Jack Rasmus

To listen to the part 1 overview of my forthcoming book, ‘Looting Greece: An Emerging New Financial Imperialism’, by Clarity Press, September 2016, on the Euro neoliberal and German origins of Greek debt crises 2010-2016, listen to my August 19, Alternative Visions radio show. Go to:

http://prn.fm/category/archives/alternative-visions/

or:

http://www.alternativevisions.podbean.com

(Next week’s August 26 show: ‘Greek Debt Crises, Part 2: Syriza’s strategic and tactical errors, why the Troika prevailed, and why another Greek crisis is inevitable; plus what is ‘Financial Imperialism’.)

SHOW ANNOUNCEMENT:

Dr. Rasmus discusses the first of a two part series on Alternative Visions radio, Progressive Radio Network, on the nature of Greek debt crises, and how they are the consequence of Euro neoliberalism, dominance of the Eurozone’s ‘Troika’ (European Commission, European Central Bank, IMF) by German bankers, allies and politicians, and the continuing insolvency of European private banks. Citing recent studies that show 95% of Greece’s debt payment to the Troika since 2010 have gone to European bankers, Rasmus argues the recycling of debt and interest payments represents an emerging new form of financial imperialism that is built into the Eurozone’s very structure since 1999. The deeper analysis is available in Dr. Rasmus’s new book, to be released in September, ‘Looting Greece: An Emerging New Financial Imperialism’, by Clarity Press. Rasmus discusses the origins of the 2010, 2012, 2015 (and April 2016 mini) debt crises in Greece, and concludes with the Greek Syriza party’s main strategic error. Next week, Part 2: ‘Why Syriza’s strategy (and tactics) failed and why the Troika’s prevailed’—plus more on the new financial imperialism taking form in the Eurozone periphery and its prospects globally elsewhere.

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Jack Rasmus
Systemic Fragility in the Global Economy, Atlanta, GA: Clarity Press, pp 490, GBP
17.51, USD 29.95; 978-0-9860769-4-7
Reviewed by Bob Jessop, Lancaster University

Jack Rasmus studied economics at Berkeley, took his doctorate in the University ofToronto (1977), and worked for many years as a union organizer and labour contract negotiator. Then, after working as an international economist for global companies(such as Siemens) and an international strategic analyst for some Silicon Valley start-ups, he became a full-time independent economic researcher, author, journalist, radio host, playwright, poet, lyricist, and activist. He also established Kyklos Productions and Jack Rasmus Productions, which use different media, including stage plays and musicals, to explain the long run changes in the USA and its future trajectory. He is currently Federal Reserve Bank chair of the Green Party Shadow Cabinet and economic advisor to Jill Stein, the party’s presidential candidate. This background is important for understanding the theoretical novelty, persuasive power, political passion, and programmatic significance of this book.

Systemic Fragility in the Global Economy (2015) is the fourth in a series that Rasmus has produced within this broad intellectual and activist project. Each work not only provides a theoretically-informed, empirically-grounded diagnosis but also offers a wide-ranging set of policy recommendations aimed at progressive movements.

The first work was a detailed critique of the diverse upward wealth transfer mechanisms employed in the corporate-government class struggle against subaltern classes and groups in the Reagan-Bush-Clinton-Bush era (Rasmus 2006). The second, based in part on major journal articles, was Epic Recession: Prelude to Global Depression (2008).

This also provides the theoretical foundations for his analysis of systemic fragility. Its two main claims are that, first, the North Atlantic Financial Crisis (my term) is more comparable to the recessions followed by stagnation that occurred in the USA in 1907-1914 and 1929-31 than it is to normal cyclical recessions (marked by a brief contraction followed by a swift return to growth) or a classic depression; and, second, that the explanation for epic recessions can be found in the interaction of debt-default-deflation dynamics across the corporate, household, and government sectors.

This work was followed by detailed critique of the current and future policy failures of the Obama Presidency and the presentation of an alternative policy programme and reform agenda (2012). The fifth is concerned with the Greek crisis and the rise of financial imperialism (2016).

