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Today the Trump administration, with Democrats & AFLCIO leaders in tow, announced new final revisions and deal with Mexico on the new NAFTA 2.0 free trade agreement called the USMCA.

According to the corporate media, revisions to the USMCA demanded by Democrats since the initial agreement was reached with Mexico a year ago, have been agreed to by Trump, Pelosi, and the president of Mexico, Lopez-Obrador. The revisions reportedly mean more protections for US labor in particular. However, all we have at the moment is what’s reported in the corporate and mainstream media about the revisions. We’ll have to wait to read the final print of the actual agreement. But even the media reports are not much more than vague generalities about the terms and conditions of the revisions. The much heralded improvements to US labor interests in particular don’t appear that different from Trump’s originally negotiated deal a year ago.

The official media story line is that the new revisions provide protections for American workers now that did not exist previously during the 20+ years of NAFTA 1.0. During that period, easily 4-5 million US jobs were diverted to Mexico.

At issue during negotiations on revisions to NAFTA–now called the USMCA–was whether US inspectors would be allowed access to Mexico factories and businesses to ensure that the new labor terms of the revised USMCA trade deal were being enforced. Lopez Obrador and Mexican business have been adamantly opposed to allowing US inspectors access to Mexican factories, which suggests they had something to hide. (Mexico and AMLO both are in agreement on this issue). THey demanded that, instead of inspectors, there would be a joint US-Mexican panel to arbitrate labor disputes. But the issue is independent inspection, not a panel to rule on disputes that may never rise due to absence of inspection. What good is a panel of any kind ruling on a dispute that doesn’t get raised because there’s no independent inspection in the first place? Also important is whether the inspectors inspect unannounced, or whether they have to give a pre-notice before they inspect (that phony arrangement is how the US OSHA law has functioned with little effect for decades). Moreover, if there’s panel, how is it determined and what is its composition? If it’s equal US-Mexico representation, it might never come to a final decision.

In other words, if the final terms and conditions in print for the USMCA provide only for panels, in lieu of unannounced inspectors, then the so-called great labor protections touted by Democrats as part of a final deal are really just another fig leaf of labor protection.

While the mainstream media and Democrats talk up the labor revisions in today’s final deal, the real substance of the recent revisions–sought by Trump and US corporations and bankers–has had more to do with protecting the interests of US big pharma companies and US oil and bankers.

Big pharma has always wanted NAFTA-USMCA to include what it wanted in the Trans Pacific Partnership (TPP) deal it didn’t get in 2017: i.e. protections on pricing of its drugs in Mexico at levels closer to its price gouging levels in the US. The fine print in the USMCA will tell whether it got this, or at least got a big change from Mexico’s current rules that keep the price of drugs lower in Mexico than in the US.

Another reported big concession by Mexico in the recent revisions apparently addresses the protection of US oil and energy, telecom and banker interests. Since assuming the Mexico presidency, Lopez-Obrador (AMLO) has been moving toward re-nationalizing Mexico’s PEMEX oil company that had come increasingly under financial control in recent decades by US investors and banks. AMLO wants to restore it to its former Mexican government ownership, or at least to control by Mexican banks and capital. Legislation has been drawn up by the AMLO adminstration to enable re-nationalization. US bankers and oil interests in response have wanted changes in the NAFTA-USMCA (NAFTA 2.0) to protect them from re-nationalization. They apparently have gotten it. Reportedly language in the USMCA now exempts oil, gas, power, transport, cement, banks and telecom from any potential future Mexican re-nationalization.

Free trade treaties are always more about money capital flows (from the US into the host country) than about goods flows across borders, even though the goods flows is what’s mostly reported in the media and press. NAFTA has been no different. Free trade–whether the original NAFTA 1.0 or the current 2.0 revisions called the USMCA–is about financing the relocation of US business and manufacturing from the US to the host country.Then about allowing US companies thereafter doing business in the host country to ship their lower cost goods back into the US market without having to pay tariffs. US corporations make greater profits, not only from cheaper production costs and absence of tariffs, but from continuing to charge higher prices in the US when they ship them back, tariff free, as well. But this is all greater profits from production and goods flows.

Free trade provides even greater profits for US investors and bankers who ‘grease the wheels’, so to speak, of the money capital flows in the first place. The money flows are what make profits from production of goods flows all possible int he first place. Banks charge the interest on the loans, and big fees on mergers and acquisitions by US business in the host country, now allowed by the free trade treaty. Banks also buy up the banks in the host country and make more money from lending to host country businesses. Offshore production and lending also allow US multinational corporations to engage in what’s called ‘intra-company’ price manipulation which permit them to reduce taxes on lower reported profits in the US. The offshored, foreign subsidiary operations ‘book’ all the profits–kept offshore and reduced in the US by means of intra-company price manipulation. Profits are still further boosted as now, under Trump, US multinational corporations get to avoid virtually all taxes on their offshore operations, as a result of Trump’s 2018 multi-trillion dollar tax cuts for multinationals.

Yet Trump, the Democrats, and the US corporate media would have us think the USMCA revisions are all about protecting US workers’ interests by introducing dispute panels. The five million US workers who have lost their jobs under NAFTA gained nothing, and paid everything in lost jobs, under NAFTA 1.0. And that’s not changing one iota under NAFTA 2.0, e.g. USMCA by introducing panels–or even if actual independent inspections were allowed. Under Trump no jobs have come back to the US due to any of his trade wars; and none will after USMCA revisions are signed off either.

Free trade is about enriching bankers and investors who ‘grease the wheels’ of US corporate foreign direct investment into the host country, now permitted by the free trade deal. Free trade is about raising profits and stock prices of US multinational corporations once they set up operations or buy up companies in the host country. Free trade is about politicians in both wings of the Corporate Party of America (aka Democrats and Republicans) fooling workers that they are somehow protecting their interests.

So why the closing of the USMCA deal and revisions now? After a year of stalemate in Congress? Likely because Democrat leaders are desperate to show their impeachment proceedings against Trump are not preventing them from passing legislation otherwise. But does anyone think that Trump, his Trumpublicans in Congress, i.e. Mitch McConnell and other Republican political sycophants, would likewise sign a deal if they were in the Democrats place? No, they’d play hardball and continue to refuse to agree to anything right up to the 2020 election.

Trump has recently softened his USMCA position as well in an attempt to close a USMCA deal with Congress and Mexico. Why now? Because Trump’s trade war with China has stumbled and stalled. It appears, per the Wall St. Journal today, that Trump will postpone his scheduled December 15 additional tariffs on China as a concession to get China to buy more of US farm goods. Trump needs to show something from his 18 months of trade wars. The US trade deficit has barely shifted at all during the period, still running near $50b a month. He desperately needs the USMCA deal–any deal–given that the China-US ‘mini’ trade deal is going nowhere and may not even get signed next year. (And it won’t if Trump does not agree in 2020 to further cut US tariffs if he wants more China farm purchases).

Trump’s recent re-imposition of tariffs on Brazil-Argentina steel should also be viewed as part of the mix of trade events in recent weeks. as the China mini-deal stalled, he had to look tough somewhere. Re-imposing steel tariffs was also a not so veiled threat to Brazil-Argentina (which hardly import any steel to the US at all) that they should think twice about increasing sales of wheat and soybeans to China. Trump’s tariffs on their steel is a shot across their trade bow. Both Trump’s concessions on USMCA and his re-imposing of steel tariffs on Brazil-Argentina are indications of his failing trade policy and his weakening bargaining position on such policy as the US 2020 election grows nearer.

Both he and the Democrats want to ‘look good’ for 2020 election purposes: Trump wants to show (and later exaggerate) what he achieved in the revisions to USMCA. Pelosi-Shumer want to argue (and will also exaggerate) the phony labor protections they achieved in the revised USMCA.

