Archive for the ‘Politics US’ Category

Where are the Democrats?

July 5, 2018

The short answer is that they are busy criticizing the Trump administration but in a disorganized fashion, as Democrats too are divided. In part this is due to the speed with which Trump switches from one topic to another, from healthcare to NAFTA and trade policy in general, to criticism of NATO countries, to cozying up to autocrats (Putin, Xi, Erdogan, Kim). He changes the channel when criticism starts to bite.

Democrats need to put forward credible candidates for the 2020 elections and to organise to win back the House in 2018. Control of the Senate is unlikely this time and Trump has two more years for his possible replacement. While Republicans are divided between traditional and Tea Party Party members, so are the Democrats but with different fault lines.

In the last election the Democrats put up two candidates, Clinton and Sanders each of whose supporters were not enthusiastic about the alternative. In fact it would not be surprising if Sanders supporters chose Trump when they entered the polling booth in 2015. Voters who felt that Washington had failed to improve livelihoods for many Americans were attracted to Trump’s message about the failures of recent administrations of both parties. The reason Trump governs today is because of the mass of voters who feel this way. Whether his actions in power will get him reelected in 2020 is unknown, but the reason he won in 2016 is now clear. At the time it was not predicted by many pollsters….Michael Moore was an exception.

Opposition to Trump exists in much of the media, but he has supporters in Fox and Breitbart News. It is a mistake to watch only one side. I watch Morning Joe on MSNBC but should watch Fox as well to get a more balanced view. Today leadership of the Democrats consists of Nancy Pelosi and Chuck Schumer; no candidates have come forward as obvious challengers for the 2020 presidential elections despite the actions of Trump.

The following are observations in no particular order of what may be expected between now and November 2018:

  1. Trump will continue to surprise the public with non-conventional moves and statements. Response to criticism will be made with tweets as issues arise that gain his attention. What the tweets will say will be unpredictable because he responds to the headlines of the day. Cable news is his source of information. He does not read and listens to a small coterie of people in person and by phone.
  2. He will continue to boast about the US economy claiming he is responsible for the positive things that happen and blaming others for any bad economic news. So far there has been mainly good economic news, but the the imposition of tariffs by the US and by others in retaliation will reduce trade and more general economic growth, as business delays new investment due to the uncertainty created.
  3. A further damper on economic growth comes from debt created from a long period of low interest rates. As rates rise consumer and business spending will decrease causing a lowering of economic growth. In Canada the Bank of Canada has followed a low interest rate policy and cautioned people from the borrowing which their policy encourages. The Bank changed its policy at the start of 2018. Low interest rates encourage spending but also promote borrowing. Households as well as governments are loaded up with debt. The Province of Ontario is horribly indebted and the new provincial government will soon be telling us that the figures published by the previous government understate the provincial debt. This is common practice for any new government.
  4. The actions of one person, the US President, can do enormous harm to the US and other economies, but the uncertainty created will cause investors in other countries to dampen investment as well. Where this ends up is difficult to predict. But the rise of populist parties in many OECD parties is a sign that developed countries are experiencing a common set of political pressures differentiated by their particular settings.
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Clashing Tribes

June 21, 2018

I am constantly in search of explanations for why after 18 months of his presidency 30-40% of the American electorate continues to support Trump. The following authors have provided me with some understanding, Hillbilly Elegy A Memoir of a Family and Culture in Crisis by J.D.Vance, Strangers in their Own Land by Arlie Hochschild, White Trash: The 400 Year History of Class in America, and Amy Chua,  Political Tribes, Group Instinct and the Fate of Nations. All provide important insights into the American political scene. Chua was Vance’s mentor for his book.

 

Amy Chua describes how societies take shape by individuals forming and joining a series of groups or tribes. These represent a wide variety of interests some of which are political groups promoting certain viewpoints. Think of all the groups to which people belong for religion, sports, charities, education as well as politics. Each pursues particular interests and may join groups made up of those with similar interests, thus the tribes. But tribes can be rivalrous as well as cohesive. Today it is the rivalry between groups which permeates US politics.

 

Chua’s focus is on the group of tribes that form or support political parties.  At present in the US there are two main political tribes, Democrats and Republicans. Each of these will differ depending on what part of the country they inhabit so of that there are tribes within tribes. Southern Democrats may have different interests from Democrats in the north, east and west coast of the US. Traditional Republicans may differ from |Tea Party Republicans.

