The scorecard of NAFTA: Losses for all three countries

The North American Free Trade Agreement has been a lose-lose-lose proposition for working people in Canada, the United States and Mexico.

Let us count the ways: Lost jobs, reduced wages, more unemployment, higher food prices and reversals of environmental laws. NAFTA, a 20-year laboratory for mainstream economics, has been a bonanza for the executives of multi-national corporations, and that is all you need to know why the so-called “free trade” model continues to be promoted despite the immiseration and dislocation it spawns. Agreements like NAFTA, and proposed deals that would go further in handing power to corporate executives and financiers such as the Trans-Pacific Partnership, have little to do with trade and much with ensuring corporate wish lists are brought to life.

Not dissimilar to medieval doctors who insisted that having leeches bleed the patient was the only course of action, neoclassical economists, who dominate the field, won’t budge from their prescriptions of neoliberal austerity. But although the medical field has made enormous strides in recent centuries, there is no such progress among neoclassical economists. That is because said economists — most often under the banner of “Chicago School” but sometimes using other names — promote ideology on behalf of the powerful, not science for all humanity.

"Canada in fog" photo by Kat Spence

“Canada in fog” photo by Kat Spence

Thus the spectacularly wrong predictions made for NAFTA before it was went into force on January 1, 1994, have no effect on their predictions for new deals. To provide one example, in 1993 the Peterson Institute for International Economics predicted 170,000 jobs would be created in the U.S. alone by 1995, that the U.S. would enjoy an expanded trade surplus with Mexico and that the Mexican economy would grow by four to five percent annually under NAFTA.

As we will see presently, none of those rosy predictions came close to becoming reality. (True to neoliberal form, the institute is grandly predicting “gains of $1.9 trillion” for the Trans-Pacific Partnership.) The point here isn’t to pick on one particular institution — in fact, it is quite typical. The models developed to make these predictions and explain economics are mathematical constructs disconnected from the real world.

Sure it works better in a dream world

The Chicago School and other mainstream neoclassical schools of economics rest their models on the concept of “perfect competition,” which assumes that all prices automatically calibrate to optimum levels, and that there are so many buyers and sellers that none possess sufficient power to affect the market. This model assumes that employees are in their jobs due to personal choice, and wages are based only on individual achievement independent of race, gender and other differences. That this bears little resemblance to the real world is not your imagination.

From this, mainstream economists assume all trade will be beneficial because all economic activity quickly adjusts to create a new equilibrium following a disruption. As Martin Hart-Landsberg wrote in his 2013 book Capitalist Globalization: Consequences, Resistance and Alternatives:

“[T]his kind of modeling assumes a world in which liberalization cannot, by assumption, cause or worsen unemployment, capital flight or trade imbalances. Thanks to these assumptions, if a country drops its trade restrictions, market forces will quickly and effortlessly lead capital and labor to shift into new, more productive uses. And since trade always remains in balance, this restructuring will generate a dollar’s worth of new exports for every dollar of new imports. Given these assumptions, it is no wonder that mainstream economic studies always produce results supporting ratification of free trade agreements.” [page 104]

World Bank studies promoting “free trade” agreements, Professor Hart-Landsberg wrote, assumes that tariff reductions will have no effect on government deficits, governments will automatically be able to replace lost tariff revenue with revenue from other sources and that there is full employment. He writes:

“Although working people have been ill served by capitalist globalization, many are reluctant to challenge it because they have been intimidated by the ‘scholarly’ arguments of those who support it. However … these arguments are based on theories and highly artificial simulations that deliberately misrepresent the workings of capitalism. They can and should be challenged and rejected.” [page 80]

Mexican farmers forced off their lands

Mexico had annual per capita gross domestic product growth of 0.9 percent in the first 20 years of NAFTA — one-fifth of the per capita GDP growth of the preceding 20 years. The Center for Economic and Policy Research reports that Mexico’s growth during the past 20 years under NAFTA ranks the country 18th of 20 Latin American countries and is half of the average Latin American growth rate. Among other results, the center reports:

• 4.9 million family farmers have been been displaced — more than half the total number of Mexican farmers in 1991.
• More than 14 million more Mexicans live below the poverty line than in 1994. Just more than half of Mexicans are below the poverty line, nearly identical to the 1994 rate, but the population has increased.
• Inflation-adjusted wages have risen two percent over 18 years and are barely above the 1980 level.

Subsidized corn from the United States flooded Mexico, sold below the costs of small Mexican farmers. Corn imports from the U.S. increased fivefold and pork imports from the U.S. increased by more than 20 times, according to a Truthout report by David Bacon.

As a result, Mexican farmers forced off their land either became seasonal workers on growing agribusiness farms, sought work in the cities or migrated north. Seasonal agricultural workers (those working less than six months per year) grew by almost three million — more than doubling their ranks — during the same period that 4.9 million family farmers were displaced. The number of Mexicans emigrating to the U.S. rose by almost 80 percent from 1994 to 2000, before falling significantly afterword because of the post-9/11 increased border security.

Nor did Mexicans get cheaper food as a result of the flood of U.S. corn. Public Citizen, in its just released report on NAFTA, reports that the deregulated price of tortillas nearly tripled in the first 10 years of the agreement and that a Mexican minimum-wage earner can buy 38 percent less than he or she could when NAFTA went into effect.

The only countervailing effect, the increase in factory jobs as maquiladoras (factories near the U.S. border producing for export) increased for a time, but those low-wage jobs are now dwindling because China’s wages are far cheaper than Mexico’s. The same pitiless market competition that sent jobs south now sends them across the Pacific. China now accounts for 23 percent of U.S. imports as compared to Mexico’s 12 percent, according to International Monetary Fund statistics.

A 2011 paper issued by the Economic Policy Institute summarized the effects of NAFTA on Mexico:

“From the standpoint of the business community, NAFTA’s most important achievement was that it made Mexico a much safer and more attractive location to invest and outsource U.S. manufacturing production. NAFTA’s investment provisions created new and improved safeguards for foreign investors, including new dispute settlement tribunals providing a mechanism for settling disputes with foreign governments outside of the Mexican legal system. By eliminating Mexico’s developmental state and use of local content rules, and other demands and conditions on foreign investors, the trade agreement greatly reduced the cost of doing business in Mexico, and increased the security of those investments.” [page 6]

Mexico’s conversion into an export platform does not mean higher skills for its workforce. The biggest initiative in job creation came during the administration of Vicente Fox, which offered training in low-skill jobs for landscapers, construction workers, factory workers and maids.

Hundreds of thousands of jobs leave the United States

The United States has seen a net displacement of almost 700,000 jobs through 2010 directly attributable to NAFTA, according to Economic Policy Institute calculations. Moreover, the U.S. has had large annual trade deficits with Mexico since NAFTA was implemented; in earlier years, trade was roughly balanced between the two. In addition to the job losses, Public Citizen reports these negative impacts on U.S. workers:

• U.S. food prices have risen 67 percent since NAFTA took effect, despite an increase in food imported from Mexico and Canada.
• Purchasing power for U.S. workers without a college degree, adjusted for inflation and taking into account those consumer goods that have become cheaper, has declined 12 percent under NAFTA.
• Two-thirds of displaced manufacturing workers who were rehired in 2012 experienced a wage cut; the reduction in the majority of cases was at least 20 percent.
• U.S. manufacturing and services exports to Mexico and Canada grew slower after NAFTA took effect than it had been earlier.

