The New American Economy

by Tom Suhrbur

Deindustrialization! Globalization! Post-industrial economy! Service economy! These are just a few phases used to describe the radical transformation of the U.S. economy over the last 35 years.

From the earliest days of the Industrial Revolution, manufacturing drove the U.S. economy. Steel, railroad, textiles, automobiles and countless other enterprises made the U.S. the leading industrial power of the world in the 20th Century. Industry also gave rise to labor unions. Following WWII, a third of the workforce mostly in the private sector was unionized. Strong labor unions shifted income from capital to labor. The U.S. working class enjoyed the highest standard of living in the world in the 1960s.

Today, a growing portion of American business profits is derived from financial transactions instead of manufacturing. In 1947, the U.S. financial services industry comprised only 10% of total non-farm business profits. Today more than half of all profits are derived from investment, trading, rent, student loans, mortgages, brokerage, credit cards and other financial transactions.

In 1975, the total value of stock trading in the US was $171 billion – less than 5% of the Gross Domestic Product (GDP); in 2014, it increased to almost $27 trillion (about 1.5 times or GDP). Besides stock market trading, there is a largely unregulated market in over the counter trading (OTC) in equity-based derivatives include forwards, futures, options, swaps, and variations of these such as synthetic collateralized debt obligations. In 2010, the value of the derivative market was estimated at $21 trillion. Speculation, in effect gambling, guides much of this trading activity. Day traders, hedge fund managers and high frequency traders have turn Wall Street into the biggest casino on earth. Managers of private equity firms and hedge funds become mega-millionaires and billionaires almost overnight. Lord Turner, UK’s senior financial regulator, dubbed this speculation as “socially useless.” So powerful is the financial services sector that, when the economy crashed in 2008 as a result of the reckless behavior, no one was prosecuted. Instead, the federal government bailed them out.*

This new economy has winner and losers. The biggest winners, by far, are those who earn much of their income from financial assets. The biggest losers are bottom 80% — the working class as well as many college-educated lower middle class who are deep in debt and stuck in low paying jobs. The bottom 80% relies almost exclusively on earnings from wages and salaries. They own just less than 9% of all stocks. Less than 1% of their income is derived from capital gains and dividends.

A large portion of the income for top earners, on the other hand, comes from investments. The top 10% wealthiest possess 80% of all financial assets. The top 1% own over 35% of all stock. Those in the top 0.1% receive most of their income from their financial assets. Given this situation, it is not surprising that those who own the most financial assets are reaping the greatest benefits in the growing financial services economy. According to a 2014 Organization for Economic Co-operation report, 80% of total income growth went to the top 10% from 1975 to 2007.

The shift in wealth and income to the top earners is intentional. It was guided by conservative economic policies. Tax cuts during the Reagan and Bush II administrations were designed enrich the rich. Sold as “supply side economics,” Reagan cut the top income tax bracket from 70% to 39%. Bush I, and Clinton cut capital gains. Bush II not only cut capital gains but also the income tax and the estate tax. According to a report by the Congressional Research Service, capital gains tax cuts were the single most important contributor to the growing income inequality since 1996.**

Free trade agreements have globalized the labor markets without any meaningful labor or environmental standards. As a result, millions of manufacturing jobs has been transferred overseas. American workers cannot compete with desperately poor and oppressed workers in South America and Asia. Clothing, electronics, appliances and many other consumer products are no longer made in the U.S. Small American flags handed out at 4th of July Parades are made in China.

While cheap foreign labor has enriched the investor class, it has devastated working class wages and unions. Millions of good paying manufacturing jobs have outsourced to low wage nations. Wages in the U.S. have stagnated. Many workers have been forced to work two or more jobs, typically in the service economy, to pay their bills. College education is no longer a guarantee of the good life. Many educated lower middle class students are strapped with huge college loans debts but end up working low paid jobs. The standard of living has fallen for many.

In the private sector, outsourcing jobs to low wage countries has given employers a powerful tool to fight union organizing and to force concessions in bargaining. According to the U.S. Bureau of Labor Statistics, labor unions represent just 6.6% of the workforce. Total union membership has dropped from 17.7 million in 1983 to 14.6 million in 2013. Most of the successful organizing has been in the public sector employment. Unions represent over 35.7% of public employees. Not surprising, the public sector unions are now the chief target of conservatives and the business community.