But US workers will get, as they have been getting, nothing out of the USMCA or any Trump trade deal so far, more lost jobs and higher prices on imported goods– to be exact $42 billion more in higher prices, according to the NY Fed, and $1000 per month in reduced household income due to the higher import prices, according to estimates by Chase Bank research.

Jack Rasmus is author of the just released book, ‘The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump’, Clarity Press, January 2020, which is now available for purchase at 20% discount from his blog, jackrasmus.com, and website, http://kyklosproductions.com. (Chapter 8 addresses the origins and evolution of US trade negotiations under Trump in further detail).

This past friday, December 6, the BLS reported a jobs gain in November of 266,000, surprising just about every estimated forecast. At least 70,000 or so were not actually ‘new’ jobs, but the return to work of GM auto workers and related auto industry suppliers. But the 190-200,000 net jobs gain reported was nonetheless way above any expectations.

What’s the contrary evidence?

The independent enterprise payroll company, ADP, which reports out job numbers a few days before the BLS every month, based on its tens of thousands of companies it gathers data from, had estimated a mere 67,000 jobs net gain. 266,000 v. 67,000 was perhaps the biggest gap ever between the two reports–one private and the other government. Thus far no explanation has been provided for the massive gap in job forecast, by either ADP or the government.

Also worth noting is that the bLS, the government, this past summer adjusted its total jobs number for 2018 by reducing the total job creation in 2018 by a massive 500,000. How reliable are the monthly numbers when they have to be adjusted by 40-50,000 a month on average? Recently the government announced it expected that 2019 total jobs would likely have to be reduced by at least 500,000 when it did its annual adjustment and reductions again this coming February 2020. Again, that makes the monthly numbers suspect. Why the massive adjustments the past two years? Are the monthly numbers not reliable for some reason? What’s the reason?

It’s important that readers understand that the monthly jobs numbers don’t represent actual jobs. They are a statistic. That means the raw actual number of jobs are not what’s reported. It’s a statistical manipulation–based on a series of complex assumptions and even more complex mathematical formula adjustments of the raw jobs data–that gets reported monthly as the job numbers.

Moreover, the monthly numbers reflect jobs, not actual workers getting new employment. There may be workers adding second and third jobs, reflecting the jobs increase, but not actual new employment increase. The US Labor Dept. claims it captures added jobs by those already employed, but the numbers suggest its methodology may not be that accurate. The US labor markets have radically changed since the late 1990s and the BLS methods may no longer be accurate for picking up 2nd and 3rd jobs. The changes also suggest that maybe the government’s statistical adjustments for seasonality are not that accurate any more.

There has been greatly volatility in the monthly jobs numbers this past year. Some months well below 100,000, representing the fact that more new workers are entering the job market and not finding jobs. It takes at least 125,000 to 150,000 to absorb all new entrants. The great volatility suggests the BLS is not picking up the seasonal changes month to month very well; and only does so with its annual adjustments to the prior year’s data–hence the 500,000 annual reduction in the total numbers of jobs for the year.

Then there’s the adjustments in the statistical manipulation of the raw jobs data for what’s called ‘New Business Formation’. This is the adding of jobs to the raw data numbers by assumptions of new business formation. It’s assumed every month that several hundred thousand net new businesses are formed. Each has a number of new jobs assumed associated with the formation. Problem is that the New Business Formation is from 6-9 months previous to the current month. In other words, the BLS assumes a net gain of jobs from March-May 2019, adds that to the raw jobs data for November, then does a number of statistical manipulations on the combined actual jobs for November plus 9 month lagged jobs from New Business Formation, and that’s what is reported out as the November jobs number. Except in times of deep recession the added jobs from business formation are always positive. So the raw jobs data is always increased for the month–even before other statistical manipulations of the combined raw data are performed for that month, i.e. for seasonality and other reasons.

It’s difficult to assume that’s all OK with the monthly jobs numbers reporting for these and related additional reasons.

Jobs and employment lagged the general direction of the economy. But that real economy has been contracting in various dimensions. For example, net new business investment has been contracting ever since the 2nd quarter of 2019. Manufacturing has been contracting for four consecutive months. Commercial construction for longer. Residential housing construction contracted for most of 2018-19, rose slightly for several months due to interest rate cuts, but is contracting once again. Export driven job creation is unchanged, as net exports (exports minus imports) has hovered steadily around a negative $50b a month throughout the period of Trump’s trade war for the past 20 months. So where’s the real economic growth coming from that would produce 200,000 plus jobs? If employment is a lagging indicator, it’s certainly lagging as never before.

We’re told that it’s the service sector and household consumption that’s holding up the real economy. But services growth has been slowing its growth rate in recent months as well. Consumption is being driven by the wealthiest 10% of the labor force (where wage gains for professionals, tech, healthcare, managers, etc. are concentrated) and by record credit creation for the rest of consumers. But that hardly explains the unexpected big surge of 266,000 jobs last month. Neither services nor consumption explains companies hiring by that big an increase in one month. Some argue that its the government growth in census workers, but reportedly that was largely concluded by October.

So where’s the explanation for the big gap in BLS November jobs numbers from the private payroll estimates of ADP? The ADP numbers are actual payroll data. The BLS government numbers are the result of statistical operations and manipulations piled on one another to get a ‘statistic’ and thus estimate of actual jobs.

This writer still argues that the labor market changes in the US have caused the BLS government methods and statistical manipulations to become less accurate and more volatile from month to month (only adjusted more accurately when the annual reductions are made by half a million jobs or m ore). The BLS seasonality and New Business Formation assumptions are less and less accurate. And its methods for estimating 2nd and 3rd jobs taken on by the already employed over-estimate the job numbers monthly, and the government still grossly underestimates the effect of millions it dumps into its ‘catch-all’ category of the ‘missing labor force’.

For the real jobs numbers we’ll have to wait until February 2020 when the BLS does its annual adjustment for 2019–and likely reduces again the job number reported for November and 2019 by another 500,000 or more!

Dr. Jack Rasmus is author of the just published book, ‘The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump’, Clarity Press, January 2020. The book is available at 20% discount from his blog, jackrasmus.com, and website, http://kyklosproductions.com.

Trump vs. Democracy

by Jack Rasmus, December 6, 2019

The US House of Representatives marked a milestone today, December 6, 2019, as it decided to report out articles of impeachment on Trump. But there’s a bigger picture to consider. The impeachment represents a new stage in the political ‘food fight’ between the two wings of the political-economic elite in the USA. It also represents a further escalation in the crisis and decline of American Democracy–a decline that’s been going on since at least the early 1990s, when Newt Gingrich and the radical right took over the House of Representatives and declared publicly that their objective was to create a dysfunctional US government. In retrospect, Gingrich certainly succeeded.

But it’s not just since Newt. US Democracy has been in decline on a number of fronts since the late 1970s, which corresponds to the rise of Neoliberal economic policies in the US. Late stage Neoliberalism today, 2019, is in crisis. Since the 2008 crash political elites and policy makers have been attempting to restore its pre-2008 momentum but have failed. Obama failed throughout his eight year term in office. And Trump’s regime should be viewed as an attempt to restore it in a new, virulent aggressive Neoliberalism 2.0 form.

But Trump has been only partially successful to date as well, and will likely fail as well regardless of the 2020 election outcome. A new crisis is around the corner in the 2020s, driven by accelerating fundamental changes in the nature of capitalism itself that have been ripening and developing in the last decade.

At least three forces will further exacerbate the internal contradictions developing since 2008 within the neoliberal policy regime. They are 1) the deepening of Artificial Intelligence technologies that will further devastate and already rapidly changing labor market, eliminating or reducing tens of millions of simple decision making jobs. AI will radically transform as well product markets and distribution systems of 21st century capitalism. It will also change the nature of money itself. All these trends are already well underway and will continue to intensify in the years immediately ahead. 2) Indications are growing that Neoliberal capitalism will also not be able to resolve the climate crisis. Third, 3) 21st century capitalism has already generated a level of unsustainable debt—corporate, financial, household and government—which inevitably must lead to the next general financial markets implosion sometime early in the next decade.