By making it easier for capitalists to move production, NAFTA has directly contributed downward pressure on wages. With fewer well-paying manufacturing jobs, pressure on wages not only affects manufacturing but other industries as well as displaced workers seek employment elsewhere.

Capital mobility has been an irresistible hammer for holding down wages and worsening job conditions — a study by Cornell University Professor Kate Bronfenbrenner found that more than 50 percent of employers made threats to shut down and/or move their facilities in response to unionization activity during the three-year period of 1993 to 1995, and that the rate of actual shutdowns tripled from the pre-NAFTA rate. She wrote:

“NAFTA has created a climate that has emboldened employers to more aggressively threaten to close, or actually close their plants to avoid unionization. The only way to create the kind of climate envisioned by the original drafters of the [National Labor Relations Act], where workers can organize free from coercion, threats, and intimidation, would be through a significant expansion of both worker and union rights and employer penalties in the organizing process both through substantive reform to U.S. labor laws and by amendments to the North American Agreement on Labor Cooperation.” [page 3]

That would take massive organizing to achieve. The Obama administration is actively trying to use the rules of NAFTA as a starting point for further weakening of labor, safety, health and environmental laws in the ongoing Trans-Pacific Partnership negotiations, which would tighten corporate control should the ongoing TPP negotiations be successful. The White House undoubtedly has the same goals for the Transatlantic Trade and Investment Partnership talks with the European Union.

Canadian safety net shredded to ‘compete’ in markets

Spending on Canada’s social safety net has decreased while corporate revenue has doubled and manufacturing jobs disappeared. In addition, a Canadian Centre for Policy Alternatives researcher reports, the country’s growing trade surplus with the United States has translated to few jobs. The study found:

• After 12 years of NAFTA, government transfers to individuals have dropped from 11.5% of GDP to 7.8% of the country’s GDP.
• “[M]uch of the growth in gross exports over the last decade reflected the markedly elevated use by Canadian-based companies of imported inputs in their production, significantly overstating the employment impact of the growth of manufactured exports.”
• The length that Canadians could collect unemployment benefits was reduced, the amount of the benefits were cut and the criteria for those eligible were reduced, reducing the proportion of unemployed people who qualified for unemployment insurance to one-third from three-quarters.
• Composite revenues of 40 of Canada’s biggest businesses increased 105 percent from 1988 to 2002, while their workforces shrank by 15 percent.

These developments fueled rising inequality, the centre’s executive director, Bruce Campbell, wrote:

“The most striking feature of this growing inequality has been the massive gains of the richest 1% of income earners at the expense of most of the population. The growth of precarious employment, the undermining of unions as a countervailing power to transnational capital, the erosion of the Canadian social state, and heightened economic dependence on the United States are the hallmarks of the free trade era in Canada.” [page 53]

Pressing its advantage, Canadian big business interests demanded and received tax cuts on the ground that Canada could not be competitive otherwise. Those cuts resulted in loss of C$20 billion in federal revenue for 2005 alone, the study said, on top of provincial revenue losses of $30 billion. The tax cuts were primarily given to high-income individuals and corporations, who argued that these would create “a level field of competition” with the United States but also increase labor market “flexibility” — a code word meaning lower wages and reduced job security, always the goal of capitalists.

It’s always our turn to ‘cut back,’ never the bosses’ turn

The key NAFTA provision is Chapter 11, which codifies the “equal treatment” of business interests in accordance with international law and enables corporations to sue over any regulation or other government act that violates “investor rights,” which means any regulation or law that might prevent the corporation from extracting the maximum possible profit.

Under these provisions, taxation and regulation constitute “indirect expropriation” mandating compensation — a reduction in the value of an asset is sufficient to establish expropriation rather than a physical taking of property as required under U.S. law. Older decisions become precedents for further expansions of investor “rights” and thus constitute the “evolving standard of investor rights” required under “free trade” agreements.

Toothless “side agreements” on labor rights are meaningless window dressing; the arbitration bodies that decide these cases (in secret with no accountability or right of appeal) are governed by the main body of the text, such as Chapter 11. Corporations can sue governments over regulations or laws they don’t like, but working people and governments have no right to sue.

As Mr. Bacon put it in his Truthout report:

“The most any union or group of workers got from filing a case was ‘consultations’ between the governments and public hearings. There is no process in the agreement for penalties for violation of union rights. And although there are minor penalties for violating child labor or occupational health laws, they’ve never been implemented. Not a single contract was signed as a result of the side-agreement process, nor was a single worker rehired. Those unions that have filed cases have generally sought to use the process to gain public exposure of abuses and exert indirect pressure on employers.”

The neoliberalism that began gathering steam with the rise of Margaret Thatcher and Ronald Reagan, and which has intensified since, is not the handiwork of some secretive cabal, nor is it some tragic bad turn from an otherwise “rational” system. It is the natural evolution of modern capitalism and its relentless competition. “Free trade” agreements that have little to do with trade and much to do with imposing corporate wish lists in the service of ever more inequality and power imbalances is an inevitable component.

Implementing a “reform” of agreements designed to maximize corporate profits above all other considerations and shred the remnants of democracy is less than an illusion. Overturning the entire “free trade” apparatus is indispensable to any serious project of building a better world. Trade should conducted for the benefit of all, not only the one percent — unlike the current global system in which human beings are in the service of markets instead of the other way around.

Freedom is the most abused word in the English language

“Freedom” naturally means different things to different people, but we’ve gone far down a slippery slope when it is reduced to the right to exploit others to the maximum extent.

Humans exploiting other humans is hardly a new phenomenon, but seldom has it ever been elevated to a “democratic” principle in the way it has in recent decades. This is because freedom is morphing from something intrinsic to people to a right embedded in money. Those who have the capital are free to wield it in any way that earns themselves more capital, regardless of harm to others.

Ideologies of individualism are not simply mechanisms to atomize society through breaking down bonds of solidarity — although that is an important reason for their propagation — they grant a license for those who have more but never enough. The cult of individuality, by reducing all social outcomes to personal behaviors independent of any social structure, provides the basis for the celebration of greed while simultaneously inculcating those who have been run over with the self-defeating idea that their individual failures account for their fate.

The class interest of industrialists and financiers is presented as all of society’s interest. “Freedom” is equated with individualism — but as a specific form of individualism that is shorn of responsibility. More wealth for those at the top (regardless of the specific ideologies used to promote that goal, including demands for ever lower taxes) is advertised as good for everybody despite the shredding of social safety nets that accompanies the concentration of wealth. Those who have the most — obtained at the expense of those with far less — have no responsibility to the society that enabled them to amass such wealth.

Imposing harsher working conditions is another aspect of this individualistic “freedom,” but freedom for who? “Freedom” for industrialists and financiers is freedom to rule over, control and exploit others; “justice” is the unfettered ability to enjoy this freedom, a justice reflected in legal structures. Working people are “free” to compete in a race to the bottom set up by capitalists — this is the freedom loftily extolled by the corporate media.

Photo by Istvan Takacs, Budapest.

Photo by Istvan Takacs, Budapest.