For the bottom 80%, the further down you go on the income ladder the worse off it gets. The income gap between rich and poor in the U.S. is greater than in any other developed country. According to U.S. Census, half of the U.S. population lives in poverty or are low-income with no real savings and barely able to pay their bills. According to a survey by the Associated Press, four out of five U.S. adults struggle with joblessness, near-poverty or reliance on welfare for at least parts of their lives. In 2013, child poverty reached record highs, with 16.7 million children living in food insecure households, about 35% more than 2007 levels.

The election of President Reagan in 1980 signaled the triumph of conservative, free market economics. The so-called Reagan Revolution did not end when he left office. Every presidential administration that followed enacted free market policies that created the new economy. Despite opposition from Labor Democrats, many so-called “New Democrats” joined Republicans in support of free (but not fair) trade agreements, banking deregulation and tax cutting. Conservative Republicans carried free market policies much further attacking labor union rights, environment regulations, the social safety net and other public policies that infringe upon their free market ideology and corporate prerogatives. The 2016 election could be a watershed in American politics. Will the Republican Party win the White House controlling all three branches of federal power? Will the slide into plutocracy accelerated with a conservative election victory? Will unionism survive? Will the Democratic Party coalesce around a working class agenda?

*See the movie “The Big Short.” It does a good job covering some of the issues raised in this article.

**Supply side is a cute way of saying trickle down economics. It claims that, by supplying them with money through large tax breaks, the rich will create jobs through investments and personal spending thereby creating prosperity for others. Of course, they may use the money to speculate in securities and land, purchase a yacht on the Mediterranean, or buy a chalet in the s Swiss Alps. They may invest the money overseas manufacturing. Nothing guarantees that they will create jobs for Americans. But the lost revenue will restrict governmental investments in research, education, infrastructure and other socially beneficial spending in the home economy.

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Chicago DSA Marches for Bernie

by Alec Hudson

With the presidential primaries approaching and with Bernie Sanders gaining an edge over Hillary Clinton in the first primary and caucus states, the January 23rd March for Bernie was an embodiment of the enthusiasm for Sanders and his campaign. Over a thousand marchers arrived in front of the Daley Center and marched to the Chicago Board of Trade building, chanting slogans supporting Bernie and claiming “banks got bailed out, we got sold out!” In such an electric atmosphere people of all backgrounds spoke out against the inequality and lack of social services plaguing our nation, the state of Illinois, and the City of Chicago. The March was planned in coordination on social media with other marches supporting Sanders around the country.

The Chicago March was organized primarily by Movement4Bernie, a group created by Socialist Alternative to garner support for Bernie outside of the Democratic Party. Our participation was welcomed by Socialist Alternative, and perhaps will foster further cooperation with them in the future as their support for Bernie continues. Beyond Socialist Alternative members of organizations like the Chicago Teachers Union, National Nurses United, as well as delegates for Bernie to the Democratic Party National Convention were all in attendance as were elected officials like Alderwoman Susan Garza. Chicago DSA’s attendance was great, with about a dozen DSA members from our City and Oak Park branches marching along with members from DuPage county. There was a solid turnout for our city branch which has been steadily growing since our first meeting in December.

So far major media has chosen to ignore the March and the other marches around the country, but there is no doubt in the minds of progressive and left-wing voters that something is happening in this country when hundreds and thousands of people are marching for a social democratic candidate like Bernie. With the involvement of DSA in rallies like these as well as our own #WeNeedBernie campaign we are helping to build a movement that will go beyond this election and move our politics more into the realm of socialist thought and action.

Other News

compiled by Bob Roman

City Branch

Some time ago, Alec Hudson came to the Executive Committee with an idea of organizing a CDSA branch for the northside of Chicago. Due to Hudson’s impossible work schedule, it remained nothing more than a Facebook page for many months. With a new job and help from some new DSA members, the idea expanded to organizing a City branch. An initial meeting in December brought together 9 interested members, mostly new and mostly young, to brainstorm possibilities. A second meeting is planned for January 13 at the Harold Washington Library. For more information, go to www.facebook.com/City-of-Chicago-Democratic-Socialists-of-America-1552834828264784/. For those not on the web, give the office a call at 773.384.0327.