 

Trump’s supporters are more closely associated with Republicans, but also with white working class voters who, while previously Democrats, feel that they have not enjoyed the prosperity of many and who are attracted to slogans like “draining the swamp” where the beneficiaries are said to reside. So there are tribes within tribes and the traditional distinction between Democrats and Republicans is now muddied.

 

Trump is also well received by white voters in areas where economic prosperity has lagged behind for certain occupations. On the Democratic side, at the same time, Bernie Sanders appealed to similar voters and at election time they may well have voted for Trump or abstained from voting at all which gave an advantage to the Republicans.

 

Amy Chua describes how other countries consist of a series of tribes, Sunni, Shia and Kurds in Iraq, Chinese and Vietnamese in Vietnam, white, black, Asian and Latino in the US, French and English in Canada for example. Countries tend to prosper if they manage to get these groups to live and work together peacefully, or live in a situation of constructive tension.

 

Within the US, Trump’s most loyal supporters come from the one percent very wealthy white citizens associated with the traditional Republican tribe like the Koch brothers, and the middle and low income white Americans who feel they have received a raw economic deal from previous Republican and Democrat administrations. To-date, Trump has managed to appeal to both groups and retain their support. (Treatment of illegal immigrants from Mexico, especially the separation of families may lose him support, but Trump is so adept at changing the channel when public opinion turns against him that the end of this story is unclear.)

 

The gist of Chua’s argument is that the friction between the various tribes in the US is associated with growing income inequality which is not being offset by opposing political forces. When this happened in other places and at other times there could be a popular revolt. As the Wizard of Id once said, “The peasants are revolting”. In the US the revolt is taking place at official election time. It could evolve into something nastier.

 

Follow The Money

May 17, 2018

After almost 18 months into his presidency, little is certain about the size of President Trump’s wealth. He says it is enormous, and obviously it is not insignificant, but some things are known about his backers and their wealth. These include the Koch brothers. How their wealth was acquired provides an interesting tale.

The Koch brothers, Charles (1935 – ) and David (1940 – ) have provided substantial financial backing  through a series of foundations for the Republican party and especially its Tea Party supporters. The Koch wealth originated with their father’s investment in the oil industry. Fred Koch (1900 – 1967) was an American chemical engineer and entrepreneur who built oil refineries and was a founding member of the John Birch Society.

Much of the family wealth stemmed from the assistance given by Fred Koch to the USSR and Nazi Germany in connection with the building of oil refineries in the two countries. Both needed high octane refined petroleum for the operation of their military vehicles, ships and planes. Bombing raids on allied troops and civilian targets including London and other European cities were undertaken by the Luftwaffe. According to Jane Mayer, “Fred Koch’s willingness to work with the Soviets and the Nazis was a major factor in creating the Koch family’s early fortune.” (J. Mayer, Dark Money, (Doubleday, 2016, p.31).

Other examples of US business benefiting from sales to the axis powers are contained in Nazi Nexus: America’s Corporate Connection to Hitler’s Holocaust, (Dialog Press, 2009). Included are the Carnegie and Rockefeller Foundations, IBM, General Motors and Ford. The two foundations also benefited Canada – Carnegie helped to finance the Ottawa Public Library while grants were made to Canadian academics and universities. The three firms had subsidiaries in Canada.

While the frequent eruptions of Trump spew forth the visible fire and fury captured by the media, it is what is taking place below the surface that will determine the future. By following news and public affairs programs on MSNBC and Breitbart News, opposing views of the American political scene are presented. Individuals at the ballot box will have to decide how best to bring about change. At the moment, Trump retains the support of those who elected him last time.

18 Months into his Presidency

May 14, 2018

A shrewd comment about US politics was uttered by comedienne Michelle Wolf at the 2018 annual dinner for White House Correspondents.

“You guys are obsessed by Trump…you pretend like you hate him, but I think you love him….He’s helped you sell your papers and your books and your TV. You helped create this monster, and now you’re profiting off him. If you’re going to profit off of Trump, you should at least give him some money, because he doesn’t have any.”