When the means of collective defense have been sufficiently eroded, material standards of living are bought at higher personal prices — longer working hours, greater workloads, ever-present insecurity from the fear of being sent to the unemployment line and fear for the future because of the lack of a secure pension. That material standard can be taken away at any moment, and for many is taken away in an era of outsourcing, corporate globalization and attacks on unions and solidarity.

Even the consumer goodies constantly dangled in front of us are a source of anxiety — commodities must be designed to lead to further consumption rather than satisfy desire so as to prop up the economy, and that wages are insufficient to buy what is produced leads to reliance on credit. The imposition of debt as a means of fattening wallets is not merely a process of saddling unsustainable levels of debt on students, retirees and everybody in between, it ensnares entire countries.

Governments borrow money from the ultra-wealthy and from corporations instead of taxing them, then have to pay higher interest rates on those borrowings because the ultra-wealthy and the corporations complain that too much is being borrowed. In exchange for continuing to buy government debt, financial institutions demand that governments cut social services, lay off workers, sell assets and impose other austerity measures.

As a result of the austerity, governments take in less revenue, so they have to borrow more from the super-wealthy and corporations, who have hoarded the country’s wealth. Governmental central banks continue to keep the interest rates at which they loan money to big banks close to zero to ensure that the banks will continue to loan money, without which capitalist economies can not function. The banks in turn loan money at much higher rates, profiting from the creation of debt.

The capital wielded in exploitative ways itself comes from exploitation — profits are accumulated on the backs of employees through paying them far less than the value of what they produce, and when there is more surplus than can be usefully invested or shoveled into luxury consumption, it goes to speculation, further destabilizing living standards when the bubble inevitably bursts.

Graphic by Bryan Helfrich

Graphic by Bryan Helfrich

Fables are concocted to “explain” this “freedom.” The United States declared itself to be the freest society on Earth while enshrining enslavement in its constitution. Revolutionary French leaders swore to establish “liberty, equality, fraternity” while mercilessly putting down slave rebellions in the Caribbean. Profits from the slave trade and from colonial plantations were critical to bootstrapping the takeoff of British industry and modern capitalism in the second half of the eighteenth century into the early nineteenth century.

The U.S. maintained slavery until the mid-nineteenth century, enabling the plantation aristocracy to accumulate enormous wealth on the backs of its slaves, then allowed servile relations such as sharecropping, and systematic state-backed violence, to maintain African-Americans’ subjugation for another century. The wealth of the plantation owners and the desperate poverty of newly freed slaves were both transmitted to their respective descendants, locked in through terrorism. When the civil rights movement forced a dismantling of Southern apartheid, U.S. elites countered by saying, in effect: “Look! We’re all equal now! If you are not rich it’s your own fault.” Is this not preposterous?

Supreme Court decisions such as Citizens United equating money with speech are but a logical outgrowth of pernicious ideology masquerading as “freedom.” So pervasive is this ideology that, as Fredric Jameson famously wrote, it is easier to imagine the end of the world than the end of capitalism. It’s true: Hollywood movies invariably depict the breakdown of society or the aftermath of a major disaster as a brutal war of all against all as if the very concept of the survivors cooperating to ensure their survival were beyond the ability to conceptualize.

The current globalized race to decide who dies with the most toys can only lead to the death of civilization.

Wall Street plunders Detroit while pensioners take blame

The Detroit bankruptcy has been portrayed as a simple morality tale of city mismanagement, but the crucial role of financial industry chicanery has been conveniently ignored. Municipal debt is a largely unknown but very lucrative field — lucrative, that is, for speculators.

There are so many questions that can be asked about Detroit’s bankruptcy filing. What is Wall Street’s role in municipal debt? How is it that almost $300 million is available for a new ice hockey arena when there is no money for pensions? How is that business taxes can be cut by 80 percent at a time of fiscal crisis? Why did the total of pension liabilities suddenly increase fivefold from earlier this year?

Ambassador BridgeThese are questions that are rarely raised in the corporate media. Asking such questions disarms the narrative of public-employee retirees bleeding taxpayers dry and masks larger systemic issues. It is quite difficult to believe the same folks who brought you the economic crash of 2008, and five years and counting of hard times, are completely innocent of fleecing local governments. Indeed, they are not.

Although it is the stock market that draws the lions’ share of the public’s attention, the bond market is much larger (and, in turn, foreign exchange is a far bigger market than bonds). Municipal bonds, although a relatively small portion of the overall bond universe, are big business — US$3.7 trillion. Yes, you read that correctly — trillions of dollars. That is one big pot of money to tap, and tap it financiers do.

Why pay taxes when you can loan it and earn interest instead?

Absent from discussions about Detroit is why governments have to issue so much debt. The reason is not complicated: Big business, and the wealthy, would much rather loan money at interest to governments rather than pay taxes. It’s not only national governments that are in debt, it’s local and regional governments as well. That is so around the world, demonstrated most vividly by the ongoing European Union crises as one country after another imposes austerity in the face of unsustainable debt.

In North America, Detroit fulfills the same function as Greece does for Europe: A scapegoat. Although it is true that Detroit’s city government is due a share of the blame for poor management, larger economic and social forces, disinvestment and financial industry legerdemain loom much larger. Complex, and poorly understood, derivatives were decisive in Detroit’s fiscal downfall. When local governments had to borrow money (ordinarily to finance large infrastructure projects) in the past, they would issue “plain vanilla” bonds — a set amount of debt paying back a set amount of interest on a specific schedule. A safe, if conservative, investment for buyers of these bonds and  predictable payment terms for the issuer.

Wall Street wanted higher profits from this once staid market, so an ever more dizzying assortment of exotic instruments were conjured, allowing the financial institutions that handle these bond sales to skim off ever more money. Explaining how Wall Street plunders public finances, Alexander Arapoglou and Jerri-Lynn Scofield, wrote on AlterNet:

“Many municipalities invested in flawed ‘structured finance’ deals on the advice of bankers who said these complex transactions would give them a better deal than simpler, traditional products. So trusting public finance officials lined up to follow their advice — only to be told later that advice was not to be relied upon.

“Tellingly, few (if any) corporations used similar structures to meet their funding needs. Nor did the banks themselves. Unfortunately, these products didn’t work as advertised, and public funding costs exploded as a result.”

A common structure, the authors wrote, combines three instruments: variable-rate demand bonds, letters of credit and interest-rate swaps. These are supposed to be forms of insurance to protect cities from rising interest rates, but in actuality are designed to siphon money to the banks, in a classic game of “heads I win, tails you lose.” Municipal treasurers sought to pay below-market fixed interest rates for paying back long-term debt. But institutional investors want to be able to rapidly buy and sell such bonds. Variable-rate demand bonds enable bond buyers to get their money back on demand, in periods as short as a week. The AlterNet authors wrote:

“Alas, there’s no such thing as a free lunch. A bond that can be returned, with no penalty charges, every week doesn’t sound at all like the long-term infrastructure financing the city or state wanted. So banks promised municipal clients that if investors wanted to return bonds, the bank would find another buyer. Sounds like it might work out okay, right? But what would happen if no one wanted to buy these returned bonds?”

