Home > Uncategorized > Class before Trumponomics, part 1

Class before Trumponomics, part 1

from David Ruccio

Right now, after Donald’s Trump surprising victory and in the midst of the messy transition, everyone is curious about how the U.S. economy will change if and when the president-elect’s economic policies are enacted.*

But first things first. We need to have a clear understanding of what the U.S. economy looks like now, during the uneven recovery from the Second Great Depression. In particular, it’s important to analyze the class dimensions of that recovery, even before the new administration takes action.inequality

Why class? One reason to focus on class is because it played such an important role in Trump’s victory. Not alone, of course, but class interests, resentments, and desires did—in different ways—affect Trump’s ability to beat out his rivals in both the Republican primaries and the presidential election. The other reason is that Trump made a whole host of class promises during the course of his campaigns—promises both to working-class voters and to members of the tiny group at the top, which gave him the win (at least in the electoral college).

We don’t know, of course, if Trump will keep those class promises. A lot depends on the balance of power inside and among the administration, the Republican Congress, and the Democratic opposition, not to mention the debates and struggles by groups and movements outside the corridors of power. But, even before the new alliance assumes control, we need to make sense of the class dynamics that at least in part have defined the U.S. economy during the two terms of the Obama administration.

What is most striking about the economic situation over the course of the past eight years is that, while economic policymakers managed to created the conditions for capitalism to recover from its worst set of crises since the First Great Depression, it has otherwise been pretty much business as usual. What I mean by that is the economic recovery has mostly assumed the same shape and features that characterized the U.S. economy before the crash of 2007-08.**

That’s not to say nothing has changed (a point to which I will return in a future post). But the fact that the benefits of the recovery have been captured mostly by those at the top, and left pretty much everyone else behind, is exactly what was happening prior to the crash.

fredgraph-1

fredgraph

One way to see this in particularly class terms is to examine the relationship between the “two great classes,” capital and labor. Underlying the growing gap between the top 1 percent and everyone else, which is now well known (and which I have written about many times on this blog), is the much-less-remarked-upon divergence in the capital and wage shares of national income. After the recovery began in 2009, the share of income going to corporate profits increased dramatically, from 12 percent to 15 percent (in 2014, falling slightly in 2015 to 13.7 percent). Meanwhile, the share going to workers declined by 4 percent (between 2009 and 2014, increasingly slightly in 2015 by about 1.5 percent). As readers can see from the charts above, those short-term trends represent a continuation of longer-term dynamics. The profit share had reached a low of 7 percent (in 1986)—and therefore has just about doubled (by 2015). The labor share has moved in the opposite direction for an even longer period of time, declining by about 12 percent (from 1980 to 2015).

In other words, the so-called recovery, just like the thirty or so years before it, has meant a revival of the share of income going to capital, while the wage share has continued to decline. That, in my view, is the overall class dynamic within the U.S. economy of both the decades leading up to the crash and the years of post-crash recovery prior to the elections of 2016. During both periods, U.S. corporations managed to capture the growing surplus that was being produced by the working-class—both American workers and, importantly, workers around the world.***

But that general trend isn’t the whole picture. In a future post, I will analyze some of the salient details with respect to the contrasting fortunes of both capital and labor.

 

*In a future post, I will look forward, to the changes in the U.S. economy that may come from the president-elect’s economic policies.

**As I see, that’s the major reason Hillary Clinton and the Democrats lost the elections—not FBI Director James Comey’s late announcement about Clinton’s emails, but their decision to embrace Obama’s economic legacy.

***Loukas Karabarbounis and Brent Neiman have documented the fact that “the global labor share has significantly declined since the early 1980s, with the decline occurring within the large majority of countries and industries.”

  1. antireifier
    November 24, 2016 at 3:49 pm

    This post is great. It bolsters my thesis that we now live in the Neoliberal Age. Look at the characteristics of neoliberalism and it is obvious that it now constitutes a major dynamic of our society. The transformation is not complete but it continues in the same direction.