The book reviewed here extends the analysis of epic recession dynamics, with declining growth, increasing fragility, and worsening instability, to the global economy. In particular, Rasmus argues that the epic recession has been mutating as the financial crisis becomes more general and directly weakens the ‘real economy’, generates secular stagnation, and produces ricocheting contagion effects around the world economy exacerbating weaknesses in each economy and giving rise to distinct crisis symptoms in different regions. Starting in the neoliberal, finance-dominated US-UK economies in 2007-2008, in 2010-14 it affected the weak regional links in the advanced economies the Eurozone and Japan before shaking China and emerging markets. Despite their different forms of appearance (real estate, stocks, currency markets, government bonds), the underlying causes remain excessive liquidity that fuel different kinds of speculative financial bubbles and growing debt. The resulting crises cannot be tamed by fiscal or monetary means.

Indeed central bank liquidity injection and government fiscal policies exacerbate the crises. Central bank responses have boosted liquidity, which has flowed into further asset speculation rather than productive investment and is creating the basis for an even bigger economic crisis. The detailed empirical analysis is backed by a sustained critique of inter-national financial institutions, Wall Street shills and regulators, economic statistics and statisticians, and, more importantly, mainstream economics, especially neoclassical economists and hybrid Keynesians (who seek to integrate Keynesian insights into neoclassical economics), mechanical Marxists (who invoke the falling rate of profit to explain crises), and the significant but now outdated contributions of Hyman Minsky to the analysis of financial instability.

The theoretical novelty in this text compared with the author’s Epic Recession is a more systematic presentation of systemic fragility. The possibility of recession, crisis, and depression is given in the price system in general and the dynamics of financial asset prices in particular, which differ in several ways from those of real asset prices and can become fundamentally destabilizing under conditions of systemic fragility. For Rasmus, this phenomenon is rooted in nine key empirical trends: slowing real investment; deflation; an explosive growth in money, credit and liquidity; rising levels of global debt; a shift to speculative financial investing; the restructuring of financial markets to reward
capital incomes; downward pressure on wages; the failure of Central Bank monetary policies; and ineffective fiscal policies.

The case studies of the USA, Europe, Japan and China are excellent, typically contrarian, and highly teachable. Many important and provocative arguments and points are made in passing in these studies and they are strengthened by the more sustained theoretical analyses that follow. A major contribution is the analysis of the complexity of shadow banking, an ill-defined term of art in most of the literature. I have found the analysis of debt-default-deflation dynamics very helpful in my own research on crises and the elaboration here is more detailed than in Epic Recession.

Nonetheless there are also three unresolved issues that will interest readers of Capital & Class and are unlikely to be solved through Rasmus’s promised next iteration of the analysis. First, perhaps reflecting his economic training and labour activism in the USA and Canada, the critique of official dogma, orthodox economics and Keynesianism is well-developed but the presentation and critique of Marxist theories leads much to be desired, especially the critique of “mechanical Marxism”, and, compared with his biting criticisms of other theorists, his grasp of Marx’s method and arguments is disappointing. Second, relatedly, while the analysis of financial asset price formation and debt-default-deflation dynamics is innovative, the articulation of this analysis with the contradictions and crisis-tendencies in the circuits of productive capital is weak. This matters insofar as the crisis of Atlantic Fordism in the 1970s and 1980s has a strong bearing on the rise of financialization and finance-dominated accumulation in the USA and UK. And, third, the institutional mediation of crisis dynamics in the political system, the influence of neoliberalism broadly considered, and the specificities of political and ideological struggles that have shaped the rise of finance-dominated accumulation, all deserve far more attention than they receive in this text. The analysis seems at times to move uneasily between detailed empirical description of crisis symptoms and dynamics, a general middle range theory of debt, liquidity, and financial asset price formation, and a potentially class-reductionist account of the social forces behind the rise of financialized capitalism.

