more broadly. “Because lower-paid workers spend much of their extra earnings,” the report outlines, “this injection of wages would help stimulate the economy and spur greater business activity and job growth.”

Wages of the Top 1% Still Growing at the Expense of Others

Who the economies of the world were rigged to benefit most. The latest data confirms the trend of the upwards redistribution of income often seen over the last several decades.

The world’s largest economies have grown at a steady pace and unemployment has consistently fallen in the years following the greed-driven global financial crisis of 2008, but income gains during the so-called recovery have been enjoyed almost exclusively by the top one percent while most workers experience “unprecedented wage stagnation.”

That’s according to the OECD’s 2018 Employment Outlook (pdf) published Wednesday, which examines recent economic trends and finds that wage growth for most citizens in the 35 industrialized nations studied is “missing in action” due to a number of factors, including the the rapid rise of temporary low-wage jobs and the relentless corporate assault on unions.

[…]

In a statement on Tuesday, OECD Secretary General Angel Gurría said “[t]his trend of wageless growth in the face of a rise in employment highlights the structural changes in our economies that the global crisis has deepened, and it underlines the urgent need for countries to help workers.”

[…]

snapshot

Ridiculously High CEO Pay

CEO compensation has become absurdly high over the last few decades, and part of the reason why is a broken corporate governance structure where (interestingly enough) shareholders lack enough legal authority to rein in CEO pay. The ridiculous CEO pay also puts upward pressure on the wages of other executives worldwide, meaning they also are paid too much more, thus typically leading to less money for most other workers.

crazy-world -

 

Flawed NYT Article on Inequality

I definitely don’t agree with all of the analysis in this NYT article, but there are some interesting takeaways from it. The article only mentions political democracy and completely avoids any mention of economic democracy. This is an important point, as a strong political democracy requires a strong economic democracy. I know how counter that truth runs to the standard doctrine of the corporate propaganda system, but it needs to be said.

It’s also particularly jarring that the article assumes the U.S. is a democracy — in reality the country has dysfunctional democratic structures (see gerrymandering, the typical top-down structure of corporations, and voter suppression) and is better described as a plutocracy.

Most recently, Thomas Piketty, a French economist who is the author of “Capital in the Twenty-First Century,” has come up with a straightforward answer: Traditional parties of the left no longer represent the working and lower middle classes.

[…]

There are those who would like to accept inequality and focus exclusively on issues like gender equality and anti-racism. I would never minimize the importance of combating gender inequality or racism/nativism, but if that means ignoring the policies that have led to the enormous inequality we now see, that is not a serious progressive agenda.

Inequality Shown as the Fight For 15 Movement Continues

The story of U.S. wage disparity: “In 2007, average annual incomes of the top 1 percent of households were 42 times greater than in­comes of the bottom 90 percent (up from 14 times greater in 1979), and incomes of the top 0.1 percent were 220 times greater (up from 47 times greater in 1979).”

The income share of the top 1 percent in the U.S. has doubled from its share during most of the 1950s to 1980. This is an amount high enough to increase the income of people in the lowest 90 percent of the country’s income distribution by over 20 percent, and it’s nearly enough to double the income share of the bottom 40 percent. That basically represents massive amounts of money being wrongly transferred upwards.

WageDisparity

 

realgraph - Copy

Today’s article that’s linked to here reports on the movement of employees fighting for a $15 an hour wage. This is hardly radical when it’s considered that the minimum wage would be about $20 an hour today if wage gains had kept pace with productivity rates since the late 1960s. That’s yet another absurdity about inequality in the United States though.

According to the compensation research company PayScale, fast food workers make an average of $8.28 per hour. Those wages, depending on hours, leaves those workers making about $15,000 to $21,000 per year.

According to the National Low Income Housing Coalition, the current minimum wage of $7.25 per hour leaves workers unable to afford a two-bedroom rental apartment in any U.S. state.

The Poor People’s Campaign and Fight for $15 are also planning six weeks of “direct action and nonviolent civil disobedience” starting on Mother’s Day.

Noticing Upward Class Mobility Under High Inequality

Class is a suppressed concept in America, although the loathsome big business community there has lots of class consciousness. The understanding of class struggle is a surprisingly useful insight into current affairs though, as used correctly it often identifies the core conflict at the root of political disputes.

This article in The Guardian identifies individual stories of upward class mobility, noting the differences in the livelihoods of those who advanced up the socioeconomic ladder. Karl Marx’s theory of alienation can perhaps be applied differently to wealthy professionals that have advanced up, since (as the article relates) those with much higher incomes can lose — become alienated from — the friends they once had with lower socioeconomic status. Such is another consequence of the dysfunctional economic system currently operating.