  2. November 24, 2016 at 4:03 pm

    Thanks David. It hard to dispute the major directions on the graph, the rise of inequality, and it even shows the complexity and ambiguity of the 1990’s which allowed many Neoliberal democratic centrists around Mrs. Clinton to push for a re-run of Bill Clinton’s economics; it turns out voters weren’t buying this in much of the country, or the linkage to President Obama’s policies.

    We shouldn’t though, underestimate the importance of cultural factors against this graph; the rural red part of the country which went overwhelmingly for Trump has been fighting a rear-guard action along many fronts of the culture wars…which is easier to do in America than having serious debates on economic issues…and the fact that the religious right went for Trump – which, given the persona of the candidate is hard to fathom – in exchange for certain pending decisions/promises he made to their cultural norms – appointments – and we’ll see what else in policy matters – continues the long standing tensions within the Republican Right coalition. Viewed in another light, it’s the great contradiction between religious conservatives, agents of “eternal values” against the disorder in all spheres of live ordained by “creative destruction” by backing Market Utopianism. With just a bit of a stretch, the resistance on the Right to recognizing global warming is also part of this dynamic. Rush Limbaugh once said, within the past year, that there was no way the good Lord would allow the marvelous inventions of man to jeopardize his creations. When I heard this, I wonder how Limbaugh handles the years 1933-1945.

    And let’s not forget the fateful decision to bring China into the world economy…the red carpet having been rolled out by the Clintons and most of the Republican Party…on behalf of multinationals and their agenda of chasing the old dream of the China “market.” The neoliberals in the Democratic Party would not allow even a whiff of economic nationalism to enliven their leaden commitment to “free trade.” Even when China stood accused (this before the shift to demonizing Russia) of hacking many if not most of US internationals for business intelligence reasons, the American establishment could not allow this to become a public, political issue…until Trump raised it. I always thought it was significant that Prof. Ken Rogoff thought we in the West (in contrast to philosopher John Gray and economist/philsopher Yanis Varoufakis) ought to cheer up, not think of the price we paid (that is the working and middle classes) but instead take great pride in having lifted millions of Asian peasants out of poverty via globalization. I thought this was an explosive exposition; the charge did not go off, however, until November 8th.

    Class and the economic foundations are the important starting point, but there are many other currents flowing in and around these underlying forces.

  3. November 25, 2016 at 8:54 am

    Neoliberalism has been around as an obscure set of beliefs since at least the beginning of the industrial revolution. But the real story is that neoliberalism is just a return in part to the status quo that existed before the advent of the economic structures evoked by the many failures and negative consequences of the industrial revolution. Before then economic and safety regulation did not exist. Government did not engage in protection of the welfare of its citizens. Deregulation was not therefore an issue. Neither free markets nor free trade existed. Individualism was an interesting philosophical discussion, limited mostly to just that, philosophers. And individual freedom was an even more esoteric philosophical discussion. Entrepreneur was an interesting French word that few English-speaking persons understood. And private property protections for the vast number of citizens did not exit. The democratic revolutions not only allowed the rise of capitalism, individual rights, and the role of government in protecting the rights of individuals through commonwealth. But democratic societies did not allow enough control of societal values and actions for many of the new business class. Thus, they invented liberalism to assert more control. Liberals invented “free markets,” “entrepreneurism,” limits on government regulation, and the substitution of market decision making for the voting and legislative structures of democratic decision making. Neoliberalism is just the latest version of these business class “wet“ dreams. Through the application in measured parts of force and propaganda the “neolibs” have managed to make democracy unwelcome and distrusted in democratic societies. In the first instance neoliberalism is a political theory of socio-economic practices for the right life. It is, in other words a morality. And it is moral beliefs that drive our lives and decisions. Not economic theories or economic optimizations.