These basic material forces will generate a long term crisis in the 2020s, as contradictions within the neoliberal policy regime continue to intensify as well. There are four elements that constitute the Neoliberal policy regime—i.e. Neoliberalism in practice. They are Fiscal Policy (tax, war spending, social program spending, deficit-national debt management); Monetary Policy (low interest rates, money supply); Industrial Policy (deregulation, privatization, de-unionization, real wage compression, job restructuring); and External Policy (free trade, Free global money capital flows, currency exchange rate management, and the twin deficits). But since 2008 the advancement of neoliberal policy in one or more of these four elements has been thwarted by its own growing contradictions. Advancement in one or more of the four policy areas is negating the restoration or advancement of the other three. The contradictions within Neoliberalism are intensifying, in other words, just as technological and capitalist system restructuring is deepening as well.

What the last quarter century in particular has shown is that In order for Neoliberal policies to deepen and expand Neoliberalism has had to restructure the US political system as well and to eliminate long standing elements of Democracy in the political system. Neoliberalism and Democracy, even in the limited American form of Democracy, are essentially incompatible. The historical record since the 1980s confirms this. On a number of levels, as Neoliberal policies have advanced, US Democracy has atrophied. This is not by accident; nor is it a mere correlation.

Democracy in America has been in decline since at least the 1990s, and especially so after 2000. It is evident in the collapse of any semblance of campaign finance reform, in the transformation of the two political parties into vehicles increasingly focused on ensuring corporate and investor wealth subsidization, in the Supreme Court interfering with electoral processes on behalf of corporations and investors, in the spread of voter suppression in various form throughout the so-called ‘Red’ states (i.e. a new Jim Crow also endorsed by the Supreme Court), in widespread gerrymandering concentrated largely in the same region, in a greater role played by the electoral college in preventing popular sovereignty, in the creation of special courts embedded in free trade treaties that further negate popular sovereignty, in the expansion of the ‘lobbyist state’, in the deepening attacks on civil liberties (patriot act, NDAA spying and surveillance, etc.) and undermining of the guarantees of the Bill of Rights, in a transformation of the so-called ‘fourth estate’ of media-press into vehicles of ideology propagation, in the transformation of the two political parties into institutions more tightly controlled by money interests–the list is long and growing. And after the crisis of 2008-09, all these processes of Democracy decline have been accelerating.

The process of decline, moreover, has reached a new milestone with the articles of impeachment of Trump just announced. For the behavior of Trump has clearly violated numerous provisions of the US constitution and is unraveling what Democratic norms and practices that have defined even the limited form of Democracy that exists in America. What we have under Trump is an assault on Representative government itself and, indeed, the US Constitution and the very formal institutions of Democracy.

The decline of Democracy in the US is likely, moreover, to get still worse in the year ahead in the run up to the 2020 November election. It is clear that the 2020 election will be close. Trump probably has an electoral college advantage, even if he loses the popular vote by even more than he did in 2016. His control of Red state electors has solidified further in the wake of more widespread voter suppression, gerrymandering, support by a sycophant Republic party, and a Supreme Court ready to do his bidding. Behind the sycophant Republican party is a base of at least 30% of the population that would vote for him regardless of any crime he has, or might, commit. He has his ideological bullhorn in Fox News, Breitbart, and Twitter and he will use it increasingly aggressively.

Should he lose the election, chances are more than even he will refuse to acknowledge that loss, setting off a constitutional crisis unlike any ever experienced in the US to date. Should he win narrowly, he will likely turn vindictively against those who have opposed him. Even more draconian attacks on government and institutional Democracy will almost certainly follow. Trump is a ‘down and dirty’ street fighter, weaned on the corrupt and questionable practices of New York commercial property speculators. In short, a narrow win or a narrow loss—the likely outcome—will mean there will likely be a constitutional crisis circa the November 2020 election, comparable only to the 1850s American political debacle. (Trump himself has said if he’s not elected there will be a ‘civil war’ again in the USA).

In short, American Democracy and the US political system is about to enter a period of instability it has heretofore not witnessed. Also not witnessed, the political crisis of Democracy in America will likely overlap with the next economic contraction and financial system implosion on the horizon as well. Hold onto your seats, folks, the real show hasn’t even yet begun!

The following passages summarize my views in further detail on the deepening contradictions of Neoliberalism and its fundamental incompatibility with Democracy in the era of Trump. The passages are an excerpt from the concluding chapter, ‘Neoliberalism v. Democracy’, in my recently published book, The Scourge of Neoliberalism: US Economic Policy From Reagan to Trump, Clarity press, January 2020).

TRUMP’S NEOLIBERAL ASSAULT ON DEMOCRACY

“As Neoliberalism has become more aggressive under Trump, so too have the attacks on democracy and democratic government.

After three years in power, and with the House of Representatives and much of the mainstream media challenging him after the November 2018 elections, the President is clearly drifting toward usurping the authority and, in some cases, even the functions allocated by the US Constitution to Congress—specifically to the US House of Representatives—toward a view he is above the law and unimpeachable. Toward a view that his presidency is more than a ‘co-equal’ branch of government. Toward a view he can and should govern when necessary by bypassing Congress. Toward a view the Constitution means he can force states to abandon their rights to govern. And toward a view the president can publicly attack, vilify, insult, coerce, and threaten opponents, critics, and whomever he chooses.

That drift includes the expansion of Executive branch rule-making at the expense of Congress and the legislative branch; the broadening use of ‘national security’ declarations by the president to bypass Congressional authority; and the refusal to recognize US House authority as it exercises its Constitutional responsibility to undertake investigations of corruption in the executive branch.

Usurpation of Legislative Authority

Presidential rule making by Executive Order has been long embedded in the US political system. In the past, however, Executive Orders by presidents have been issued where the president clearly has authority to issue such, or else in cases where Congress has not passed specific legislation—such as Obama’s EOs enabling children born in or brought to the US by non-citizen immigrant parents to have deferment from deportation . EOs have not been typically issued, however, that directly change the intent or the funding authorization of legislation passed by Congress. Not so in the case of Trump.

Passing laws requires their accompanying funding authorization. The monies allocated to a program by Congress are required to be spent on that specific program. However, under the cover of invoking a national emergency, Trump recently unilaterally transferred money allocated by Congress and authorized by the US House for defense spending to fund his border wall. This creates a dangerous precedent. Might Trump now divert authorized spending by Congress to other programs? This is clearly a constitutional issue now. Trump is in effect governing by ‘national security decree’ in direct challenge to Congressional legislative authority. The much heralded ‘separation of powers’ in US government has been undermined to a degree.

Drift Toward Tyranny

In addition to expanding Executive rule-making at the expense of Congress and the legislative branch, and his refusal to cooperate with Congressional subpoena and investigation rights under the Constitution, worrisome signs keep arising that indicate Trump also considers himself personally ‘above the law’.

The US political system has always given the President authority to pardon individuals, which is usually undertaken at the end of their term in office. It’s a curious and decidedly un-democratic practice that has been increasingly institutionalized in recent decades under Neoliberalism, by both Republican and Democrat presidents and governors. A hallmark of American political ideology proclaims to the public that ‘no one is above the law’. Yet, some are, as executive pardons have become increasingly commonplace. But these are presidential (and governor) executive pardons of others. No president to date has publicly suggested that he himself might be above the law or has the right to ‘self pardon’. But Trump has.

The process of usurping legislative authority, to fund his preferred programs at the expense of Congress, may have just begun, but the drift by Trump toward an imperial presidency in domestic legislation may well expand as his confrontation with Congress grows. Second, his suggestion of the right to assume power of self-pardon smacks of Tyranny. These trends—toward usurpation and tyranny—represent decided undemocratic principles that the president feels comfortable with.