Incidentally, if you’d like to organize a CDSA branch, this is a good time to do it. Branches don’t need to be geographic in nature under our constitution. They can also be formed around a common interest or an institution. Established YDS chapters also have automatic recognition as a CDSA branch.

Talkin’ Socialism

Episode 59Reproductive Justice, recorded December 12, 2015. Chicago DSA’s Peg Strobel nterviews three activists from the Chicago Abortion Fund (CAF): Brittany Mostiller-Keith, the Fund’s Executive Director, and CAF board members Lindsay Budzinski and Sekile Nzinga-Johnson. They discuss the history of the CAF, how it operates, and most especially the concept of Reproductive Justice, including ongoing efforts to repeal the notorious “Hyde Amendment” that prohibits any Federal funding of abortion. The proposed legislation, sponsored by Representative Barbara Lee of California, would insure abortion coverage under Medicaid and other insurance programs.

Episode 58Norvelt: Hope Only in Hard Times? Recorded November 21, 2015. Chicago DSA’s Peg Strobel in conversation with Margaret Power, co-author with Timothy Kelly and Michael Cary of Hope in Hard Times: Norvelt and the Struggle for Community During the Great Depression, a discussion the New Deal planned community of Norvelt, Pennsylvania. Margaret Power explains how her personal history intersects with Norvelt and provides some insights as to how and why the politics of this region has changed since the Great Depression of the 1930s.

Available at Talkin’ Socialism.

Cyber-Squatting

On December 19, someone registered the domain name chicagodsa.info. That’s no problem. There are any number of organizations that share the initials d.s.a., from the Deputy Sheriff Association to the Deaf Seniors of America. But the person who purchased chicagodsa.info has it pointed to our web site: http://www.chicagodsa.org. The “whois” record for chicagodsa.info has the identity of the owner privacy protected. The anonymous email address for contacting the owner, wx9yb59745t@networksolutionsprivateregistration.com, sends any emails to our office email address, chiildsa@chicagodsa.org. Furthermore, we have some reason to believe that the email address chiildsa@chicagodsa.info exists.

So far the registrar, Network Solutions, has been notably unhelpful in resolving this situation. For all the brave words in their terms of service, their only response to what is obviously a registration based on deceit has been a promise to pass along our concerns to the owner of chicagodsa.info. This may be difficult to do, depending on the information they were given, but it’s not likely we’ll hear of it, one way or another, in any case.

To be fair, it is possible that this is a misguided but benign action of an enterprising DSA member. If so, please raise your hand and ‘fess-up. We’ll be more relieved than cross.

But unfortunately, this is far more likely to be a prelude to mischief. There are any number of possibilities. One is a fake but inflammatory Chicago DSA web site. Another and more likely possibility is all the opportunities to be divisive and outrageous: emails, bulletin board postings, postings on email discussion lists, etc. It also could be useful for fake press releases.

If you should spot chicagodsa.info either as part of an email address or as part of a web link, please let us know. And keep in mind that, until notified otherwise, chicagodsa.info is not likely to be honest or a friend to the left, never mind DSA.

The Big Short

The Financial Collapse as Traumedy*

by Bill Barclay

The behaviour of our money people is still treated as a subject for specialists. This is a huge cultural mistake. High finance touches – ruins – the lives of ordinary people in a way that, say, baseball does not, unless you are a Cubs fan. And yet, ordinary people, even those who have been most violated, are never left with a clear sense of how they’ve been touched or by whom. Wall Street, like a clever pervert, is often suspected but seldom understood and never convicted. It is my hope that Adam McKay’s The Big Short might actually help change this situation.

— Michael Lewis, Vanity Fair, 12/31/2015

And he may just be right.

Michael Lewis is at it again. Lewis, who spent a few years at (the now defunct) Salomon Brothers in the late 1980s, and resigned to write Liars’ Poker about the financial excess of that decade, has never lost either his fascination or his disgust with finance and Wall Street. In 2010 he wrote The Big Short: Inside the Doomsday Machine, a book that described how the financial sector created, and in turn was almost destroyed by, the U.S. housing market bubble and collapse.