To-date, we have been inundated with commentary largely critical of the President, in part because we read and watch what we want to see and hear. My addiction is Morning Joe on MSNBC and PBS News. Seldom, if ever, do I tune into Fox or Breitbart News. This is a mistake because unless you scout the opposition you are likely to be blindsided. Any team coach will study the opponent’s game.

If you focus on the good news, as seen by the Trump camp, the economy continues to grow with low unemployment and low inflation. The stockmarket rises despite some sharp setbacks followed by recoveries. The President has scheduled a meeting with his North Korean counterpart in Singapore for June 2018, and has met with a number of heads of state not all of whom are traditional friends of the west.

Doubtless there will be unforeseen hiccups before the 2018 and 2020 elections, but at the moment things are looking good for the President and his supporters some of whom are traditional Republican voters and some alt-right supporters. Alt-right refers to tea party Republicans replicated on the Democrats side by Bernie Sanders’ supporters; there are now four parties, two Democrat and two Republican. What must be particularly welcomed by Trump is the failure of the Democrats to come forward with any inspiring leadership candidates. Schumer and Pelosi are not names to attract followers.

While it is about thirty months to the next Presidential ballot, as of today the President looks well placed with solid Republican support around 30-35% and no strong opposition. Lying and lambasting members of his own party does not seem to diminish their support. Opinion polls between elections seem to be highly unreliable. Michael Moore is a more accurate pollster; he actually attends meetings to gauge support and does not rely on more indirect ways of judging voter sentiment. Like the assassination of Archduke Ferdinand which started the first World War, expect the unexpected to occur.

Canada about to be sideswiped – trade, investment & asylum seekers

May 8, 2018

“Fasten your seatbelts, it’s going to be a bumpy ride”

(Bette Davis actually said night not ride)

This quote aptly describes what is about to, and probably already is happening as a result of events south of the border. With 64 percent of Canada’s merchandise trade with the US (2016 exports plus imports), the negotiations over NAFTA and threats of US tariffs on steel and aluminum create the uncertainty that leave investors in both countries sitting on their funds.

The extent of foreign direct investment in Canada by the US, and in the US by Canada results in a similar high degree of interdependence and uncertainty. Companies often organize their supply chains across provincial and state lines as though national borders did not exist. When the US suddenly threatens to impose tariffs, investors in both countries tend to look elsewhere or to sit on their cash. There are always other places to invest, buy back shares, or stay in a liquid position.

As long as I can remember, and certainly since the 1950s, Canada’s politicians supported by nationalists have argued to decrease dependency on the US market for exports and imports, as well as for inflows of direct investment. It just never happens except for a few percentage points each way. Proximity to the US market offers business opportunities and the strong interdependency prevails. When the US threatens to restrict imports Canada can be the first to feel the impact. Threats are enough to cause concern for investors and this is where things now stand.

Canada has another concern involving the US but this one is self- inflicted and relates to refugees and asylum seekers. It is one which is felt more intensely in Europe and accounts for the rise of populist political parties and their leaders. Hungary, France, Italy and the Brexit negotiations between the EU and the UK reveal pressures that arise from the influx of refugees and asylum seekers from the Middle East and parts of Africa.

Canada has a stated policy of receiving a set number of refugees and asylum seekers each year. These are screened before coming to Canada. However, others arrive at the Canadian-US border and request asylum. If the request is made at an official entry point, the applicant will typically be disallowed entry as the US is considered a safe country. If the applicant crosses at any other point along the border, according to Canadian law the person can claim asylum and have the claim assessed.

Canada’s only land border is with the US. In 2017, Canada’s Immigration and Refugee Board received 18,149 claims from irregular border crossers, that is those that claimed asylum after entering Canada illegally. This compares with 29,276 persons who applied for refugee status legally.

If a person approaches a Canadian official border entry point like an airport or a highway and asks for asylum, the official can accept or reject the claim. If the claimant comes from the US, the claim is likely rejected as the person comes from a safe country, the US. In order to avoid such rejection, the person crosses the border at a non-official point and claims asylum. There is an easy solution. Make any point of the US border with Canada an official point of entry and all claimants coming from the US can be turned back, although they will first have to be detained.