Although in early form, the trends suggest a view by Trump that the presidency is an institution ‘more equal’ than the other branches of government. It has long been obvious that, in foreign affairs, the presidency since the 1960s—and even before—has been becoming more ‘imperial’. Presidents go to war without obtaining a war declaration by Congress, as was clearly intended by the US Constitution—token limits by the 1970s era ‘war powers act’ notwithstanding. The Trump presidency may reflect an extension of this imperial attitude to domestic US politics, i.e the emergence of what might be called the imperial presidency in domestic affairs.

Redefining Separation of Powers

The Trump presidency’s disregard for Constitutional norms in its relationship with Congress, and in particular the US House of Representatives, has recently become evident as well in Trump’s outright refusal to allow executive branch employees to testify to Congress, subpoenas notwithstanding. This stonewalling is but another example of the Trump presidency’s view that the Executive and Legislative branches are perhaps not ‘co-equal’ under the Constitution. Constitutional authority clearly provides the US House with investigative powers. Trump’s refusal to cooperate with that Congressional authority represents yet another reinterpretation of Constitutional separation of powers.

Reinterpreting the Constitution’s Supremacy Clause

Trump’s offensive against California’s auto emissions rule exemplifies his reinterpretation of the Constitution’s ‘supremacy clause’ and states’ rights. It has long been accepted that state laws cannot provide less than a similar federal law. For example, states cannot pass a minimum wage lower than the federal minimum wage. But they can pass legislation providing more than the federal minimum wage. Trump’s attack on California emissions in effect means the state cannot pass tougher emission standards than the federal standards, which are far less stringent. If that becomes a legal precedent, states logically could not pass legislation that is either less than or greater than the federal requirements. It’s a violation of the federalism principle in the Constitution.

Assuming the Power of the Purse

Trump’s trade wars represent yet another example of Executive powers expansion. The trade wars have generated tens of billions in additional tariff revenues for the executive branch. These funds have been used in part by the president to issue direct subsidies to US farm interests in the amount of $28 billion over the past year. A constitutional argument can be made that payment of subsidies in such amount should be authorized only by legislation raised and authorized by the US House. The Constitution’s intent gave the US House the authority of ‘power of the purse’ to raise and authorize spending of revenues—and not the Executive.

Disregarding Democratic Norms & Practices

Other disturbing examples abound of the Trump presidency disregard for accepted democratic norms and practices. Never before has a president so blatantly attacked the press and media that criticized him. Or vilified political opponents as ‘traitors’ and ‘criminals’; or publicly demanded candidates be ‘arrested and locked up’; or incited popular mobilizations against protestors and his critics; or launched purges within his own bureaucracy (in particular the intelligence agencies) and political party; or declared if Congress were to try to impeach him it would mean a new civil war in the country. These are not just the verbal railings of an aberrant personality who by chance attained the highest office of US government.

These are actions that reflect a calculated and fundamental disregard for even the limited form of democracy that still prevails in US government institutions today. They are views that reflect a belief that Executive powers of the president should and must be expanded—even if at the expense of the authority of legislative branch of government (Congress or states); even if it at the expense of the legitimacy of the press and ‘fourth estate’; even if it deepens the polarization of US society and incites citizen to citizen violence. Trump believes it is all necessary in order to implement his policies and programs—and this is what we must keep foremost in mind—it’s a Neoliberal program.

The key question for assessing the future of Neoliberalism is whether Trump is a product of the evolution of Neoliberalism and its impact on political institutions and practices—or whether the Trump presidency is an aberration outside that evolution?

Trump: Inevitable or Aberration

Is a Trump-like political figure the inevitable consequence of the need to introduce post 2008-09 a more aggressive, virulent form of Neoliberalism? Would an alternative president have to have moved in the same anti-democracy direction to get his/her agenda passed in the era of deepening domestic and global opposition to Neoliberalism? Perhaps that alternative president might have been less crude, less brash, less apt to ‘shoot from the hip’ on policy and political initiative—less likely to engage in early morning social media excesses; and indeed therefore have been even more clever and effective.

But one should make no mistake. Trump is not a lone wolf who slipped into the US presidency by accident or ineptitude of his opponents. Neoliberalism required a more aggressive restored form following the crisis it faced in the wake of the 2008-09 crash. Certain moneyed interests were in 2016, and are still, behind Trump. And if it wasn’t him, it would have been another chosen to shake up the old political establishment that was beginning to lose control over growing discontent at home and growing capitalist competition abroad.

The problem with Trump in the end has been his style, which has made it impossible for him to unite US business interests, and the traditional political elites, behind him in an effort to jointly restore the Neoliberal policy regime. Instead, he has precipitated an internecine political fight within the ruling class in America—i.e. a classic post-crisis political ‘food fight’ between two wings of the American economic and political elite.

A similar post-crisis split and internecine ruling class conflict has been occurring globally elsewhere as well—not just in Trump’s America. In the UK (Brexit), in France (the National Front), Germany (the rise of Afd), in several eastern European countries (Hungary, Austria, Poland), in various countries in Latin America (Argentina, Brazil, Ecuador), and in Asia in India and Philippines. All are trying to come to terms with slowing economies and an emerging global recession, as Neoliberal policies failed globally after 2008-09, giving rise to right wing autocrats and anti-democratic politicians. And in virtually all cases, including the US, in attempting to re-establish Neoliberalism on firmer ground, democracy, democratic norms, and institutions have been the victims.

The Trump era represents only the deepening of anti-democracy trends in the US that have been evolving since the introduction of Neoliberal policies circa 1980. In the Neoliberal era the two mainstream political parties became more oligarchic in their programs and representation. Money deepened its hold on government and politics steadily over the decades. Electoral processes became more the purview of the rich and powerful. Gerrymandering and voter suppression became more the norm than the exception. Popular sovereignty and representative government for all, more a fiction than fact. Public wants and needs that can only be fulfilled by government have been increasingly ignored, in favor of interests and requests of tens of thousands of paid lobbyists. And citizens’ civil liberties and rights have been increasingly limited, circumscribed, and surveilled.

The correlation between the rise and expansion of Neoliberalism and the decline of democracy in the US is irrefutable. Whether the correlation also represents a direct causation depends on whether each milestone event associated with the expansion of Neoliberalism occurs in tandem with, or in consequence of, an event marking a further deterioration of democracy.

And here the evidence and examples abound: the transformation of the political parties in the 1980s and early 1990s and rise Neoliberal tax and monetary policy. The radical right takeover of the US House in 1994 and advent of free trade. Gore v. Bush, the selection of the president by the judiciary in 2000 and still more tax cuts, war spending, the end of campaign finance reform, the Patriot and NDAA Acts and the attacks on civil liberties and democratic rights, and free trade treaties with their capitalist courts and negation of representative government. Thereafter, Obama followed by the Supreme Court’s Citizens United and related decisions, widespread gerrymandering, intensifying voter suppression, more war spending, more business tax cuts, more deficits, more free money to investors and bankers, more attacks on unions, more wage compression. And now Trump.

It’s more than just a ‘smoking gun’. It’s certainly not just coincidental that democracy in America has been in decline—and on so many fronts—during the era of Neoliberalism. Nor is it coincidental that under Trump the decline of democracy in America has intensified, and has begun to assume an attack on the prevailing constitutional form of government itself.”

Jack Rasmus is author of the just published book, ‘The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump’, Clarity press, January 2020. (The book is available at discount from his blog, jackrasmus.com, and his website, http://kyklosproductions.com, where reviews of the book are also available

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The following are some of my Twitter posts for the past month of November 2019. Brief takes on events, surveys, reports, and matters of interest on US and global economy and politics–including trade wars, the Fed, healthcare costs, US wages & productivity, recession, and commentary on Trump and Democrat political candidates for President.

Dec 2
#Tariffwars

Trump reinstates tariffs on Brazil/Argentina steel. Why? USMCA trade deal frozen + China mini deal in trouble. So open trade wars elsewhere to divert attention from failing trade policy. Besides, how dare Brazil-Argentina dare cut deals on soybeans & wheat with China!