The book tried – and actually did a pretty good job – to explain such esoterica as securitization, collateralized debt obligations, synthetic CDOs, etc. But it didn’t seem like a good candidate for a movie. Any cinematic possibility seemed even less likely as time passed and the clarity of our actual experience faded in our collective memory. Blurring and fading our memories, was, of course, aided and abetted by the financial elite and right-wing think tanks that have worked diligently to recast our memory of the 2007-08 financial crisis into one of a spendthrift public sector and misguided governmental policies designed to help low-income families buy houses by compelling mortgage lenders to make loans that would never be repaid.

The Big Short, the movie version, brings everything back into focus and strips away the lies and the obfuscation. In this film, one of the two best that I’ve seen about the events that threatened the world financial system (the other being Inside Job), we meet again the actors and actions of the institutions at the core of the U.S. financial sector. And we see clearly the perversity of the IGB/YBG** culture that ruled the lending, the packaging, the rating and the selling of that most boring of bank lending products, the home mortgage.

But, unlike other accounts, we see this mostly from the perspective of a few people who decided that the whole structure was rotten and who figured out a way to take a short position, betting the whole mortgage market would collapse. The film actually uses a tower of building blocks to represent the securitized mortgages, with the foundation being the ones rated BB or worse, propping up the AA and AAA portions (“tranches” in finance speak). The film may overplay a bit the scene where the smart guys meet with an employee of S&P, an agency that insures against risk, whose opaque glasses protect against light. But you do get the point. Most of the people we meet are not particularly nice, partly because of their cynicism but also for a larger reason: If they’re right, a very large number of people are going to be hurt. Their success is predicated on the destruction of the dreams of millions of families.

Mortgage lending was boring. It was the epitome of the old 3-6-3 description of banking: borrow at 3%, lend at 6%, on the golf course at 3. In the new world depicted brilliantly in the film, mortgage lending is all about short-term profit making, lending to anybody who walked in the door (we meet a stripper who “owns” 5 houses) and selling to your and my pension fund the resulting packages of loans, suitably blessed by the holy water of a AAA rating by S&P, Moody’s or Fitch. And to a surprising number of bank traders who should have known better.

The film takes us into the “sand states” (Florida, California, Arizona and Nevada) that were at the heart of the housing price bubble as one of the protagonists discovers empty housing developments as well as the suites of firms such as Morgan Stanley and the Las Vegas convention of mortgage brokers. In the latter locale one of our unlikely heroes tries to tell an unreceptive audience that doom is nigh.

But he was too early. Part of the drama of the film is that those taking on a short position were early in the game. And, as one established fund manager says in anger, “Being early and being wrong are the same thing.” The short positions seem stuck, mortgage defaults are escalating and foreclosures are rising but the shorts are still losing money.

How is that possible?

In an opaque market where prices are set by a small number of very large entities, those setting the prices were also those holding long positions. In Lewis’ account, the short positions began to gain in value only after firms such as Goldman Sachs and Morgan Stanley were able to unload more of the toxic junk and acquire their own short positions.

And then Bear Sterns collapses and the money starts flowing into the short accounts.

See the film. You’ll come away with a renewed commitment to reducing the power and role of finance in the U.S. political economy. Perhaps by your choice of who to vote for president??


 

* Traumedy – a mixture of tragedy and comedy.

** “I’ll be gone, you’ll be gone” – the expression used by people in the financial sector to dismiss the possibility that they would be around to face the consequences of their lending practices.


A Note on Taxing the Wealthy

The ACA Proves It Can Be Done

by Bill Barclay

The news item that has excited many economists –- you can be excused for missing it –- was the release by the IRS of the data on income and taxes for the 400 highest income filers in 2013. Of course it was interesting to learn that the income needed to be admitted into this select group dropped to a mere $105 million (AGI), down from $135 million in 2012, undoubtedly letting in a lot of riff-raff.

But, the big number was the effective tax rate: 22.9%. Now, you may be thinking, “What? … Why was it so low?” But in 2012 it was only 16.7%. The revenue difference? More than $6.5 billion or about $16.5 million for each of the 400 filers.

Did the 400 simply decide to come clean and pay up? Hardly. The increase came about for two reasons: first, the expiration of the Bush tax cuts on the highest income groups and, second, the Affordable Care Act (ACA, aka Obamacare).