The necessity of answering that question leads to the letters of credit and interest-rate swaps, which are forms of insurance. On paper. When financial markets froze in the wake of the Lehman Brothers collapse in September 2008, nobody would buy the variable-rate demand bonds. The interest-rate swaps were sold to local governments as a hedge against rising interest rates. But the buyers of these products had to pay penalties because the bank’s credit ratings dropped and interest rates fell.

Interest rates fell because central banks like the Federal Reserve wanted to shovel piles of cheap money at “too big to fail” banks to keep them solvent. That interest rates would fall was quite predictable, as cutting rates is a standard tool of central banks during recessions.

Financial derivatives cost Detroit dearly

Here’s how this scam worked for Detroit, according to Bloomberg, far from a news source hostile to the financial industry:

“The swaps were a bet on the direction of interest rates. Because rates fell rather than increasing, the city owes the banks. Under the terms of the contracts, cuts to the city’s credit ratings allowed the companies to demand the money. Under agreements in 2009, the city pledged casino revenue to cover the payments. [Emergency manager Kevyn] Orr gave the swaps payments, as secured debt, priority over retirees and holders of unsecured debt, including the pension borrowings. While swaps holders would take a 25 percent cut in payments, other creditors would receive much less.”

That last sentence refers to a deal that Emergency Manager Orr attempted to make before the declaration of bankruptcy, in which derivatives speculators would be paid far more than pensioners. Detroit absorbed losses totaling hundreds of millions of dollars due to these derivatives. The Financial Times reports that, due in part to the extra costs sustained from the derivatives, Detroit owes nearly double the principal — in other words, Detroit is effectively paying nearly 100 percent interest:

“As of the end of June, the negative value of the derivatives was almost $300m, according to material from Ernst & Young submitted as part of the bankruptcy court filings. By the time the city ultimately pays off the $1.4bn in borrowing, the total bill just from 2013 onwards will be over $2.7bn, or almost double the original debt, of which $770m will be the cost of the derivatives — far more than the $502m in interest payments, these filings add.”

Merrill Lynch (a subsidiary of Bank of America) and UBS sold Detroit the interest-rate swaps, and when interest rates fell and Detroit’s credit rating was cut, the city signed a deal that pledged tax revenues from the city’s casinos to cover its extra costs, according to the Financial Times. That transaction transformed UBS and Merrill Lynch from unsecured into secured creditors, putting them at the head of the payment line. Prior to the bankruptcy, the two investment banks offered to absorb a 25 percent cut to what they are owed, but at the same time municipal workers were asked to take a 90 percent cut.

Remember that government workers are not eligible for Social Security, so their pensions are what they will have to live on. The average Detroit city government pension is $19,000 a year.

Secured creditors are those who hold debt backed by some kind of legal claim to a physical asset of the city, such as, for example, Detroit’s bond obligations relating to its water and sewer department. Unsecured creditors face steep cuts, including the pension funds scapegoated for the fiscal crisis. Hedge funds are said to be buying up other unsecured Detroit debt, and the more these hedge funds extract, the less there will be for city workers. This is a tactic, used recently by hedge funds speculating on Argentine debt, in which debt is bought at pennies to the dollar with an eye toward getting much more out of the issuer.

A tool for financiers to extract billions of dollars per year

The cost to taxpayers from derivatives is enormous. A group called the ReFund Transit Coalition recently released a study, “Riding the Gravy Train,” in which it reported that researchers have found about 1,100 swap deals in the United States entered into by 100 government agencies that cumulatively are losing more than $2.5 billion per year. The coalition believes that there hundreds of other such deals out there not yet added to the total.

This comes at a time when four out of five transit agencies are cutting service or increasing fares in the wake of the economic downturn. Getting out of these deals is costly — for example, New York state recently paid $243 million to terminate a swaps deal, and $191 million of that fee is being financed by more borrowing.

But there’s plenty of money for corporate subsidies

As Detroit headed toward its declaration of bankruptcy, Michigan Governor Rick Snyder handed some presents to his wealthy benefactors. In December 2011, he signed two anti-union bills that render union membership as a condition of employment illegal; the language of the bills was virtually identical to “model” bills written by the infamous American Legislative Exchange Council (ALEC), a lavishly funded group that writes legislation for state legislatures that will directly benefit its corporate funders.

A less noticed gift by Governor Snyder is a massive tax cut for Michigan businesses that will be paid for by severe reductions in social spending and higher individual taxes. Taking effect in 2012, business taxes were cut by 80 percent (or $1.7 billion per year) under the excuse that such cuts will lead to job creation, although there is no evidence that such cuts actually lead to more jobs. In real life, jobs are created by demand for a product, not tax rates. Low-income people were already paying the largest share of their income in state and local taxes while those making more than $385,000 a year paid the smallest, and lower- and middle-income people are being hit with the highest increases in taxes.

And yes friends, that’s not all. Michigan, on a per capita basis, spends more money on corporate subsidies than any other U.S. state — a total of $6.2 billion per year. When we add these corporate subsidies with the business tax cuts, that’s almost $8 billion per year of subsidies handed out. Note that the total amount of unfunded pension obligations cited by Emergency Manager Orr is $3.5 billion — and that number may be inflated. (More on that below.) Yet there is a steady propaganda barrage that insists the problem is retirees and current workers expecting to be able to retire some day.

So the problem of pensions is easily solvable. Michiganders outside Detroit shouldn’t have to pay, some might say. But that ignores that the state, certainly the counties surrounding Detroit, benefits from the city’s infrastructure. Corporations that once had operations in Detroit benefited from the investments the city made in its physical environment and from the workers who were educated in public schools and universities. The city’s social amenities also provide benefits that cross borders. Corporations and better-off people fled to the suburbs — to the north, crossing county lines — to avoid paying for such services, a familiar tactic of capital.

But some infrastructure, evidently, is worth an investment. At the same time pensioners on fixed incomes are facing large cuts and city services are drastically reduced, $283 million of public money are proposed to be lavished on a new ice hockey arena, for a team (the Detroit Red Wings) owned by Mike Ilitch, who is worth $2.7 billion. This in an area that is already paying off two football stadiums, and has two arenas in current use.

Detroit can do this because a separate entity, the Detroit Development Authority, will hand out the subsidies, and the authority has a special stream of revenue from property taxes that its can tap before revenues are sent to the city treasury. Ultimately, the state is said to control these funds, and as it is the state that forced Detroit’s declaration of bankruptcy, it could divert that money to, say, fixing street lights or repairing ambulances.

Is the size of Detroit’s pension shortfall being inflated?

One final question is: What is the size of the pension shortfall? As recently as February 2013 — five months before the bankruptcy filing — Detroit’s unfunded pension liability was listed as $650 million by the state, yet Emergency Manager Orr has claimed the liability is $3.5 billion without providing any details as to the reasons for the fivefold increase. The investment management firm BlackRock, in an analysis on the ramifications of Detroit’s bankruptcy filing, said:

“There is question as to whether the [emergency manager’s] plan is inflating pension and [other post-employment benefits] liabilities. … This $3.5 billion now represents nearly one-third of the amount Detroit owes to its unsecured creditors, and raises required pension contributions to approximately 100% of the city’s $1 billion forecasted budget deficit over the next five years.”