Why Trump Prevails

April 18, 2018

After eighteen months, Republican voters remain committed to Trump. David Brooks, writes in the NYT, (April 2018) that 89% of Republicans have a positive view of Trump, and 59% of Republicans support Trump more than the Republican party. (This is written before any of the contents of the files of Trump’s lawyer Michael Cohen have been made public.)

Based on past voting preferences, at present, the 2018 midterm elections will see a number of Congressional seats switch from Republican to Democrat. Whether this is enough to give the Democrats a majority in Congress is unclear. Their leadership is weak and has a track record of screwing up. Gaining a Senate majority is probably out of the Democrats’ reach at this time. Listening to Senate and House Republicans who will not run in the midterms, it sounds like there are strong differences within the party that they do not want to face. There are differences among Democrats too, with a strong wing supporting Bernie Sanders.

Two books help to explain Trump’s continuing support. The first is J.D. Vance’s Hillbilly Elegy, which describes life in the back woods of Kentucky. Job loss there has resulted from a combination of the fall in demand for and the mechanization of coal mining.

On a longer term basis, Nancy Isenberg’s White Trash: The 400-Year History of Class in America, describes the origins of the class system in America and its continuation to today. The origins in the 1500s and 1600s are associated with the early investors who needed cheap labour.

 

In grand fashion, promoters imagined America not as an Eden of opportunity, but as a giant rubbish heap that could be transformed into productive terrain. Expendable people – waste people – would be unloaded from England; their labour would germinate a distant wasteland. Harsh as it sounds, the idle poor, dregs of society, were to be sent thither simply to throw down manure and die in a vacuous muck.  (2-3).

America was conceived of in paradoxical terms: at once a land of fertility and possibility and a place of outstanding wastes…Here was England’s opportunity to thin out its prisons and siphon off thousands; here was an outlet for the unwanted, a way to remove vagrants and beggars, to be rid of London’s eyesore population.

 

The rest of Isenberg’s book describes how this part of the population evolved and persists to today. It does not deal with slavery and its impact, although that would be part of the story.

Traces of this past are found in TV shows like Ozzie and Harriet, The Beverly Hillbillies, The Honeymooners, and today Here Comes Honey Boo Boo. The film To Kill a Mockingbird provides a portrait of class in America.

In order to know how America might emerge from Trumpism it is useful to learn about how it got there, and to ponder whether Canada could follow a similar path. The volumes by Vance and Isenberg provide excellent background reading for the US.

 

Can the US be saved?

April 9, 2018

A wide range of questions arise with the arrival of Trump on the US political scene, and it will be some time before any explanation finds widespread acceptance. Consider the backdrop. For a long time, the twentieth century was described as a period of two world wars separated by two decades of peace, 1919 to 1939. Now some describe it as being thirty-one years of war from 1914 to 1945. It took two world wars and the period in between to reach some sort of world peace that has existed since 1945. But since 1945 there have been all sorts of regional and civil wars mixed up with terrorism, brands of which are practiced today and will occur in the future. The possibility of an apocalyptic outcome has existed since the 1945 explosion of atomic bombs over Hiroshima and Nagasaki. This technology is now in the hands of autocratic political leaders of several states, and more worryingly could get, and may already be, in the hands of terrorist groups who have no states to protect.

 

A more optimistic view is provided by Harvard Professor of Psychology, Canadian born Steven Pinker. In his 2018 book Enlightenment Now he notes aspects of global development, among these are: world life expectancy has risen from 29 years in 1700 to 71 years today; world literacy has risen from 10% in 1820 to 80% today; and access to safe drinking water has risen from 50% in 1981 to 90% of the world’s population today. Other supporting facts are presented and of course there is discussion of what story these facts tell. There is no single way, apart from description, to get a feel of whether we are better off overall, but Pinker provides evidence for a favourable judgement. A reasonable conclusion would be that things have been getting better in many ways, but the threat of nuclear disaster for some or for many is high.

 

Moving from the global picture to North America, what measures can elected politicians take to slow down or reverse the situation presented by the economic and political events associated with the Trump administration? I hesitate to call it a Republican administration because many traditional Republicans would like to be divorced from the President’s policy moves. In fact, Republican leaning voters are split between the Tea Party Republicans and the rest, and not all the Tea Party members agree with each other. On the Democratic side there are divisions, those that support Bernie Sanders and those who have more centre-left leanings. In the 2016 election, many of the Sanders supporters may have voted for Trump, attracted by his desire to shake up the Washington elite and to show their distaste for Clinton as their candidate.