Paradoxically this makes this book an excellent and cathartic text for teaching and activism but leaves much unfinished business for those who want to relate this analysis to broader questions of international political economy and political strategies that look beyond the labour and green movements.

References

Rasmus J (1977) The Political Economy of Wage-Price Controls in the U.S., 1971–74. Ph.D. thesis, University of Toronto.
Rasmus J (2006) The War At Home: The Corporate Offensive from Ronald Reagan to George W. Bush. San Ramon, CA: Kyklos Productions.
Rasmus J (2010) Epic Recession: Prelude to Global Depression. London: Pluto.
Rasmus J (2012) Obama’s Economy: An Alternative Program for Economic Recovery. London: Pluto.
Rasmus J (2016) Looting Greece: a New Financial Imperialism Emerges. Atlanta, GA: Clarity Press.

Author biography
Bob Jessop is Distinguished Professor in the Department of Sociology, Lancaster University

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Advanced economies are in a rut of slow growth, the new normal (El-Erian), or is it the end of normal (Galbraith 2014)? Growth was slim before the 2008 crisis and recovery after crisis has been sluggish as well, with growth around 2% in the US (2.2% in 2017, according to IMF estimates), 0.6% in the EU (2016), 0.7% in Japan (2016). An ordinary period headline is, ‘U.S. in weakest recovery since ‘49’ (Morath 2016).

Emerging economies and developing countries (EMDC) face a ‘middle-income trap’ and‘premature deindustrialization’; energy exporters see oil prices collapse from above $100 per barrel to below $50 (2014) and advanced economies are in a ‘stagnation trap’.

Explanations of the conundrum are perplexingly meager. Many accounts are merely descriptive, such as secular stagnation (Summers 2013)—noted, but why? Or, uncertainty—which is odd because policies haven’t changed for years. Or, corporate hoarding—corporations, particularly in the US, are sitting on mounds of cash, buy back their own stock, buy other companies and reshuffle, but are not investing—noted, but why? Or, a general account is that advanced economies are on a technological plateau, broadly since the 1970s (Cowen 2011,Gordon 2016). With the rise of the knowledge economy and the digital economy (along with the gig economy as in Uber, Airbnb and freelance telework), contributions of Silicon Valley (Apple, Google, etc.), innovations in pharma and military industries, also in emerging economies,innovations abound. However, as Martin Wolf (2016) notes, ‘today’s innovations are narrower in effect than those of the past’. Besides, the shift to services in postindustrial societies means a shift toward sectors (such as healthcare, education, personal care) where it is hard to raise
productivity.

If we consider policies, the picture gets worse because a) implemented year after year,they clearly don’t work, b) indications are they make things worse.

Fiscal policy is generally ruled out because of fear of deficits. The policy instrument that remains is monetary—low interest rates and quantitative easing (QE), implemented in the US, UK, EU and Japan. Other standard policies are, in the EU, austerity—which may cut deficits but obviously doesn’t generate growth (and by depressing tax revenues over time worsens deficits)—and structural reform. Besides privatization, the major component of reform is labor market flexibilization, in other words depressing wages and incomes. This has been implemented in the US since the 1970s and 80s, in the UK in the 90s, in Germany in the 00s, and is now on the scaffolds in Japan and France (and possibly Spain and Italy). The objective is to boost international competitiveness by depressing wages and benefits, which a) ceases to have effect when every country is doing the same, b) assumes the key problem is cheap supply, whereas supply is actually abundant and what is lacking is demand, c) by depressing wage incomes it further reduces domestic demand. No wonder these policies make matters worse.