The dramatic increase in the size of the pension liabilities seems to be based on a report prepared by an actuarial consultant that used a different methodology to calculate the liabilities — but the emergency manager refuses to release the report. Meanwhile, there are indications that the consultant did a less than rigorous job of tallying its numbers. Cate Long, writing in the MuniLand blog, in discussing this issue, asked:

“A ‘very rough preliminary guesstimate’ is what Orr was using in his ‘good faith’ negotiations and is now taking to bankruptcy court? … Pension calculations can seem to be a form of voodoo. Moody’s applies a lower discount rate, like the [consultant’s] report did, to pension liabilities, while the two other major raters do not. Pension liability methodologies are, in essence, just opinions. … Orr could help everyone understand his case by releasing the [consultant’s] report for study by actuaries and others.”

As recently as 2005, Detroit’s pension obligations were fully funded. But when the pensions’ portfolios suffered losses from the economic downturn, the city government decided to issue bonds to fulfill its obligations. A series of refinancings, underwriting fees and penalties for credit-rating cuts has cost the city hundreds of millions of dollars. It is currently impossible to say definitively that Emergency Manager Orr is artificially inflating the pension shortfall, but it is not difficult to see the rationale for doing so: The greater the liability, the deeper the cuts that can be imposed, especially on pensions.

Austerity comes in many flavors, but it is never the financial industry that has to cut back. Detroit’s mayors and councilmembers can, and should, be taken to task for failing to investigate the snake oil financiers were selling them, but that does not ameliorate the rapacious grabbing of public money by the snake-oil salespeople. The financial industry does not create wealth, it confiscates wealth. The time is long past to chop off the vampire squid’s tentacles and reduce banking to a public utility serving the public interest under democratic control.

Most people are economically precarious, but it’s your fault

If you teach someone to fish, you might enable that person to feed themselves for life, but if you fence off the lake you can keep all the fish yourself. And fishing might well become a prerequisite for eating, given the growing economic tribulations many find themselves in.

Although it isn’t, strictly speaking, necessary for a survey to inform us of the obvious, a report by the normally staid Associated Press news service reveals that four out of every five United States adults “struggle with joblessness, near-poverty or reliance on welfare for at least parts of their lives.” The AP report, based on research to be published by the Oxford University Press next year, finds that 79 percent of U.S. adults experience at least one of these three by age 60: unemployment at some point in their lives, a year or more of reliance on government aid such as food stamps, or income less than 150 percent of the poverty line.

Photo by Alex Proimos,  Sydney, Australia

Photo by Alex Proimos, Sydney, Australia

The report cites corporate globalization, the widening gap between rich and poor, and the loss of good-paying manufacturing jobs. And although poverty and economic insecurity are higher among People of Color — 90 percent of whom will experience one of the three above criteria for economic insecurity — poverty is increasing faster among Whites, of whom 76 percent will experience economic insecurity, according to the AP report.

Indeed, a sinking boat ultimately drowns everybody in it. Back to the fish story at the beginning of this post — one of the more ridiculous sayings people in the United States have foisted upon them is that if you give someone a fish you feed them for a day but if you teach them to fish they can feed themselves forever. Right-wingers are especially fond of this vaporous couplet, but a much more accurate depiction of Right-wing thought in action would be that one person should own the lake or river and keep it all for themselves, unless they charitably decide to sell some of its bounty. Can’t pay? Too bad, you don’t eat. The market speaks!

A series of reports have found that fewer people in the United States move from lower economic rungs to the higher rungs than in any other advanced capitalist country. The U.S. and Britain were found to be the countries with the least social mobility among nine North American and Western European countries in a 2006 study and another 2006 survey of the U.S., Britain and Scandinavian countries also found the U.S. dead last in social mobility.

The U.S. has less of a social safety net, greater income inequality, lesser unionization, and greater disparity in primary and secondary education than other advanced capitalist countries. Another factor is geographical dispersion. A study by researchers at the University of California and Harvard University, coincidentally also released in July 2013, found significant variations in social mobility among U.S. cities. Cities with the least mobility, such as Atlanta and Milwaukee, have lower rates of mobility than any developed country, the researchers said. Summarizing their findings, they wrote:

“We found significant correlations between intergenerational mobility and income inequality, economic and racial residential segregation, measures of K-12 school quality (such as test scores and high school dropout rates), social capital indices, and measures of family structure (such as the fraction of single parents in an area). In particular, areas with a smaller middle class had lower rates of upward mobility.”

The authors caution that the above are correlational and should not be interpreted as causal effects — there are multiple reasons for such dismal U.S. results that interact with one another. Nonetheless, the concentration of disadvantaged people often far from jobs in a city center, and their difficulty in getting to jobs due to substandard or non-existent mass transit — a common situation in U.S. cities — is a significant factor in lack of mobility. So is inequality.

The most common measure of inequality is the “gini co-efficient,” which measures the distribution of income among national populations. Among the more than 30 countries of the Organisation for Economic Co-operation and Development (a club of the world’s advanced capitalist countries and the largest developing countries), the U.S. has the fourth-highest measure of inequality, with only Chile, Mexico and Turkey having worse gini co-efficient scores (after taxes and transfers). Moreover, only New Zealand has had a greater increase in inequality since 1985.

Almost every country has experienced an increase in inequality since 1985; the primary exceptions are found in Latin America. To put it in plain language, if a handful of people are taking everything, there is less for everybody else and the subsequent difficulties in maintaining an adequate standard of living increase.

Individualist propaganda would have it that it is your fault. But how can it be individuals’ fault if four out of five in the richest and most powerful country on Earth struggle to be able to eat properly and keep a roof over their heads? And this the model being imposed on the rest of the world.

Capitalist ideology equates “freedom” with individualism — but as a specific form of individualism that is shorn of responsibility. More wealth for the rich is advertised as good for everybody despite the shredding of social safety nets that accompanies the concentration of wealth. Those who have the most — obtained at the expense of those with far less — have no responsibility to the society that enabled them to amass such wealth. Imposing harsher working conditions is another aspect of this individualistic “freedom,” but freedom for who?

“Freedom” for industrialists and financiers is freedom to rule over, control and exploit others; “justice” is the unfettered ability to enjoy this freedom, a justice reflected in legal structures. Working people are “free” to compete in a race to the bottom set up by capitalists — this is the freedom loftily extolled by the corporate media and the institutions of the corporate elite. That we have to live this way is indeed a fish story.

Greece’s depression is IMF’s idea of ‘progress’

The International Monetary Fund congratulated itself last week for the splendid job it is doing in Greece, declaring the country “is making progress in overcoming deep-seated problems.” With an unemployment rate of 27.2 percent, an economy that has shrunk by at least 20 percent and children going hungry, one has to shudder at the thought of what a lack of success might look like.

Temple of Zeus photo by Andreas Trepte (www.photo-natur.de)

Temple of Zeus photo by Andreas Trepte (www.photo-natur.de)

The depression in Greece is the logical conclusion of austerity, but while Greece is the first in Europe to arrive it is not alone — the composite eurozone unemployment rate reached a record 12.1 percent in March. The eurozone unemployment rate rose to 24 percent for men and women below the age of 25; the European Union-wide rate is nearly as high.

The IMF’s solution? Eliminate more jobs. In its latest report on Greece, issued on May 3 following its latest inspection visit, the IMF graciously mentioned that Greece’s wealthy don’t pay taxes:

“Very little progress has been made in tackling Greece’s notorious tax evasion. The rich and self-employed are simply not paying their fair share, which has forced an excessive reliance on across-the-board expenditure cuts and higher taxes on those earning a salary or a pension.”