I see the perplexed look on your face –- Obamacare? Yes, because the ACA contained two little-noticed, by many, very progressive tax regulations designed to finance Medicare. The first is a 2.35% tax on wage income above the usual cut-off for Social Security and Medicare, $118,500 in 2016. This tax raised only a modest amount from our 400 because most of their income is not in the form of wages and salaries. But a second Medicare tax of 3.8% that covers both investment and wage income did raise a lot of money from this group. And all of us should welcome a tax that doesn’t privilege unearned income over wage income because it reverses the trend in tax policy that goes back to the Reagan days.

And you wonder why they want to repeal the ACA.

Petitioning for Sanders

by Tom Broderick

Petitions to put Presidential candidate Senator Bernie Sanders on the Illinois Primary Ballot won’t be submitted until January 6, which is just after the deadline for this article. The same holds true for delegates that we will elect to join him at the Democratic Party National Convention in Philadelphia in July later this year.

We hope to have one Chicago DSA member on the ballot as a Sanders delegate from the 6th Congressional District (CD): Alexander Franklin. The 6th CD is represented by Republican Peter Roskam, so we are very excited that Alex may go to Philadelphia and represent the views of Democratic Socialism from such a right wing stronghold.

Illinois will send 156 of 182 delegates to the Democratic National Convention (DNC) pledged to vote for particular ­Presidential candidate based on the results of the vote tally from the March 15 Illinois Primary. Not only is it critical to vote for Bernie Sanders for President, you must look for the delegates pledged to vote for Bernie. Look for the Sanders’ delegates on your primary ballot and be sure to vote for them.

The remaining 26 delegates to the DNC will be officially designated as “Unpledged.” These are “Political Leaders and Elected Officials” (PLEOs) and will be made up from 14 Democratic National Committee members, 11 Members of Congress (1 Senator and 10 Representatives) and one Distinguished Party Leader (President Barack Obama). One reason to send the maximum number of electable Bernie delegates to Philadelphia is to influence these few “Unpledged” Super Delegates.

Working independent of the official Bernie Sanders’ Presidential Campaign, Chicago DSA had comrades and friends circulating delegate petitions in the following Congressional Districts: 1 (Bobby Rush); 4 (Luis V. Gutierrez); 5 (Mike Quigley); 6 (Peter Roskam); 7 (Danny K. Davis); 8 (Tammy Duckworth); 9 (Jan Schakowsky); 11 (Bill Foster); 14 (Randy Hultgren) and 16 (Adam Kinzinger).

Elected Bernie delegates can influence the DNC. 102 delegates are to be pledged to presidential contenders based on the primary results in each CD. The more Bernie delegates sent to Philadelphia the greater their/our influence at the DNC. Rep. Jan Schakowsky will be a PLEO. She came out early for Hillary, but there are many voters in the 9th CD who mistrust Hillary’s deep ties to the world of trans-national investment and banking. Sending all of the elected Bernie Delegates to Philadelphia will deliver to Rep. Schakowsky a strong message in support of democracy.

Bernie delegates from districts that are heavily Republican can also sway events at the DNC. Sending a slew of Bernie delegates to the DNC from these districts will strengthen the voice of democratic values regardless of the upchuck delivered at the Republican National Convention. Voting for Bernie and his pledged delegates will only sow seeds for the future.

My appreciation to all the friends and comrades who freely gave time and energy in response to Chicago DSA’s outreach to get Bernie’s delegates on the Illinois Primary ballot: Giudi Weiss, Alec Hudson, Tom Ladendorf, Norm Groetzinger, Alexander Franklin, Sydney Baiman, Bill Barclay, Pat Dooley, Judith Gardiner, Paul Sakol, Hilda Schlatter, Diane Scott, Peg Strobel, Tom Suhrbur, Holly Graff, Tom Simonds, George Kazda, Gary Hagen and Dave Rathke. Hopefully I haven’t missed anyone that I knew helped, but if so, mea culpa.