Dec 2
#Democrats

Wave of Bloomberg TV ads now hitting all sections of country as he launches his presidential bid. Details suggest he’s more ‘left’ than Warren and a flaming NY progressive. But billionaires say what they think folks want to hear, then deliver for the rich (aka Donald)

Nov 27
#tradewar

A report just released by NY Fed concludes US consumers & businesses are paying for Trump’s 25% China tariffs. Tariffs cost them $40B a year, per Fed. Trump’s 25% tariffs should=20% cut in China prices on US imports if China were paying. But China prices fell only 2%

Nov 26
#Democrats

Obama comes out publicly against ‘left’ wing of party (Sanders-Warren) & on behalf of corporate wing of party as it seeks a backup to Biden & tries to stop Sanders-Warren. Obama always part of corporate wing, financed in 2008 by real estate, Chicago $, & NY hedge funds

Nov 26
#Democrats

Billionaire Bloomberg enters race for Dem party nominee. Latest in moneybag wing of party to bet on ‘brokered convention’, as Biden fades as their choice. Their strategy now is stop Sanders-Warren on first vote at convention, then push their ‘centrist’ to nomination.

Nov 26
#Fed

Chair Powell says US labor mkt strong. But monthly job gains now half that of 2018, even with tens of thousands of current census job & holiday hires. Watch for big job contractions early 2020, when census & holiday hiring stop/reverse. Then watch consumer spending plummet

Nov 24
#Buttigieg

New darling of moneybag wing of the Dems. Backup if Biden fails. But who’s really funding ‘Butt’? Finance capitalists like Paul Tudor Jones & other shadow bankers. Deja vu, like when Chicago money & NY hedge funds pushed Obama into the race at the last minute in 2008.

Nov 20
#tradewar

Signs growing that Trump’s Phase 1 mini-trade deal with China may not get signed off by Dec. 15. Trump getting nervous. Financial markets too, returning to pre-deal safe havens of US Ts. Should deal not get signed Dec. 15, watch for financial markets’ sharp contraction

Nov 19
#debt

Institute Int’l Finance says global debt rose from $78T in 2008 to $250T today. Debt can rise if income gains cover principal & interest; or if P&I is paid by raising more debt. Crises begin when income falls & debt refi freezes up. It’s a debt driven economy-until it’s not

Nov 16
#impeachment

What’s different Trump v. Nixon impeachment?: Fox news, social media, Trump Sup. Court majority, sycophant Republican party, strategically inept Dem Party leadership, no recession, 2yr before elections. As someone said: “First as tragedy; second as farce.”

Nov 12
#Healthcare

New Gallup poll finds 34% adults know a family or friend who died last 5 yrs because couldn’t afford health cost. 17% of adults under 45 knew of family or friend who died because of unaffordable cost (compared to 6.6% adults over 65 who knew. Medicare for All anyone?)

Nov 12
#USWages

Trump & US media keep saying US wages rose ave. 3.1% this past yr. But US Labor Dept. data show real median wage Dec 2016 at $10.70/hr. Same wage rose by Sept. 2019 only $10.96/hr. That’s 9 cents/yr & well less than 1%. Maybe managers, tech, professionals got 50%+ raises

Nov 11
#Obamacare

10 yrs of Obamacare+Trumpcare results: Employer health ins. premiums up 50% + premium prices rising 3x the CPI. Ave. deductibles up 3X, to $1,655 (82% plans now with v. 50% 10yrs ago). ACA out of pocket expenses raised to $16,400 for families. Only 10m insured. 40m not

Nov 10
#Trump

says US Economy “greatest in history of world”. Here’s ‘for whom’: Fortune 500 corps distributed $2T in stock buybacks+dividends to shareholders 2017-18; another $1.3T due 2019 + more buybacks-dividends payouts by remaining 2m US corps + $300b tax cuts to corps & investors

Nov 9
#Trump

says US economy today “greatest in history of world”. But for whom? New Financial Times/Petersen Institute poll shows 65% say ‘no better off or worse off’ since Trump. But investors will get $1.3 trillion in stock buybacks+dividends this year, after $1.2T last year.

Nov 8
#tariffwar

China officials today say Trump agrees to reduce tariffs. Trump says he hasn’t (while admin. spokespersons say he has). What’s up? Prediction: Trump will retract some Dec. 15 tariffs he hasn’t even yet imposed. Will it be enough for China to sign Phase 1? Maybe not

Nov 6
#productivity

US data today show productivity 3rd quarter negative–1st time in 4yrs–due to prior 2 quarters of contracting bus. investment & manuf. Unit labor costs (ULCs) in turn now rising. Coming next? Less hiring & slower job growth as business moves to offset rising ULCs.

Nov 6
#tradewar

Anonymous Trump admin. official says signing Phase 1 mini-trade deal with China not likely in November. Maybe December. Why the delay? Dispute whether US will withdraw some tariffs–a ‘must have’ per China. Market lemmings now assuming a ‘done deal’ may be surprised.

Nov 5
#USeconomy

Just released Financial Times/Peterson Foundation voter poll: 31% say worse off compared to before Trump; another 33% say no change. Causes: low wage & no income change + high debts. So much for distorted news re. wage growth & “Greatest Economy in US History” (Trump)

Nov 3
#UStaxes

US treasury (UST) announces looser rules for corp. ‘inversions’-i.e. where US multinational corps (MNC) move their HQs offshore to book lower taxes. Result: less net US tax revenues, more US deficit & debt, but more MNC profits after $2T 2018-28 from Trump 2018 tax cuts

The debate among marxist economists has intensified once again. On the one side is the German economist, a marxist, Michael Heinrich. Once again Heinrich has raised questions about Marx’s notes in Vol. II, III of Capital assigning primary causation of capitalist crises to the variable of the falling rate of profit. Long an adherent to explaining the evolution and business cycle contractions to the falling rate of profit, Michael Roberts takes on Heinrich’s more ‘open view’ of Marx.

From time to time I have debated as well with Roberts, taking a position similar to Heinrich’s and urging Marxist economists to get off of Marx’s falling rate of profit theory as the primary explanation of crises and cycles. The reasons are Marx’s definition, similar to classical economics in general, is too narrow. More important, contemporary definitions and data collection of profit globally result in data on profit used to determine the rate of profit which are grossly different from Marx’s concept of profit. Furthermore, the profit data available are deeply corrupted for various reasons and therefore unreliable.

The following are some of my comments offered to both Heinrich and Roberts on the ‘Taking Sides’ blog in their debate:

“I have long disagreed publicly with Michael Roberts’ view on the rate of profit thesis. There is just no way to determine actual profits–levels or therefore rates. This is for various reasons. Here’s just a few: first, at the core of global capitalism is the multinational corporation. Numerous studies show that their profits are at least a third determined by financial asset investments, what’s called ‘portfolio’ investment. The MNCs have become, and are increasingly becoming, financial institutions. Marx’s theory of profit defines profit in production as the result of exploitation of productive labor only (or some labor necessary to the distribution and commerce of productive labor). In other words, only labor that produces discrete goods. It’s a narrow, classical economics definition going back to Smith and others. But global MNCs not only create profit from the production of goods (and not all of them either). They create profit from financial asset investment and speculation. That means if one were to keep to the definition of Marx on profit, that one would have to somehow subtract out portfolio investing profit from total profit. This would have to be done for all MNCs that do portfolio investing, in order to get some kind of average profit minus portfolio profits. Michael Roberts and other largely anglo-american Marxists don’t do this. Because they can’t. There is no data retrieving formula for this, or even access to MNC balance sheets to determine this.

Roberts and others rely on government provided data on profit that doesn’t distinguish between the aggregation of real productive profit and financial speculative profits. So his profit rate data is corrupted and cannot be used to determine the falling rate of profit.