But the IMF report quickly followed up by grumbling that:

“[T]he over-staffed public sector has been spared, because of a taboo against dismissals.”

Perhaps you will not fall off your chair in shock, but it is the latter of these two concerns that gets the attention when the IMF gave its verdict on what it expects the Greek government to do:

“A strong recovery will need to be built primarily on deepening structural reforms. … The government’s welcome public commitment to improving the business environment and accelerating privatization now needs to be matched with results.”

Diktats masquerading as democracy

Those bland-sounding words take on deeper meaning when we examine the “structural reforms” already imposed on Greece by the IMF, the European Commission and the European Central Bank, the “troika” that dictates Greek policy. In February 2012, for instance, the Greek government agreed to reduce the already low minimum wage by more than 20 percent, to freeze all public-sector wages until the unemployment rate falls below 10 percent and to deep cuts in pensions.

The Greek minimum wage is €751 per month (equivalent to US$990 or £636). How well could you live on such a sum?

Overall, wages have fallen 40 percent and health care spending has been cut 25 percent. Meanwhile, most of the money released by the troika goes straight back to lenders, not for internal relief. As a result of this austerity, it is no surprise that retail sales in Greece have declined by 30 percent over the past three years and an estimated 150,000 small businesses have closed. Poverty has become so widespread that an estimated 10 percent of Greek’s children go to school hungry.

All this in a country where its biggest and wealthiest industry, shipping, pays no taxes — its tax-free status guaranteed in the constitution. Greece’s wealthy pay little or no taxes, stashing their cash outside the country. Government employees are the people who can’t evade paying their taxes — yet they are the ones scapegoated for economic troubles. (A common pattern in many countries.)

The IMF made no mention of its own role in bringing about this depression in the May 3 report, instead blaming a “lack of confidence” for Greece’s struggles:

“Looking over the period 2010–2012, the much deeper than expected recession was overwhelmingly due to a progressive loss of confidence. … With fiscal adjustment set to remain a drag on GDP growth for several years to come, the key challenge is to generate the improvement in confidence needed for a recovery in investment to begin to more than offset this drag. This cannot happen unless Greece can secure broad domestic support for the program and the political stability that would come with this.”

Yes, if only Greeks would believe that hunger is a sign of progress, everything would be better! In lieu of a sudden spasm of optimism, generating “broad support” for bleeding the country dry to pay back financiers who made reckless gambles might be difficult.

Ideology masquerading as economics

Although it might be tempting to note that doing the same thing over and over while expecting different results is unreasonable, reasonableness is besides the point here: Austerity programs are designed with ideology in mind, not with economics based on the real world. One clue to this is that “structural re-adjustment” programs invariably demand sell-offs of public assets — holding fire sales of state enterprises means private capital can scoop them up at very low prices, and profit nicely from doing so at public expense.

The neoliberal concept is that people exist to serve markets rather than markets existing to serve people. Entire countries have been harnessed to the dictates of “markets.” This has long been the pattern imposed by the North on the South through institutions like the IMF; now the stronger countries of the North are imposing it on their weaker neighbors. Taxpayers in those stronger countries are on the hook, also, as some of their taxes go toward the bailout funds, for which bailed-out countries are merely a conduit to pass the money to financiers, often from their own country. Much of the money Europeans lent to Greece was used to bail out German and French speculators.

The race to the bottom, of which austerity programs and the continual shifting of production to locations with ever lower wages constitute crucial components, represents an intensification of market dominance over human life. It is also a result of a scramble to maintain profits, which have been under continual pressure from the economic crisis.

But neoliberalism is not the product of a cabal “hijacking” economies or governments; it is the natural progression of a system that insists “markets” should be the arbiter of all human problems and the model for social relations and institutions. Capitalist markets are not neutral abstractions perched loftily above the Earth; they are the aggregate interests of the wealthiest industrialists and financiers as expressed through the corporations and other institutions they control.

“Markets” dictate that school children faint at their desk due to hunger while billionaires grab ever more. We can do better than this.

Austerity or Keynesianism: Can’t we do better than this?

Austerity. Keynesianism. Voting for the Center-Right. Voting for the Center-Left. Let’s call the whole thing off.

Five years of the economic crisis has yet to shake the stubborn idea that, if only the right policy were implemented, prosperity would be here again. And so this week’s two turns of the electoral wheel — agreement on a “grand coalition” government in Italy and the return to power in Iceland of the two parties that presided over that country’s collapse — demonstrate that traveling in a circle leads you to where you just were.

(Photo by Jim Champion)

(Photo by Jim Champion)

The outgoing Icelandic government earned a reputation for “standing up” to banks and the International Monetary Fund, and refusing to saddle its citizenry with the massive debts of Iceland’s swollen banks. At first glance, it seems curious that Icelanders would vote out such a government and return to office the same government coalition that presided over the country’s meltdown. But a closer look reveals a much different story. So different, in fact, that the IMF praised the outgoing Social Democrat/Left Green coalition government of Jóhanna Sigurđardóttir. Here is an excerpt from an IMF report on November 19, 2012:

“Directors commended the progress made in fiscal consolidation, noting that it is broadly on track.”

That doesn’t mean that Iceland’s dose of austerity is coming to an end. The IMF report goes on to say:

“While welcoming the recent monetary tightening bias, Directors viewed the policy stance as still accommodative. They agreed that further monetary tightening is needed to bring inflation back to target and to normalize monetary conditions in advance of capital account liberalization.”

Iceland’s banks are too big to fail

Iceland didn’t tell the IMF, or the world’s bankers, to take a hike. Iceland, until recently, was unlikely to be at the center of any financial controversy — a country of 300,000 people with an economy traditionally based on fishing. Somewhere along the way, it was decided to convert the Icelandic economy into one based on financial speculation, with the result that the country’s banking sector grew to nine times the size of its gross domestic product. Iceland’s banks offered interest rates well above that of other countries, drawing in foreign depositors (much like Cyprus). Big pots of money led to the irresistible temptation to speculate, with bank-officer compensation tied to the volume of loans made. The usual result followed.

Not that regulators, or parliament, were zealous in checking the financial sector. An official report by an Icelandic parliament committee states:

“It appears that both the parliament and the government lacked both the power and the courage to set reasonable limits to the financial system. All the energy seems to have been directed at keeping the financial system going. It had grown so large, that it was impossible to risk that even one part of it would collapse.”

Iceland took over its three big banks, but quickly sold two of them to creditors, who in turn sold most of their interests to foreign hedge funds. The Icelandic government did agree to all conditions demanded by foreign creditors, the IMF and the British government, but had to somewhat back off only because the package was voted down in a national referendum. So it’s not accurate to say that the outgoing government stood up to anybody. As the Icelandic blog Studio Tendra pungently put it:

“Iceland didn’t bail out the collapsed banks, but that wasn’t for the want of trying. … [T]he Icelandic government tried everything it could to save the banks, including asking for insane loans to pay off the banks’ debts. … So the true story is that Iceland tried and tried and tried and tried as hard as we could to save the creditors. The only reason why we didn’t is that the Icelandic government, then and now, is completely incompetent.”