 

No obvious Democratic candidate has emerged to lead the party in 2020, despite public support for Trump remaining in the 35% to 40% range after 15 months in office. Former President Obama left the Democratic party in bad shape, not helped by the fact that he took two $400,000 fees for speaking engagements within six months of leaving office. This helped to confirm voters’ opinions that the politicians of both parties were filling the swamp and their pockets.

 

It is never easy for a large ship to slow down and change course. The same is true for the US political-economy. It requires recognition that the ship of state is on the wrong course, then deciding on an alternative and getting general support for it. Examples do exist but required brutal action. Germany, Italy, Spain and Portugal have all thrown off dictatorships since WW2. The first postwar election in the UK, threw out the Conservatives lead by a politician who was widely praised for his wartime leadership, and elected a Labour government promising to bring about social change. In earlier times the French Revolution resulted in political change but it was accompanied by considerable bloodshed and violence.

 

The functioning of liberal democracies is supposed to bring about change peacefully, but this may not happen today if popular support gets behind autocratic leaders. The focus today is often on the leader, but should be on why a significant part of the electorate support what he is doing.

Next Scene in the Trumpian Saga

April 4, 2018

Switch the spotlight from the man to his audience and a different picture emerges, not one that claims headlines but perhaps should. Since the 2016 election, the news has been about Trump and the gang of players who huddle nervously around him in the White House. Trump views them as loyalists until they do something which irritates him, and then they are gone, to be replaced by other supposed loyalists.

The voters who support the Trump gang fluctuate between 30 and 40 percent of the electorate. One poll in early April 2018 had them at 42 percent. Despite what many consider disruptive and unstable behavior, the gang leader retains the solid support of his loyalists, or has done so to-date. The question is who are these supporters and why?

Two books help to provide answers, Hillbilly Elegy: A Memoir of a Family and Culture in Crisis by J.D. Vance, and Strangers in Their Own Land: Anger and Mourning on the American Right by Arlie Hochschild. Two others I intend to read are White Trash: The 400-Year History of Class in America by Nancy Isenberg, and Political Tribes: Group Instinct and the Fate of Nations by Amy Chua. The latter two deal with the same general topic providing clues to how the Trump experience may evolve.

Vance was born and schooled in Appalachia, enlisted in the US Marine Corps with time spent in Iraq. He graduated from Ohio State University and Yale Law School, where his mentor was Professor Amy Chua. He is now a venture capitalist, author and commentator, circumstances that allow him to explain the conditions and attitudes of poor white people in the US, and why, so far, they continue to support Trump.

Arlie Hochschild is a Professor of Sociology at the University of California, Berkeley. While researching her book, she spent time in Louisiana, the second poorest state in the US, living with and interviewing mostly poor whites. She is a west coast liberal who managed to mix with people in Louisiana from very different backgrounds to herself, and who were able to articulate why they felt disenfranchised, having little influence in Washington. For them Trump offered some hope, and may still do so today.

In a review of Hochschild, the circumstances of poor white southerners are described as follows:

“You are patiently standing in line for the American Dream. You are white, Christian, and of modest means and getting along in years. You are male. There are people of colour behind you and in principle you wish them well. But you’ve waited long, worked hard and the line is barely moving. Then you see people cutting in line ahead of you. Some of these are on the dole, taking money from low paid white workers.”

Resentment builds when enough people feel aggrieved, leading to opportunistic charlatans – dictionary definition, a boastful unscrupulous pretender – taking advantage of the situation. Defusing it takes time while social media quickly spreads the discontent.

I have no idea where this will all end but I wonder how far Trump is willing to go in playing the nuclear card, or causing someone else to play it. Either outcome would be catastrophic

Beware of Bubbles

March 31, 2018

I live in a bubble. I meet and socialize with people who think broadly the same way concerning truth and lies, respect for the law and support for the democratic political process although they may favour different political parties. I get my news from many of the same sources as they do. Being in a bubble means that I, and I suspect many others, have difficulty in understanding the political scene south of the border, and to a lesser extent in Canada.