There’s a further problem: To get even total profit data, it is necessary to adjust for accounting rules that differ country to country, that influence the level and therefore the rate of change of profit. There’s also the problem that in many countries the economic data is insufficient and distorted by collection processes. Definitions of profit are also different. This corrupts the profit data when trying to aggregate it across countries and economies.

Apart from all these data definition and collection issues that make determination of the real profit rate difficult, there’s the problem of taxation that render after tax profits as the variable even more problematic. For example, in the US alone, in 2018 Fortune 500 profits rose about 27%. But 22% of that 27% was attributed to Trump’s corporate tax windfall alone. This goes on at the US state level as well. And it differs in Europe and elsewhere as capitalist states ‘race to the bottom’ in granting tax cuts to business and investors. So forget after tax profit data altogether.

In short, data on profits are grossly unreliable for accuracy, and this is especially so globally and for multinational corporations, that typically adjust their internal pricing arbitrarily to lower or raise profits in different subsidiaries producing semi-finished goods between the subsidiaries. Roberts has no access to this internal pricing data manipulation, that makes profits artificially appear higher in one subsidiary and lower in the other. How much should nominal profits then be adjusted for real profits when the internal pricing effect is unknown and clearly would differ greatly across different corporations? Roberts doesn’t know because the data is proprietary and internal to the MNCs.

I agree with many of the critiques of Heinrich, as well as the view that Marx was not completely sure of the falling rate of profit tendency as a predictor of business cycle contractions. If he had been sure, he would not have left it just as unpublished notes.

Then there’s the related critique that even if he had been convinced, it is clear that Marx was not talking about short term business cycle contractions (which include recessions, great recessions and even depressions). Marx’s theory applies to the long run crisis and breakdown of capitalism. This is a focus very typical of classical economics, which lacked the detailed empirical data to develop a theory of business cycle contractions. Nevertheless, Roberts and friends try to ‘fit’ this long term crisis theory into an explanation of short term contractions when they argue the rate of profit determines the outcome of crises like 2008-09 or depressions.

Marxists should get off the fixation on rate of profit as the key determinative variable. Marx’s economics is about the accumulation of capital, a deeper and broader concept than profit rates. A Marxist theory of investment (aka capital accumulation) in the 21st century, which accounts for both destabilizing financial portfolio investment as well as real asset investment, is what the focus of analysis of capital in the 21sts century should be.

But Roberts & friends say wait a minute, it’s profits that determine capitalist investment and capital accumulation, so profits and profit rate are really the key. But here again, what might have been true of 1850s British economy is not the case in 21st century global capitalism. Numerous studies show that profits are responsible for less than one-third of business investment. Real asset investment is determined far more by what’s called equity and debt–i.e. business raising funding through stock issuing and corporate bonds and, increasingly now, by other financial instrument creation (now including Bitcoin and other digital currencies). So it’s not profits that drive investment; it’s financial asset creation. But Marxists like Roberts disregard this characteristic of 21st century capital and ignore it simply as irrelevant ‘fictitious’ capital. They don’t understand the nature of contemporary finance capital.

The fixation of mechanical Marxists on the rate of profit and the constant reference to Marx’s notes as proof this is the key variable is more an exercise in philology than it is an analysis of the character of contemporary capitalism.

Introduction

The Wall St. Journal page one article of November 18, 2019 broadcast: “Europe’s New Jobs Stoke Discontent”.

It asked: ‘why are workers so angry’, when millions more jobs have been created since Europe’s last recessions (2008-09 and 2011-13), when millions more job openings remain, and when minimum wages have been raised in most countries’?

The article then goes on to try to answer some of these questions. It suggested one problem is that the vast majority of new jobs created in Europe have been contingent (i.e. temp, part time, independent contractor, etc.). That has meant, in turn, lower aggregate pay and a lack of insurance, disability, pension (deferred wage) benefits. It also has meant less job security and longer total hours worked and more costs to workers trying to cobble together multiple part time jobs. Europe has developed a two tier labor force, of those that ‘have somewhat’ and those who ‘definitely have not’.

These 2nd tier conditions afflict mostly younger, under 35 years old workers. Apart from the substandard wages and benefits, the contingent work has left them with a sense of hopelessness that they’ll ever be able to get out of the ‘2nd tier worker’ hole, a kind of 21st century indentureship, that they know prevents them from living a normal life, having a family, obtaining reasonable housing, and so on.

The condition is not picked up by mainstream media referring to economy-wide gains in ‘average wages’, which mostly apply to regular, 1st tier workers. Job creation numbers also do not distinguish between the two tiers and the low quality (contingent, precarious) jobs that account for the vast majority of jobs created in recent years in Europe (as well as in the USA and Japan). Nor are contingent jobs reflected in the large number of unfilled job openings, which are for the highly skilled, technical workers that capitalism needs in greater numbers today but which the educational systems have failed to produce. In short, the data that mainstream media articles like the Wall St. Journal keep referencing as indications of a strong labor force and good job gains are irrelevant to the growing problem of temp and part time jobs that official government data either ignore or don’t accurately reflect.

Furthermore, the official mainstream press and media don’t connect the mass protests and demonstrations breaking out worldwide to the growing problem of contingent employment and its discontent. Beneath the apparent causes of the growing mass demonstrations and protests lies the mass discontent and growing hopeless of young people over their deteriorating work and living conditions.
Look beneath what’s happening with Yellow Vests in France, Hong Kong demonstrations, mass demonstrations across the South American continent, in North Africa and the Middle East, and what you will find is young workers growing desperate over their working conditions, over income inequality, the lack of jobs that provide a basic living, and their sense of hopelessness of change any time soon. In other words, discontent over their fate in emerging 21st century capitalism.

But the worse is still yet to come. Contingent, or so-called precarious, work and its condemning of workers to a ‘new indentureship’—a kind of 21st century capitalist serfdom—is now being intensified by new capitalist business models and technological change.

The new models are creating even more precarious work. They are what I call the ‘Amazon Effect’ and the ‘Uber Effect’. But these new business models are not the worst of it. Overlaid on contingency, precarious work, and the intensification by these new business models is the even greater negative impact now just emerging due to Artificial Intelligence. AI promises to exacerbate the problems of low pay, long hours, job insecurity and general hopelessness caused by precarious work, and the revolutions in capitalist business models from Amazon and Uber that are making that precarious employment even worse.

Europe’s economy has been even more devastated than America’s by the recent contingent-precarious job trends of capitalism. And AI will prove even more destructive when it comes.

This past spring 2019, this writer was interviewed for a book of interviews to be published soon in Poland. The following excerpt from the interview addresses the destruction of labor markets, jobs, incomes and lives of workers, going on in recent decades and coming in Europe in the decade ahead. Already reeling under the effects of precarious work and new business models, Europe’s workers are about to be further impacted by Artificial Intelligence. AI will come later in Europe than in the US and Asia. Its introduction will therefore be more intense and its effects therefore even more disruptive.

    INTERVIEWER:

I was talking with Aleksandr Dugin, he is one of the top ideologists for Kremlin right now and he told me something quite interesting. He said that, the problem in Europe is not so economical problem, there is a deeper problem. He said that firstly, the whole population of Europe will be replaced by people from Africa and Middle East, and all these people will be replaced by robots, the whole labor will be replaced by automation, what do you think about that.

    DR. RASMUS:

Yes, well I don’t agree that you’re going to have a mass immigration into Europe. Europe is already closing off its’ borders in various ways from the immigration from North Africa and the Middle East. The problems in North Africa are part of the problems of global lack of real global economic recovery and the greater ease of transportation and communication of recent decades, so these folks are coming to Europe but that’s a symptom of the bigger problem. Not the problem itself.

The second part of your point is much more fundamental and structural, and that is what we are seeing now is changes in the labor markets and product markets globally and capitalist economies changing at a very rapid rate. What that means is that in order for capitalists to compete with each other globally and individually they have got to cut costs even more rapidly and the new technologies and business models are enabling it to do just that. Artificial intelligence is the next wave of massive change in the labour markets.