Thus, explanations of slow growth fall short and policies have been counterproductive.This is where Jack Rasmus’s book comes in. It offers the most pertinent analysis of the stagnation trap I have seen. There are many steps to the analysis but it boils down to his Theory of Systemic Fragility. I review the main points of his approach, for brevity’s sake in bullet form.

o Taking finance seriously, not just as an intermediary between stations of the ‘real economy’ (as in most mainstream economics) but with feedback loops and transmission mechanisms that affect the real economy of goods directly and indirectly
.
o A three-price analysis—beyond the single price of neoclassical economics (the price of goods), the two-price theory of Keynes and Minsky (goods prices and capital assets prices), Rasmus adds financial assets and securities prices (408).

o The long-term, secular slowdown of investment in the real economy (chapter 7) and the shift to investment in financial assets (chapter 11). This has been occurring because financial asset prices rise faster than the prices of goods; their production cost is lower; their supply can be increased at will; the markets are highly liquid so entry and exit are rapid; new institutional and agent structures are available; financial securities are taxed lower than goods; in sum, they yield easier and higher profits. Financial asset investment has been on the increase for decades, has expanded rapidly since 2000 and ‘from less than $100 trillion in 2007 to more than $200 in just the past 8 years’ (212).

o In government policy there has been a shift from fiscal policy to monetary policy. ‘Central banks in the advanced economies have kept interest rates at near zero for more than five years, providing tens of trillions of dollars to traditional banks almost cost free’

Low interest rates and zero interest rate policies (ZIRP) benefit governments (it lowers their debt and interest payments) and banks (affords easy money) while they lower household income (lower return on savings and lower value of pensions), so in effect households subsidize banks (471).

o Quantitative easing (QE) policies, massive injections of money capital by the US ($4tr), UK ($1tr), EU ($1.4tr) and Japan ($1.7tr) since 2008, or ‘about $9 trillion in just five years’ (185, 262). Add China ($1-4tr) and add government bank bailouts over time and, according to Rasmus, the total global liquidity injected by states and central banks is in the order of $25 trillion (263). The injections of liquidity into the system allegedly aim to stimulate investment in the real economy (by raising stock and bond prices), which raises several problems:

a Investment in the real economy isn’t determined by liquidity but by expectations of profit.
b Funds that are invested in the goods economy leak overseas via MNCs investing in EMDC, where returns are higher (and more volatile).
c Most additional liquidity goes into financial assets, boosting commodities, stocks and real estate, and leading to price bubbles (177). ‘The sea of liquid capital awash in the global economy sloshes around from one highly liquid financial market to another, driving up asset prices as a tsunami of investor demand rushes in, taking profit as the price surge is about to ebb, leaving a field of economic destruction of the real economy in its wake’ (473).

The post-crisis attempts at bank regulation overlook the shadow banks, even though the 2007-2008 crisis originated in the shadow banks rather than the banks. (Shadow banks include hedge funds, private equity firms, investment banks, broker-dealers, pension funds, insurance companies, mortgage companies, venture capitalists, mutual funds, sovereign wealth funds, peer-to-peer lending groups, the financial departments of corporations, etc.; a typology is on 224.) The integration of commercial and shadow banks is another variable. Shadow banks control in the order of $100 trillion in liquid or near liquid investible assets (2016, p. 446).

Add up these trends and policies and they contribute to several forms of fragility, which is the culmination of Rasmus’s argument. Rasmus distinguishes fundamental, enabling and precipitating trends that contribute to fragility (457).

The explosion of excess liquidity goes back to the 1970s and has taken many forms since then. QE policies amplify this liquidity and have led to financial sector fragility, which has been passed on to government balance sheet fragility (via bank bailouts, low interest rates, and QE), which have been passed on household debt and fragility (via austerity policies). ‘Austerity tax policy amounts to a transfer of debt/income and fragility from banks and nonbanks to households and consumers, through the medium of government’ (472). This in turn leads to growing overall system fragility.

While Rasmus aims to provide a theory of system fragility, in the process his analysis gives an incisive account of the stagnation trap. Many elements aren’t new. Note work on austerity (Blyth 2013) and finance (Goetzmann 2016) and note, for instance: ‘The world has turned into Japan,’ according to the head of a Hong Kong-based hedge fund. ‘When rates are this low, returns are low. There is too much money and too few opportunities’ (Sender 2016).