The outgoing Icelandic government did follow two Keynesian prescriptions in imposing capital controls and currency devaluation, but these did not do much to ameliorate the pain — Iceland can’t detach itself form global capitalism.

For the years 2009 and 2010, Iceland’s gross domestic product declined more than ten percent and its household consumption fell nearly 23 percent. Recovery has since been at a snail’s pace. Making matter worse, Icelandic personal debt is mostly pegged to the country’s inflation rate. As Iceland continues to suffer from inflation, the amount a debtor owes grows as his or her wages decrease. (Wages since 2008 have lagged the consumer price index, according to IMF statistics.)

The suicide mission of Italy’s “Left”

So much for the “Icelandic miracle.” Icelanders have yet to question the economic system that brought them misery, instead opting to swap one set of mainstream parties for another set. That has been the pattern in advanced capital countries. Italy is not yet an exception, although the dramatic rise of the Five Star Movement — sort of an electoral Occupy movement — as a third force in the Italian parliament may be the start of a pushback. Or it could be a brief protest vote without lasting effect. For now, however, Italy’s Center-Left standard-bearer, the Democratic Party, has apparently chosen to complete its suicide mission by forming a “grand coalition” with the main Right party, the wildly misnamed People of Freedom Party.

Italy’s post-war political parties may have collapsed two decades ago, but the same personalities and the same policies and the same interests nonetheless continue to dominate the political sphere. The Democratic Party is the main remnant of the Communist Party of Italy, and is also is a receptacle for the late Christian Democratic Party, a centrist formation that once dominated Italian politics. The new Democratic prime minister hails has roots in the Christian Democrats, but is the nephew of an important aide to Silvio Berlusconi, Italy’s morbid combination of Rupert Murdoch, George W. Bush and the U.S. right-wing corporate “populist” Ross Perot.

Mr. Berlusconi is one of Italy’s richest persons, owns most of Italy’s mass media and is continually mired in multiple legal entanglements; he dealt with the last of these by forming his own political party, the recently renamed People of Freedom, which catapulted him into the prime ministership. “Freedom of Capital” Party or “Silvio’s Get Out of Jail Card” Party would be more accurate, but nonetheless Italians voted this personal vehicle into office three times.

Italy’s Democratic Party is as eager to implement austerity as the Italian Right — voting for it changes nothing. Italy’s outgoing “technocratic” prime minster, Mario Monti — appointed without the tiresome pretense of elections — and the head of the European Central Bank, Mario Draghi, both enjoy Democratic Party support, and the new finance minister has worked closely with Mr. Draghi.

The main potential fracturing point in the grand coalition is personality, which might make for interesting reading but is nothing more than a diversion from a serious discussion of alternatives.

The Five Star Movement’s leader, Beppe Grillo, now the main opposition in the Italian parliament, characteristically didn’t mince words in his blog this week:

“In the last few decades many sides have admitted that this political class lacks credibility, this same class that for the umpteenth time is asking for your vote of confidence. It’s as though this governing team had come down from the moon, as though they are not the ones directly responsible or jointly responsible for what has happened up until now.”

Alternating parties but the same austerity

There’s nothing unique about Italy here. With the exception of Greece, where Syriza (the Coalition of the Radical Left) missed winning the last Greek election by two percentage points, voters in all advanced capitalist countries have been content to alternate the main capitalist parties in office while beginning to voice displeasure through social movements and in polls. One important reason is that the dominant alternatives to the Right — Socialist, Social Democrat, Labour, Democratic & etc. — offer no alternatives to the Right; at best they offer “austerity lite.”

Various reasons, each with some measure of validity, can be assigned as the cause: dependence on corporate money, corruption, domination of the mass media by the Right, philosophical and economic myopia, cowardliness. Although these factors form a significant portion of the answer to the puzzle, an underlying cause has to be found in the exhaustion of social democracy in Europe and liberalism (as the term is used there) in North America. These political formations are trapped by their fervent wishes to stabilize an unstable capitalist system.

They wish to discover the magic reforms that will make it all work again. They do have criticisms, even if they are afraid of saying them too loud, but are hamstrung by their belief in the capitalist system, which means, today, a belief in neoliberalism and austerity, no matter what nice speeches they may make.

The Right, on the other hand, loudly advocates policies that are anathema to the working people who form the overwhelming majority but have the mass media, an array of institutions and the money to saturate society with their preferred policies. But, perhaps most importantly, they have something they believe in strongly — people who are animated by an ideal, however perverted, are motivated to push for it with all their energy.

In contrast, those who are conflicted between their belief in something and their acknowledgment that the something needs reform, and are unable to articulate a reform, won’t and can’t stand for anything concrete, and ultimately will capitulate. When that something can’t be fundamentally changed through reforms, what reforms are made are ultimately taken back, and society’s dominant ideas are of those who can promote the hardest line thanks to the power their wealth gives them, it is no surprise that the so-called reformers are unable to articulate any alternative. With no clear ideas to fall back on, they meekly bleat “me, too” when the world’s industrialists and financiers, acting through their corporations and the “market,” pronounce their verdict on what it to be done.

The reformers can call themselves Socialist, Social Democrat, Labour, Democratic or Liberal, but the label makes no difference. The are dancing to the same tune as their legislative rivals. All dancers will back reforms when there is concentrated public pressure; when the pressure subsides, the reforms are taken back and austerity attacks are relentlessly pushed forward. Major reforms in the United States came in the 1930s and in Europe following World War II thanks to rulers’ fears of being swept away; when the movements responsible for forcing these major reforms became content with reform, the rollback began.

Keynesian reforms would be better than austerity, but would be no more permanent than those of last century; moreover, Keynesianism keeps the capitalists in the saddle, allows them to regain their confidence and gives them the breathing space necessary for them to methodically take back the reforms.

The working peoples of the world’s advanced capitalist countries are living through a structural crisis of capitalism, not simply a rather nasty downturn similar to the repeated recessions of the past. Reforms, not even those on the scale of the mid-20th century, are a panacea. The solution is to be found not on a ballot but rather in organized mass action working for a more humane system not content to settle for reforms that will be taken away. If not today, when?

Social security cuts: Work until you drop

A social movement to preserve Social Security has never been as urgent as it is today. Tempting as it might be to send a dictionary to the White House explaining the difference between “compromise” and “capitulation,” we should not be overly generous — Barack Obama’s intention to gut Social Security is not so much a pre-emptive capitulation as it is yet another demonstration of his adherence to neoliberal ideology.

By now, such a demonstration should not be necessary. Remember that one of the president’s first appointments was Lawrence Summers, who once wrote a memo while chief economist at the World Bank advocating industries creating toxic waste be transferred to Africa because the continent is “vastly UNDER-polluted” (emphasis in original). Professor Summers’ appointment in 2008 as President Obama’s leading economic adviser after his career of promoting Reaganite, neoliberal policies, including leading the Clinton administration’s deregulation of banking and scrapping of regulations for derivative contracts, set the tone for what was to come.

Let us not fall out of our chairs — neoliberal austerity is a bipartisan policy. Voters alternate between their dominant parties in North America, Europe and the Asia-Pacific region, yet the train stays in motion. Fans of the movie Avatar likely remember an early scene in which Sigourney Weaver’s character mocks the macho, militaristic approach of the Marines who intend to unilaterally take the mineral “unobtainium” from the Pandora natives by bulldozing their homes and forest. Her intention was to negotiate with the natives and have them agree to give up their homes and forest.