The number of valid signatures to get Bernie on the Illinois Democratic Primary ballot was 5,500. Nearly 10,000 signatures were collected. Delegates for the ballot required 500 valid signatures from their respective Congressional Districts. In the CDs where Chicago DSA had petition circulators the unofficial counts are: more than 850 in the 1st, almost 800 in the 4th, more than 1,100 in the 5th, more than 1,300 in the 6th, more than 1,100 in the 7th, more than 700 in the 8th, more than 1,500 in the 9th, more than 1,000 in the 11th, nearly 1,000 in the 14th and almost 700 in the 16th.

Any who read this and worked for Bernie’s campaign know that elections are but one step in the process of bringing forth democratic socialism. DSA is part of that process. Bread and Roses together breathe democratic socialism. There will be more work to do whether or not Bernie Sanders is elected President of the United States.


Editor’s Note: Paid for by Chicago DSA and not authorized by any candidate or candidate’s committee. Dig it?


 

For more information on the delegate selection process, CLICK HERE.

163-3 Democratic Socialism

Unions Join Co-ops in Cincinnati

At Grassroots Economic Organizing, Michelle Camou reports:

Unions met with worker cooperatives November 13th and 14th to consider how the two can work together to build an economy balancing profits with wider ownership, higher labor standards, environmental conservation, and community well-being. The Cincinnati Union Cooperative Initiative (CUCI) organized the symposium connecting varied unions with worker co-ops or planned co-ops across the country.

The vision promoted by symposium organizers is this: worker cooperatives can fuel economic growth for marginalized communities and opportunity for workers across the United States. In such a scenario, worker-owners would hold equity in the companies employing them and exercise voice at work through the principle of “one worker one vote.” Unions would maintain their purpose in such a system, even when workers have authority in the workplace, because interests as owners can come up against interests as workers. The union role would include negotiating collective bargaining agreements, handling grievance proceedings, and addressing other conflicts that might arise, just as they do in standard unionized workplaces.

MORE.

At the End of the Tunnel: Daylight or Headlight?

At The Guardian, Paul Mason writes:

The scene is Kentish Town, London, February 1858, sometime around 4am. Marx is a wanted man in Germany and is hard at work scribbling thought-experiments and notes-to-self. When they finally get to see what Marx is writing on this night, the left intellectuals of the 1960s will admit that it “challenges every serious interpretation of Marx yet conceived”. It is called “The Fragment on Machines”.

In the “Fragment” Marx imagines an economy in which the main role of machines is to produce, and the main role of people is to supervise them. He was clear that, in such an economy, the main productive force would be information. The productive power of such machines as the automated cotton-spinning machine, the telegraph and the steam locomotive did not depend on the amount of labour it took to produce them but on the state of social knowledge. Organisation and knowledge, in other words, made a bigger contribution to productive power than the work of making and running the machines.

Given what Marxism was to become — a theory of exploitation based on the theft of labour time — this is a revolutionary statement. It suggests that, once knowledge becomes a productive force in its own right, outweighing the actual labour spent creating a machine, the big question becomes not one of “wages versus profits” but who controls what Marx called the “power of knowledge”.

MORE.

Who Needs Anarchists? Or Marxists?

At Los Angeles Review of Books, Malcolm Harris reviews Unruly Equality by Andrew Cornell. Harris begins:

IN AN 1875 letter to German socialist politician August Bebel, Friedrich Engels complained — on behalf of himself and Karl Marx — about being teased by anarchists. Bebel’s Social Democratic Workers’ Party was merging with the General German Workers’ Association, the latter of which advocated a parliamentary road to socialism rather than a revolutionary one.

When the unified party forwarded their draft platform, Engels and Marx were embarrassed. They wanted to be clear about their theoretical position in this especially high-stakes situation. Germany was integral to international communist strategy, and if a unified front got off on the wrong foot it could have had catastrophic consequences for the movement. “Remember that abroad we [he and Marx] are held responsible for any and every statement and action of the German Social-Democratic Workers’ Party,” Engels writes to Bebel. “The people’s state has been flung in our teeth ad nauseam by the anarchists.”

MORE.

Zoning

Conservatives and libertarians tend to dismiss anything connected to the State as “socialism”, especially if they don’t approve of whatever is going on. On the left, the relation to the State is more ambivalent, but planning (“democratic”, of course) remains part of the program. So how does zoning, as an example of public planning in the context of a market economy, work in Chicago? Daniel Kay Hertz takes a look HERE.