I get my news online from MSNBC for the US, the Economist and the Globe and Mail. Do I watch Fox News or Breitbart News? No, not just because I don’t like their political views, but because I don’t trust the veracity of their material. But other people do, and they are the ones who helped push Trump to victory in 2016. One question now is what will happen in 2020 and the midterm elections in 2018. For this one has to exit one’s bubble and discover what others think.

In 2016, both Trump and Sanders appealed to some of the same group of voters, those who felt unrepresented in Washington. When Clinton became the Democratic candidate, Sanders supporters decided either not to vote, or that Trump would best represent their interests, and probably they still feel that way today.

With the election over, the question is whether the conditions remain which gave rise to both Republican and disaffected Democrat supporters of Trump.  For low income white voters in states like Kentucky and Ohio where manufacturing jobs have been lost, the situation is forcefully described in Hill Billy Elegy by J.D.Vance. The thirty-one year old author comes from a poor white background, a descendant of Scottish-Irish immigrants from several generations back. He sets out the plight of white working-class families in impressive detail.

In Strangers In their own Land, Airlie Hochschild, a sociologist, does much the same by researching the circumstances of poor voters in the US, especially in Louisiana where she went to live while focusing on  the lives of those in the second poorest State in the US. She describes people living in vastly different conditions, and seeing few prospects for change, despite the fact that two recent Presidents, Carter and Clinton came from Georgia and Arkansas, two other states near the bottom of the economic ladder.

Trump won the 2016 election by appealing to the few very wealthy supporters, and the many who saw few prospects which would enhance their lives. If Clinton had won in 2016, the disadvantaged US voters would have felt even less likelihood for improvement in their lives, and the next presidential election would have given a Trump-like candidate and even stronger mandate. The only glimmer of hope I can see from 2016 is that enough voters will step outside their bubbles to prevent a continuation and worsening of the political circumstances in the US.  If they don’t then those who presently feel disenfranchised will support even more unsuitable leaders. Conditions in a number of European countries face similar pressures with politicians locked into their particular bubbles.

(As of April 2018, polls show Trump with 42% political support having risen from the low 30%. Where will the figure be tomorrow?)

The Storm Over Income Inequality

March 20, 2018

Thirty percent of the US electorate continue to stand by Trump despite his ability to change the channel when some issue gets too hot. Why do voters stick with him? Part 1 outlines some facts about income inequality in the US, as set out by Jonathan Tepper – (see his blog for Feb. 17, 2018.) Part 2 suggests some measures aimed at reducing income inequality.

Part 1

Income inequality in the US

  1. Corporate profits are rising but with corporations keeping a larger share of gross earnings, and a smaller share going to employee compensation.
  2. Changes in average hourly earnings use to be a leading indicator of a growing economy. Wages pick up and growth soon follows. Today, growth is leading, while slowly rising wages show that workers salaries are being left behind as the economy grows.

 

  1. Industrial concentration is rising, as are measures such as the share of gross and net income by the largest firms in an industry. Between 1997 and 2012, two-thirds of US industries are in the hands of fewer firms.

 

  1. Evidence for 3. is suggested by the fall in the number of publicly listed companies, so that more industries have only fewer but larger firms.
  2. Productivity is increasing at a faster rate than average hourly compensation, suggesting that workers are not being rewarded for their share in the rise.

 

  1. Corporations today having more market power is suggested by data showing that average markups of 18% in 1980 rose to 70% in 2014. In the beer industry, two American firms have 90% of the market. For high-speed internet access, 75% of households have one provider. Four US companies dominate US airline traffic. In many US states, the top insurers have 80-90 percent of the market. In pesticides, three companies have 70% of the US market, and three companies have 80% of the corn-seed market.

 

  1. Between 1996 and 2016, publicly listed companies fell by 50 percent (7200 to 3600). There are now less listed companies than there were in 1970.
    More US towns now have one major buyer of labour, or are a monopsonist, such as coal mining towns and towns with Walmart stores. These conditions tend to depress wage increases.

 

  1. The extent of unionized labour has fallen. In 1983, 20% of workers were unionized; today it is 11% and coincides with a fall of national income going to workers. The rate of strike action has also fallen from 1960 to today.