We’ve already seen the change in Europe where we’ve already had a shift to contingent employment, part time and temp jobs, in recent decades. Over the last ten years, most of the jobs created in Europe have been these second tier kind of jobs, part time, temp contingent jobs. Low paid, service jobs with no rights, less benefits than first tier. That labor market change is behind a lot of the yellow vests and protest in Europe. It’s economic, it’s jobs, hopeless jobs and hopeless futures and the elite’s ignoring that as it erupts. That’s already a big problem in Europe, where even in Germany 60% to 70% of the jobs created, according to data I’ve seen, have been these second-tier jobs and these second-tier workers are rebelling now.

Their unions are tied into the state apparatus, pretty much, so workers just expressing this individually, spontaneously. So that problem of widespread 2nd tier employment already exists in Europe, but now we’re going to have overlaid on it this new wave of technology, driven by A.I. that will make it much worse. And what is Artificial Intelligence? It’s simply eliminating decision making, simple decision making in the economy. More sophisticated decision making, more complex will still be there. In fact you’ll see an increase in jobs in data science and statistical analysis and so forth but these are high level and highly skilled jobs and not everyone can do them. And the education system has not been preparing people to do those jobs. So we’re going to see the jobs that were simple decisions jobs, a lot of these second tier contingent jobs, are even going to disappear.

A McKinsey report in the United States, McKinsey Consultants, recently came out this year and said in the U.S alone AI will mean 30% of the occupations will either be eliminated or significantly reduced in terms of hours worked. 30% of occupations, that’s roughly of one third of 165 million jobs in the US, are going to be either eliminated or reduced in hours and therefore pay. The same thing’s going to happen in Europe. This is artificial intelligence, which is simply large databases, massive computing power and statistical analysis to develop machine learning so that the machinery, the automation, makes the decisions and you don’t need simple people making simple decisions. Well that’s going to have a massive impact by the middle of the next decade to the economies. It’s going to allow business that make this shift—those who don’t will go under—to be more profitable and to survive the new capitalist competition that will continue to intensify. But it’s going to wipe out a lot of businesses and a lot of jobs in the process. Now all that AI effect is coming on top of the crisis of slow economic growth since 2009 that already exists as well as the economic recession that’s just around the corner. How will they deal with that, how will the elites of these countries in Europe, and the U.S and Japan, deal with this convergence of AI, slow growth, and recession is going to be interesting because we are going to have far more people unemployed and under-employed and we’re going to be in a situation of very low growth in general with segments, pockets, of explosive economic growth by those companies and industries that are able to exploit these changes in technology. It will be a very ‘dual track’ world economy, with the gap between haves and have nots growing even more than today.

    INTERVIEWER

I’m still wondering what will happen with this working class in Europe, and basically everywhere, who cannot compete with Artificial intelligence. Young people are going to study something, but they know they cannot compete in one decade or two decades, they won’t be able to get any job in the market because the Artificial Intelligence can just replace you. So, I was talking with people who are involved deeply with artificial intelligence, they are building artificial intelligence at MIT or wherever and they just told me “OK, maybe the government will send you some money every month and that will fix the problem” but this from my perspective sounds like bullshit to be honest.

    DR. RASMUS

Well you know, there will be more chronic unemployment and especially underemployment. We will have a larger based of unemployed in relationship to the employed. There will be many more underemployed than we have now, that’s going to get even worse. The question is how that affects the consumption potential of the system when we don’t have job growth. We already see a chronic slow economic growth since 2010. It will mean there will be more debt-financed consumption. They will allow more people to survive more on borrowing, more on credit. Which is just a way of taking away your future wages, but they’ll rely on debt much more. More underemployed, more unemployed, and more credit and household debt. Some people are talking that a universal basic income will have to occur.

I think that might be a partial solution in theory but it will never fly politically, at least not in the USA. The political forces will never agree to UBI, universal basic income, as long as they have control of the political system to the extent they do. So I don’t see that actually happening over the next decade. Not in the USA. I think the recession is coming soon and it will accelerate AI. You know the McKinsey study predicted that by 2025 you’re going to have maybe thirty to fifty percent of all the companies implementing some form of AI. And again, A.I.is just a new business model to reduce cost even more. That’s what it’s all about. AI is very much like Amazon and it’s very much like the sharing economy. See this is the new product revolution in capitalism.

Capitalism is evolving and changing more rapidly than ever before. It’s always been a dynamic system. But It’s accelerating in its rate of change and we see this is in the labor markets and we see this in the product markets and these new business models now emerging. And we see it in changes in fiscal and monetary policy and we’re seeing it in trade policy. What is Trump’s trade offensive all about? Well it’s about positioning the U.S capitalist class, and U.S business elite, to maintain hegemony over the global economy as all these changes occur over the next decade. They are restructuring particularly the relationship with China, the biggest US competitor, so the U.S business elite can remain dominant and the dollar, the global trading currency, can remain dominant. They are preparing for this and that’s how I see all this Trump trade war.

Trade is a response to capitalist restructuring underway. Changes in trade relations have to occur after we have had all these structural changes in the finance markets, product markets and the labor markets. Capitalism is changing.

Capitalist change means that if you’re not a capitalist, you’re going to make even less, they’re going to squeeze you with these new business models, you the worker, and they’re going to squeeze their capitalist competitors to whatever extent they can with these new business models. If you look at France, what are all the changes Macron is trying to do? Well he wants to change the product market, he wants France to become more like the U.S in terms of Uber, Amazon and A.I. and that’s true for all of Europe.

They are all trying to do this. Germany is still based on the old business model largely, i.e. to make things, but it knows it’s going to have to change more rapidly in the future. Europe knows this, they know they’ve got to make these changes and they know they are behind the global curve.

They’re playing catch up to the USA and China. The changes are coming rapidly in China and in the U.S. Britain wants to attach itself more to the U.S, that’s partly why you have this Brexit thing. It knows what the future is going to be, France knows, but they can’t make the change fast enough you see because they don’t have the banking system, the financial system, to pull off the financial restructuring. They don’t have the higher education system to prepare the labor markets for AI and the new models, and to be able to do this on the massive scale necessary, that’s already occurring in the U.S and China.

So Europe is the weak link, as I said, because it’s not been able to make this capitalist evolution fast enough in product markets, and its attempts to radically change labour markets in favor of capitalists is producing blowback and discontent and creating working class eruptions both in the streets, like in France, and at the ballot box, like in Brexit in England and other places, in Italy.

    INTERVIEWER

Well it sounds like some dystopian movie from the future, so what do you think is inclusive capitalism is some kind of solution for this? For example, like Lynn Forester de Rothschild she’s proposing inclusive capitalism as a solution for economy right now, so what do you think about that, is it a real solution or some kind of hoax?

    DR. RASMUS

Well I think that’s an ideological phrase, we’re all inclusive in capitalism, we’re all a part of capitalism. If she thinks that the solution is to make everyone a capitalist, that’s nonsense. That kind of ideology has always been around in one form or another, in other words. It’s a way of deflecting the problem of capitalism itself by saying we’re going to reform capitalism and you can all be capitalists. In other words you’re all going to make more money. It’s an ideological response to a crisis of the system itself in my view. You know, it’s a phrase, sounds nice: inclusive. You don’t have to be a worker and worry about whether you’ve got a job or you can feed your family, you can be a capitalist too. How that actually works, I don’t know. It’s more a way of deflecting discontent than any realistic solution

    INTERVIEWER

What do you think is the real solution here, because people are proposing the sharing of the economy which is new.