However, by providing an organized and systemic focus on finance and liquidity, Rasmus makes clear that the policies that aim to remedy stagnation (low interest rates, QE, competitive devaluation, bank bailouts) and provide stability are destabilizing, act as a break on growth and aggravate the problem. According to Karl Kraus, psychoanalysis is a symptom of the disease that it claims to be the remedy of, and the same principle holds for the central bank policies of financial crisis management.

This doesn’t mean the usual arguments for stimulating growth (spend on infrastructure, green innovation, etc.) are wrong, but they look in the wrong direction. For one thing, the money isn’t there. Courtesy of central banks, the money has gone by billions and trillions to banks, shadow banks and thus to financial elites and the 1%. Surprise at corporations not investing is also beside the point when government policies at the same time are undercutting household income and consumer demand, reproducing an environment of low expectations.

Criticism of QE has been mounting, even in bank circles (‘it’s the real economy, stupid’). Yet the role of finance remains generally underestimated. Rasmus’s analysis of central bank policies overlaps with that of El-Erian (2016), but his critique of economics is more fundamental and his theory of fragility and its policy implications are more radical. A turnaround would require fundamentally different policies and, in turn, different economic analytics.

Let me note some reservations about Rasmus’s approach. One concerns the unit of analysis—the global economy. His analysis overlooks or underestimates the extent to which East Asian countries stand apart from general financial fragility. They have been less dependent on western finance than Latin America and Africa and having learned from the Asian crisis of 1997, they have built buffer funds against financial turbulence and tend to ring-fence their economies from Wall Street operations. But, of course, this remains work in progress. Second, Rasmus adds China’s stimulus spending to the liquidity injections of western central banks. However, the bulk of China’s stimulus funding has been invested in the real economy of infrastructure, productive assets and urbanization, which has led to over-investment, but which has next led to major initiatives of externalizing investment-led growth in new Silk Road projects in Asia and beyond (One Belt One Road, Maritime Silk Road, Asian Infrastructure Investment Bank, Silk Road Fund, etc.). Meanwhile, Rasmus has made a signal contribution to contemporary economics and provided a vitally important X-ray of the political economy of stagnation.

Jan Nederveen Pieterse, University of California Santa Barbara

References

Blyth, Mark 2013 Austerity: the history of a dangerous idea. New York, Oxford University Press
Cowen, Tyler 2011 The Great Stagnation. New York, Dutton
El-Erian, Mohamed A. 2016 The only game in town: central banks, instability, and avoiding the next collapse. New York, Random House
Galbraith, James K. 2012 The end of normal. New York, Simon and Schuster
Goetzmann, William N. 2016 Money changes everything. Princeton University Press
Gordon, Robert J. 2016 The rise and fall of American growth. Princeton University Press
Morath, E., U.S. in weakest recovery since ’49, Wall Street Journal 7/30-31/2016: A1-2
Rodrik, Dani 2015 Premature Deindustrialization, NBER Working Paper No. 20935, http://www.nber.org/papers/w20935.pdf
Sender, H., Short-term relief for hedge funds belies tough search for yield, Financial Times 7/12/16: 22
Summers, Lawrence, Why stagnation might prove to be the new normal, Financial Times 12/15/2
Wolf, Martin, An end to facile optimism about the future, Financial Times 7/13/2016: 9.

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Japan as worst-case example of failure of central banks monetary policies. Why central banks’ policies are collapsing worldwide. To listen to my August 12, 2016 radio show at:

http://prn.fm/category/archives/alternative-visions/

or go to:

http://www.alternativevisions.podbean.com

SHOW ANNOUNCEMENT

Jack reviews the current condition of Japan’s economy, after 8 years of virtual perpetual recession despite record QE central bank injections, negative interest rates, and talk of helicopter money. The Central Bank of Japan as harbinger of global capitalist central banks policy direction and innovation. How central banks-bank of japan free money policies are not only no longer working, but are now having contrary negative effects on the global economy. Japan’s history of monetary policy first, plus austerity, since 1991 has doomed it to perpetual recessions—8 since 1991 and 5 since 2008. Japan as innovator of QE and negative rate policies. The results in creating trillions of non-performing bank loans (NPLs) and more than $13 trillion in negative bond rates since 2014 are reviewed. Growing NPLs and negative rates as indicators of failing capitalist monetary policies as investment slows, productivity declines, wages stagnate and real consumption falters worldwide. Why global economies are about to shift in 2017 to more fiscal infrastructure spending—but will do so ‘too little and too late’ to prevent recessions in 2017.