 

  1. The gap between CEO and worker compensation has increased markedly.All this is consistent with a U – shaped distribution of income by population, with a high proportion of income going to many low-income families and a similar high proportion to far fewer upper income families. Many of the 30% solid Trump supporters reside at the low-end of this scale and want the Washington swamp drained; some would have supported Bernie Sanders. They feel that the political and economic situation is stacked against them.

    Part 2

 Measures to counteract income inequality

If the US is experiencing domestic political upheaval due to growing income inequality, are there precedents elsewhere and what measures might address this situation? The French Revolution from 1789 and the Russian Revolution in 1917 have some similar features which played out in unique ways. (The American Revolution and the Declaration of Independence in 1776 were more a fight to overthrow British rule, than over aspects of income equality.)

In the case of France, the aggrieved classes took to the streets overthrowing the monarchy and eventually accepting Napoleon as their leader which he did until the Battle of Waterloo in 1815. This may seem a long time ago, but my grandfather was born in 1824 and must have grown up wondering what was going on in his world, as many of us do today in ours.

Income inequality in the US, and to some extent in Canada and Western Europe, has grown since the end of WW2 and especially with the economic growth experienced by many countries. The factors associated with this situation include the restoration of economies devastated by war such as Japan, Germany, the UK and other countries of Western Europe, as well as the USSR and countries of the Soviet bloc.

From the 1970s onward, the introduction of computer communications and the internet in many phases of production and distribution led to changes in the production of goods and services and the way supply chains are organized. This caused changes in the demand for labour skills and the need for retraining. What is happening today is not new but is occurring rapidly so that some workers get left behind and naturally feel aggrieved.

An earlier example from around 1900 is the mechanization of agriculture so that today only about two percent of the labour force is assigned to this sector, while output has vastly increased. That adjustment was made with the growth of manufacturing and good wages. Today manufacturing output is growing, but with less employment and some of the service sector jobs have lower incomes than in manufacturing. It is the latter who now are Trump-style supporters.

Some jobs disappeared and new ones introduced as supply chains are reorganized. The new ones are often not suited to those who have lost jobs. While retraining takes place, it is often not fast enough to make up the differences in required skills. Having said that, the unemployment rate is hovering around 4%. The problem is that many lower paid workers see little opportunity for rising incomes and experience a declining standard of living. All this results in growing income inequality.

If the foregoing is an approximate account of economic conditions in the US, and to some extent Canada, what policies might alleviate this situation. There is no quick turnaround to a set of circumstances that have built up over decades. It would be like trying to turn around the Queen Mary in the Thames. The example of how Silicon Valley emerged in the US illustrates some peculiarities of the policy environment, and the time factor which accompanied its development. The reasons for Silicon Valley’s success in the 1950s and 1960s include the following:

 

Government programmes, intended to surpass the Soviet Union in space and weapons systems, galvanized investment in education, research, and engineering across a broad range of technologies. This ultimately gave rise to Silicon Valley where it was infused by a spirit of free enquiry, vigorous competition and a healthy capitalist incentive to make money. It was supercharged by an immigration system that welcomed promising minds from every quarter of the planet. Sixty years after the Sputnik moment, America needs the same combination of public investment and private enterprise in pursuit of a national project. (Economist March 17th, 2018 The Battle for Digital Supremacy).

The foregoing is illustrative of what policymakers are up against and the recognition of the time it will take to bring about change incorporating new technology and modes of organization. Meanwhile there are policy initiatives that can be taken which may be helpful and nibble at the growing unease felt by those who feel disadvantaged by these entrepreneurial initiatives.

Following is a list of some fairly mundane measures which may help to reduce inequality and are easier to implement than waiting for structural changes in the economy and/or political unrest:

  1. The immediate circumstances of low incomes can be addressed by a combination of some form of guaranteed annual income, which phases out as incomes rise and labour receives a mix of education and training to address evolving technological conditions.
  2. Implementing a system of repayable loans to aid students entering the labour force as well as older persons requiring retraining. Repayment would be made out of future income according to ability to pay
  3. Planned increases of minimum wages that employers can anticipate.
  4. Improved access to good-quality public services such as libraries, public parks, bus services and safe streets for low-income people funded by taxpayers.
  5. Restructure executive remuneration at the high income end by paying executives out of current income rather than including some stock options.

(I am indebted to Professor Timothy Taylor, Macalester College for suggestions re 4. And 5.)