    • Hepion
      November 28, 2016 at 3:20 am

      When neoliberals say freedom, they mean freedom to oppress the weak by the powerful.

      • November 28, 2016 at 10:33 am

        Actually when the actions of those who call themselves neoliberals (or one of its many synonyms) are observed, freedom seems to be each individual doing as s/he wishes but taking no action to ensure that others have the chance to do the same.

  4. robert locke
    November 25, 2016 at 11:46 am

    This word liberalism is a pain. When I was very young New Dealers were called liberal, which sponsored “limits on government regulation, etc. So for New Dealers “neoliberalism” should me government engaged in the protection of its citizens, not the reverse.

    • November 26, 2016 at 11:05 am

      Robert, liberalism is a two headed “monster.” It was created to help democratic reformers destroy monarchy and the restrictions of the new business class that monarchies put in place. It achieved that goal. Then it turned on its (sort of) partners, the democratic reformers. And for the same reason — to stop democracies from regulating the business class. That effort has ebbed and flowed over the last 200 years. But mostly the business class has won the battle. Since about 1975 the battle is definitely favoring the business class and one of several versions of capitalism. We may be living the final days of most major democratic experiments.

  5. November 25, 2016 at 4:46 pm

    Ken, it sounds like you are channeling some Karl Polanyi in your post, which is good in my view, all the human effort and straining that went into constructing the first full blown labor market in England…the paradox of the construction of “laissez-faire” liberalism.

    And Robert: Yes the term liberal(ism) is the source of endless confusion, especially in the United States, which has such an atrophied sense of history; when you start, as Polanyi does, with the decay of mercantilism, through the rise of industrialism and the thinking of the first “classical” economists, the term gets clarified pretty well.

    May I share a few reflections upon what I wrote yesterday, some of the ironies in what David has laid out for us in his posting positing the importance of class?

    First, free trade was fanatically defended by the Nation magazine’s founding editor E.L. Godkin, and the Republican Party, which would eventually be the home of the robber barons, was for a very protective tariff, and in many strange varieties, not just on industrial goods. In one sense, not the abstract professional economist’s sense of low tariffs meaning lower prices for all, especially workers, this pro-industrial tariff could be seen as pro-worker: it helped America build the major industries of the 19th century to compete and eventually exceed England’s…Again, the complexities of class – what is class interest, gets quite complex with cross class alliances – and now I’m sounding like Polanyi’s double movement.

    Let me shift to class and globalization in very contemporary terms, rolling out the carpet for China to enter the World Trade Organization. It was most professional economists, upper middle class to middle class, who supported the American multinationals in the great quest for access to the China market, at almost any price, including their own trade secrets and eventually, their technological edge…and, I’m sure I’ll be corrected by many on this…the fact that the China play would also work to suppress labor costs here, and repress unions themselves…was a factor, but I don’t think equal to access to the hoped for vast China market. This unfolded after the shrinking profits and the internal crisis of Western capitalism in the 1970’s…which is much disputed terrain itself.

    This strong Chinese ending to globalization has impacted Western Europe as well, as it has undercut many of the last remaining manufacturing strongholds in Spain and Italy, such as shoes and leather goods, such ancient industries in the West, almost on a par with the Empire of Cotton…and Western Europe now has Eastern Europe also breathing down the neck of its industrial remnants…Germany has taken advantage of this large supply of also desperate low cost labor – with a decent semi-modern skill set – positioning itself somewhere upscale of Asian workers but downscale of the older, now disrupted unionized Western European industries (Germany excepted).

    I’m raising these issues for the ironic point that given what has happened in Western Europe and what David has laid out for us in the US, one would think the “left” would be resurgent around its traditional themes of fighting inequality, full employment and better share of the wage pie…certainly for more structural interventions into the labor market. But as philosopher John Gray, philosopher-economist Yanis Varoufakis and intellectual historian Mark Blyth have been pointing out, the left has been nearly in full retreat, except in Greece, and we know that did not turn out very well…so far…In part, this is due to the still dominant narratives of Neoliberlism, Market Utopianism, so powerful that Varoufakis’ and Galbraith’s “Modest Proposal” for a European version of the New Deal to help Greece and the Southern periphery …went nowhere. Let’s not underestimate the war of ideas, which the left is not winning.