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Listen to my radio show of August 5 on growing criticism of central bank QE policies and their contribution to financial instability, the coming shift to fiscal stimulus in 2017, and debates about ‘helicopter money’.

To listen to the show go to:

http://prn.fm/category/archives/alternative-visions/

or go to:

http://www.alternativevisions.podbean.com

SHOW ANNOUNCEMENT:

Alternative Visions – Why QE Policy is ‘Dead and Dying’ and ‘Helicopter Money’ Is An Alternative -Aug 5th, 2016 by progressiveradionetwork

“Jack Rasmus explains why all economic indicators for the US economy are ‘flashing red’ except for consumer spending, driven mostly by surging household debt again in credit cards, mortgages, auto loans and student loans. Meanwhile, 7 1/2 years of continued low interest rates created by the Federal Reserve (and other central banks) are creating a crisis in pensions, insurance, and sectors of banking. Jack explains why global central banks continue the massive free money injections for investors and why it is now destabilizing the global economy. The UK central bank’s just announced new QE2 program is described and critiqued, as the European Central Bank continues to expand its QE, and the Bank of Japan does the same. Why Global capitalists are beginning to rethink the reliance on free money via QEs and reconsider some form of fiscal stimulus, which Jack predicts is coming in 2017 as interest rates rise. What form will the new fiscal stimulus take? One discussed is ‘helicopter money’—i.e. QE for Main St. Jack concludes with explaining helicopter money and his recent proposal to US Green party presidential candidate, Jill Stein, to use it to expunge most of the US $1.3 trillion student debt. “

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Growing problems in Europe banks, especially Italy, with $2 trillion and $400 billion in non-performing loans, respectively, is about to worsen as Brexit effects slowly take hold. Europe’s recent phony bank ‘stress tests’, underestimate the problem, but still show not only Italian banks, but UK (Barclays, RBS), France (SocGen), Ireland (Allied Irish), and even German (Deutsche, Commerz) all in increasing trouble. Stress tests are designed not to show full problem (Portugal, Greek and Cyprus banks are excluded, as just one example) so the problem is even worse than reported.

Listen to my radio show, Alternative Visions, of July 29 and discussion of the Euro banking crisis emerging. The show also includes my preview of the US recession coming in 2017 and comments assessing the Trump and Clinton convention speeches. (Trump’s focus on lack of wage and income growth hits voters’ concerns more than Hillary-Obama’s claim of 12 million mostly low paid, part-time, temp jobs created since 2010).

TO listen to the show go to:

http://www.alternativevisions.podbean.com

SHOW ANNOUNCEMENT:

Jack Rasmus looks at the growing crisis in Italy’s banking system, with its $400 billion in non-performing loans, and the Eurozone’s policy of driving interest rates into negative territory despite more than $2 trillion in Euro-wide NPLs. How global central bank monetary policies of more and more QE, negative interest rates, and now talk of ‘helicopter money’ to follow are wrecking the global capitalist financial system. Bank earnings, pension funds, insurance companies, junk bond markets are all flashing ‘red’ in the wake of central bank zero and negative interest rates. Meanwhile oil prices have begun a new ‘leg down’ in price. China continues to struggle with its ‘rotating financial bubbles’ in stocks, wealth management and property markets. And Italian-Europe banks grow increasingly fragile. Given this scenario, Jack predicts a coming inverting of policy in 2017, as the US economy slips into recession, the UK and Italian banks pull Europe into recession, and Japan continues its contraction. Interest rates will be raised by central banks to prevent a financial crisis. That means a further slowing in the real economy—requiring fiscal austerity policies to give way to fiscal stimulus to offset the effect of interest rate rises by the Fed and other central banks.