Note that there was no difference in the goal of the Marines, exemplar of the conservative approach, and that of the would-be negotiator, representative of the supposedly more enlightened approach. I remember thinking to myself while watching Avatar that Ms. Weaver’s character represented the Democratic Party wing of neoliberalism. Indeed, Democrats and their “left-of-center” counterparts among the world’s advanced capitalist countries — even parties in Europe that call themselves “socialist” — routinely implement ever more harsh policies that punish working people to further enrich the wealthy.

So we have something here bigger than Barack Obama and whatever character flaws he might be perceived as possessing. Republicans want to privatize Social Security — the ultimate dream of Wall Street and good for industrialists, too, as retirements become a quaint relic of the past. More people are forced to remain in the job market longer; more competition for jobs means lower wages and more profits. President Obama simply wants to phase this in more slowly.

Photo by A. Blackman, England

Photo by A. Blackman, England

Specifically, President Obama is unilaterally offering Republicans the first step in the gutting of Social Security — reducing benefits. His method to do this is to change the formula for calculating cost-of-living increases from the standard Consumer Price Index to a different methodology known as the “Chained Consumer Price Index,” under which the rate of inflation is lower.

In the standard CPI, the basket of goods used to calculate inflation does not change. In the “Chained CPI,” items that rise in price are substituted with a cheaper product under the theory that consumers will switch to lower-priced alternatives. That may sometimes be so, but such actions do not alter the fact that the desired product is more expensive and thus represents the true extent of inflation. Nor does it account for the fact that many high-cost expenses, such as rent and electricity, don’t have readily available alternatives.

If they want inflation to be less, they shall make it so

This substitution of the standard CPI for the “Chained CPI” is a long-standing demand of Right-wing ideologues, and President Obama has offered it to them on a silver platter. The New York Times, the first to report of the proposed Social Security cuts (and which, uncharacteristically, called the cuts cuts instead of using a euphemism), anonymously quoted Obama administration officials who intimated that this was part of an elaborate plan to force Republicans in Congress to agree to modest tax increases. The Times quoted an official as claiming:

“That means … that the things like [Chained] C.P.I. that Republican leaders have pushed hard for will only be accepted if Congressional Republicans are willing to do more on revenues.”

But the president’s offer contains far more cuts for working people and retirees than attempts to make corporations and the wealth pay taxes at a slightly more reasonable level. The Times reported:

“He will propose more than $600 billion in new revenues — his last offer had called for $1.2 trillion in taxes — mostly by limiting to 28 percent the deductions that individuals in higher tax brackets can claim. Congress has ignored that idea in past years. Deficits would be reduced another $930 billion through 2023 as a result of spending cuts and other cost-saving changes to domestic programs. … Mr. Obama’s proposed spending reductions include about $400 billion from health programs and $200 billion from other areas, including farm subsidies, federal employee retirement programs, the Postal Service and the unemployment compensation system.”

That sounds like a whole lot of new austerity. Austerity hasn’t been working out so well in Europe, where, for instance, eurozone unemployment is at 12 percent and rising. That, sadly, is not the point. The ongoing economic crisis is an opportunity for corporate executives and financiers to push through what they’ve always wanted anyway. An oft-quoted summation of this thinking was offered several years ago by Stephen Moore of the far right Club for Growth and the Cato Institute: “Social Security is the soft underbelly of the welfare state. If you can jab your spear through that, you can undermine the whole welfare state.”

Both groups are dedicated to cutting taxes for corporations and putting an end to any social safety net. The Club for Growth founder is connected to groups like the Heritage Foundation and to Tea Party impresario Dick Armey, while the Cato Institute recently experienced a power struggle in which the billionaire Koch brothers, David and Charles, ousted the leadership for being insufficiently severe. Cato sent six alumni to the Bush II/Cheney administration, four of whom served on the latter’s Orwellian named “Commission to Strengthen Social Security.”

A better slogan than ‘work until you drop’

Because “work until you drop” is not an effective slogan to rally people to your side, Wall Street financiers and those opposed to social safety nets float scare stories that Social Security will soon run out of money, and you’d do better putting all your money in the stock market. Neither is true. Let’s start with the second of these two mythologies. In 2005, I researched the historical performance of the U.S. stock market for an article published in Z Magazine and found that the gains are small, when adjusted for inflation, and the gains only materialize when bubbles are near their peak.

As bubbles peak about once every 35 years, it is difficult to time these just right. When adjusted for inflation, the Dow Jones Industrial Average — the ultimate index of stock-market health and which has its components continually adjusted so as to replace low-performing stocks with high-performing ones — was below its 1929 peak as late as 1991. Here are some long-term results:

  • The Dow peaked at 995 in February 1965. Adjusted for inflation, that was 42 percent more than it was worth at its previous bubble peak in 1929, not so impressive when it took 36 years to get there.
  • The ensuring crash bottomed out in December 1974. At this point, the Dow, adjusted for inflation, was worth only half of what it was worth in 1929 and little more than one-third of its 1965 peak.
  • The most recent crash bottomed out in March 2009, at which point the Dow was three percent below its 1965 peak, adjusted for inflation.
  • Yesterday’s Dow closing of 14,673, when adjusted for inflation, is almost precisely double that of its 1965 peak, but a 100 percent gain over 48 years isn’t terribly dazzling.

And with the price/earnings, or P/E, ratio, of the S&P 500 Index now at 18.35, stocks are again over-valued when measured historically. The ratio’s average, calculated back to 1872, is 14. Five times in history this ratio, which is a company’s yearly profit divided by one share, has surpassed 20; each time was followed by a crash.

The biggest canard, however, is how financial chicken littles frame their case. The claim that Social Security will run out of money in perhaps three decades is based on predicting a low rate of future stock-market gains while the claim that privatizing Social Security will produce more money is based on predicting a rate of future stock-market gains double that of the former rate.

There are examples of privatizing social security systems, and the results have been a bonanza for financiers and disastrous for retirees. In Chile, where the privatization was done at the end of a gun barrel during the Pinochet dictatorship, a worker who retired in 2005 received less than half of what he or she would have received had he or she been able to stay in the old system. The six companies that administer the private plans, not coincidentally, constitute one of Chile’s most profitable industries.

It took tens of thousands of deaths, and hundreds of thousands of arrests, torture sessions, “disappearances” and exiles to implement Milton Friedman’s Chicago School shock therapy in Chile. Nowadays, such levels of violence are not necessary as elected governments implement neoliberalism in a series of measured doses, and four decades of incessant propaganda has acculturated the peoples of the world to the ahistorical idea that “there is no alternative.” Violence nonetheless remains the system’s handmaiden, as the coordinated crushing of the Occupy Wall Street movement and the tolerated rise of fascist groups like Golden Dawn in Greece demonstrate.

There is an alternative — ceasing to placing your hopes in parties that disagree only over the best method to implement neoliberalism, whether the one’s candidate sneers at “government-dependent” voters or the other’s candidate makes speeches vowing to tackle inequality while acting to make it worse. Change comes social movements, not from elections.