    At the root of the left’s problems I see two things. Once again, in history, the working class has not followed the traditional Marxist script, perhaps because the script has disappeared almost entirely from the transmission chains of corporatized mass media…and the traditional left parties in Spain, Great Britain and France have been co-opted with Blairite and Clintonite “third ways.” Look closely in the US at the behavior of the leaders of the AFL-CIO – they, amazingly, fell in line very early behind Hillary Clinton, and they don’t even deliver independent Labor Day messages anymore, despite the unhappy fate of their members and the “objective” situation as sketched out by David calling out for it. Sanders gave a glimpse, perhaps, of what a more full-throated left program might have achieved…had labor swung in line behind him…

    And finally…to the Middle East, for two reasons: the cultural wars (which are partly religious, to answer you Ken, yes, beneath varying political economies are moral visions…see the work of George Lakoff…and James A. Morone (which Varoufakis has cited)…American wars in the Middle East have consumed trillions which might have gone instead into the type of compensatory programs to aid the bottom 60-80% adjust to the cruel world of globalization…but instead we’ve gotten military Keynesianism with a vengence, and it looms large in Trump’s view…as large as anti-trade deal stances. At a deeper level, however, one can read the reaction of the Middle East, the rise of fundamentalism, as at least in good part as a protest against everything the secularizing West of globalization and free trade brings with it…especially in the realm of sexual freedom and equal rights for women. Islam has held out against modern secular economic thinking more strongly than any other region of the participating world…and it’s still pretty clear that a significant minority will fight to oppose it, for better or worse. And of course, the way this has played out leads right into the immigration issue. I won’t go into detail on that, or the reaction against it in Western Europe. I won’t be getting any public relations points here in the USA by also pointing out the similarities, though in a less extreme form, of the reaction of the Religious Right in the US to secular “liberal” trends since the 1970’s…embracing cultural and religious conservative full bore, strict codes of personal rectitude, while turning entrepreneurs loose from any restraints, them representing, apparently, a higher form of life not subject to these strictures in the social and economic realm. Of course the products and transformations directly resulting from Creative Destruction work mightily to make a shambles of the old ethical restraints…in many ways…

    In America, the level of discussion on Central and Latin American immigration never, ever gets to the economic causes of that region’s hardships, hit hard by the international division of labor inside globalization, and by China and Asia soaking up all the world’s still needed industrial jobs…especially in the lower rungs like textiles. Here too, what looked like a revival of the left over the past ten years appears to be upon very hard times…and which candidate in the US would dare call Mexico a failed state, which surely it is…a narco dominated supplier of drugs to ease the pain of what David is pointing out…the many American addictions intensified by our decline…

    • November 26, 2016 at 11:26 am

      Generally, I concur with what you say here. The situation is indeed complex. More complex than any model can deal with, especially the limited scope models favored by most mainstream economists. To me neoliberalism/capitalism is like a blind pig. Following this model means doing most anything, giving up most anything to find or build a new market into which one can sell products or create debts. This desire can easily be used by those who are its object to take control of the blind pig, slaughter it, and make it into sausage. This is the situation with the west and China. China continually followed policies that western economists called unworkable and anti-market, and predicted would bring the Chinese economy and the Chinese government to its knees. Obviously, that did not occur. One more thing western economists and governments got wrong. At the insistence of western economists and multinationals the US has sold its soul to China, cheap and gotten little in return. The multinationals don’t even seem to recognize they’ve been flim flamed by China. Or maybe they’re just still focused on the nonexistent gold at the end of the nonexistent rainbow.

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