    DR. RASMUS:

Yeah, the sharing economy, or the gig-economy, whatever you want to call it, this is one of the new business models at the leading edge of capitalism. Whether or you talk about Uber or Airbnb or all the other “sharing”. What is the essence of the sharing economy? Well it’s a way of capitalist businesses to figure out how to pass their cost of production off to the work themselves. Let’s take Uber. It’s model makes them more profitable than other businesses models. With the changes of technology, we’re getting new business models. Uber is an example of a new business model of the gig-economy. Amazon is an example of a new kind of business model as well.

Artificial intelligence, and the businesses and industries they will spin off, are the ‘next generation’ of the shift to new capitalist business models. The old industrial business model where you make things, make goods, where you have a chain of suppliers and you hire workers to make the things… that is dying. It is not dead by any means, but the leading edge of capitalist evolution are the new business models. Take the Uber business model. Think about it right, Uber has software and Uber has control of the customer, but instead of Uber building a physical infrastructure or investing in physical capital, i.e. the transport equipment, it gets their worker to use his physical capital, his car and to use his working capital meaning paying for insurance and gasoline and so forth. So they are making the worker bear the cost of the physical and working capital, which reduces the money wage Uber pays the worker. It’s a form of intensifying exploitation. Uber sits back, and it controls the cost, it has no cost of goods. It’s a service that doesn’t have to produce anything physical. It doesn’t have to pay the worker a higher union wage, in fact the laws prevent the workers from organising as workers because they’re supposedly small businesses themselves you see. It’s a new form of more intense exploitation of the working class, that result in greater profits for Uber. Why do you think Uber is able to raise billions of dollars? Because investors know the business model is so profitable. And this is what all the sharing economy is about, whether it’s Airbnb or whatever. In Airbnb, you get the homeowner to use his own physical capital, his home, as the hotel. The sharing economy company has the software that identifies the customers and puts the customer in connection with the ‘worker’, whether he is the car-driver or the homeowner, and reaps super profits off the top. You see it’s a much more efficient, much more profitable business model and that’s why it’s booming.

We’re going to see the same thing happen with Amazon where you’ve got a new business model as well. Where you don’t have brick and mortar and no worries of the cost of facilities and so forth. You just have transport and moving goods around, that’s another new business model that’s already wiping out other big box retail stores and small retailers everywhere in the cities it does business. It will soon destroy millions of trucking jobs as well and automate out its warehouse jobs. That’s a new business model. Then we’re going to see newer business models with AI, because it’s all software manipulation and eliminating the cost of production, the cost of goods, and putting that cost on the backs of workers, who are hired as small businesspeople. That’s the AI model.

    INTERVIEWER

Exactly, so it is in other terms the person who is involved in that kind of sharing economy is in some way a capitalist.

    DR. RASMUS

Yeah, In other words you make the worker assume the worst part of being a capitalist, in other words, the costs. You don’t let the worker, who becomes a kind of blended worker, part worker/part small businessperson, share in the profits. It’s the company sitting on top of it all, the Uber, the Airbnb, whatever that skims off the lion’s share of the profits, and you don’t even allow the new worker businessperson to organize collectively amongst themselves to negotiate a share of the super profits for themselves. You use the laws to prevent that. Maybe that’s what this other person meant by inclusive capitalism. The worker becomes a businessperson in the view of the law, and his exploitation is intensified in the process. You know it’s simply a justification for the intense exploitation these new business models represent.

    INTERVIEWER:

So what is the solution here for this sharing economy, to be shareholder of Airbnb or other platform or whatever it is, I’m not just a worker who is involved with Airbnb, I am a shareholder of this stock of this company, maybe this is the solution if you know what I mean?

    DR. RASMUS

Yeah, well I know what you mean but individual share holding of stock of a company doesn’t give you any control over their business practices and strategies and policies of that company. It just means you’ve given some of your money to someone else to invest somewhere. You need to have sufficient control of the stock, 5 or 10 percent to affect the business policies of the company. So just owning stock, if you’re a small stockholder, doesn’t provide any control, it’s control that we should be talking about not ownership of a piece of paper and a formal, infinitesimal share of a company.

What needs to happen is that the laws need to change so that the worker-employee/small businessperson, whatever this new blend of worker is in the labour market, can organize collectively to get a collective voice to defend themselves. That hasn’t happened yet, and you’re not going to stop this new business model of capitalism, but the question is how vulnerable do you leave those whose are being exploited by it. I really think they need to unionize in a new form of union. Not the old form of union based on the old company structures, but some kind of new form. But the capitalist states are making sure that they block that by legal means. And as far as the rest of society is concerned, what we got in the 21st century here is the state, and the government, engaging increasingly in subsidizing business and capital incomes. Both with monetary and fiscal policy. With monetary policy they’ve bailed out the banks and investors, then they’ve given them free money for ten years now. Everywhere in the advanced economies, and especially in Japan, and to some extent in Europe, they’re propping up bond and stock markets by central banks buying private securities. That increases the demand for bonds and stocks that keeps up the price of both that protects the wealth of investors.

Financial assets like stocks and bonds keep rising, but it’s all artificial. They’re being subsiding more and more by the state. Fiscal policy in the form of tax cuts for corporations, investors, and the rich more and more. In the U.S in 2018 they’ve passed four trillion dollars in tax cuts for businesses and investors. So the state, fiscal and monetary policy and other forms of policy, like trade policy, are being employed by states to subsidize capital incomes like never before. we now see a trade war with Trump who is trying to restructure the global trading system for that purpose. The state is increasing propping up the capitalist economy and capital incomes.

Before, state policies would share with labor, and small businesses, but now you’ve got capital, big capital, particularly finance capital which has absorbed more and more political control, and thus we see fiscal monetary policies more and more reflecting the interest of corporations, professional investors, and the wealthy at the expense of the rest, until you get an eruption like the yellow vests in France. There the government had to back off a little, Macron backed off a little, threw a few crumbs to pacify it. Teresa May backs off a little bit, reduces austerity just a little, and throws a few crumbs, to the working classes of Britain. These responses are temporary responses, however, to relieve the pressure while the main policies continue to subsidize with monetary and fiscal measures, i.e. subsidize the business class. How long can that go on, well history will tell.

Dr. Rasmus is author of the just published book, ‘The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump‘, Clarity Press, October 2019, available for purchase at discount from this blog. Click on the book icon.

Listen to my Alternative Visions radio show continuing analysis of Neoliberalism, today, focusing on the ‘balance sheet’ of Trump’s effort to restore US Neoliberalism in a more aggressive, virulent 2.0 form; where it has succeeded and where it is not doing so.

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http://alternativevisions.podbean.com

    SHOW ANNOUNCEMENT

In the first half hour of today’s radio show, Dr. Rasmus reviews the latest developments in the US-China mini-trade deal negotiations and provides the latest snapshot of US economic data releases on manufacturing, investment, and retail sales-consumption.

In the second half hour, Dr. Rasmus continues the analysis of Neoliberalism in crisis topic of last week, explaining how Obama failed to restore it to full effect in the wake of the 2008-09 crash and how Trump represents the attempt to restore it in a new, more virulent 2.0 form. The fundamental main policy propositions of Neoliberalism are restated and how Trump has fared to date in each area are addressed. Big success by Trump in restoration have occurred in business-investor tax cutting and increases in war-defense spending, but failure in social program spending cuts and containing escalating deficits and debt. Trump industrial policy has also been successful, with deepening of deregulation, privatization, continued wage compression, benefits cost reductions, and other areas. Neoliberal monetary policy of chronic low interest rates remains a work in progress as Trump fights the Fed over rate reduction but the Fed slowly falls in line. Neoliberal ‘External’ policy (trade, currency exchange rate, FDI money flows) represents Trump’s major failure at restoration, however, as the trade war produces little result and reduces investment and growth globally and increasingly as well in the US. (A more complete analysis is available in Dr. Rasmus’ just released book, ‘The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump’ available on his blog, jackrasmus.com, along with recent articles on the topic). Next week: the material forces at work undermining a restoration of Neoliberalism under Trump and his successors.