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It is now clear that Trump is adopting a strategy similar to Richard Nixon in 1968, focusing on ‘law and order’ first, with the message that the causes of current US economic discontent are a consequence of breakdown of law and order. Trump, like Nixon before, by linking the two issues of ‘law and order’ and ‘economic discontent’ (and in turn linking the breakdown of law and order with immigration as its cause) is telling disaffected American voters that law and order is a solution to their economic fears and concerns. ‘Law and Order’ and ‘Anti-Immigration’ are themes designed to deflect voter attention from the real causes of the continuing collapse of US living standards for tens of millions–for which Trump in his speech has made no real proposals.

For more on Trump’s ‘Law and Order’ and ‘Bash the Immigrants’ in lieu of policies and proposals to do something about US economic conditions, listen to my July 22 Alternative Visions radio show commentary, and why Trump has a better chance of winning the November election than mainstream pundits and press think.

Trump is unlike all the other candidates, Republican and Democrat alike, in the current election cycle. Nor is he like Reagan. Like Nixon, he is another high risk taker and ‘roll the dice’ wheeler-dealer who will risk all the get elected. And if elected, will engage in high risk adventures that will destabilize a global capitalist system already growing increasingly weak and unstable.

For more on this analysis….

Go To:

http://prn.fm/category/archives/alternative-visions/

Or to:

http://www.alternativevisions.podbean.com

SHOW ANNOUNCEMENT:

Jack examines in detail Trump’s acceptance speech and its non-traditional Republican themes criticizing Free Trade, US national debt, NAFTA, China, offshoring, taxes, military spending-NATO, and related topics. Trade issues are paramount but represent pandering to working class discontent over the loss of jobs, wage income decline, and chronic US economic insecurity since 2000. Trump’s specific proposals for trade are dissected, including his claims to ‘tear up’ NAFTA, impose 35%-45% tariffs on Mexico and China, stop China currency manipulation, offshoring, anti-immigration wall, etc.—all of which represent pandering to working class discontent. Trumponomics = ‘Law and Order First’ economic recovery plan. How Trump is cleverly targeting disaffected working class voters in key swing states of Pennsylvania, Ohio, Michigan, Wisconsin, Virginia, North Carolina, and Florida as key to an electoral victory in November. Jack predicts the election outcome will depend on who, Trump or Clinton, is able to turn in those states the white working class, un- and under-employed 20-something youth, Hispanic, and independents voting blocs in those key states. Who has the bigger base, and who (Trump or Hillary) can turn out more of that base in these key states will determine the outcome. Trump has the advantage currently in turnout, Jack concludes as Hispanics and disaffected youth may sit home during the election. Trump could win. Much will depend on the TV debates.

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With the Republican and Democrat party conventions in progress or upcoming, it has now become clear that the 2016 USA presidential election is unlike preceding elections in recent decades. Large percentages of those who consider themselves members of either party do not approve of their presidential candidates, for one thing. That includes more than a third of both Republican and Democrat voters. For another, both candidates have assumed positions on issues that in previous elections would have been considered anathema to the dominant ruling economic and political elites. For example, both candidates have been highly critical of US trade and free trade policies—especially Trump.

Trump’s more vehement criticism of US trade policies in particular has US elites concerned, to put it lightly. Almost hysterical might more accurately express their emotional state when the subject of Trump and trade is raised.

US Elites Nervous About Trump & Trade

For example, the president of the biggest and most influential US business lobbying group, the Business Roundtable’s John Engler, a former governor of Michigan, in a recent interview stated “There’s a great sense of frustration here”. Trump’s views on trade are ”diametrically opposite” and a “cause for great concern” to the Roundtable, whose corporate members collectively represent more than $7 trillion in annual revenues and employ 16 million workers. “Everything has been upended”, according to Engler.

Chicago billionaire, Penny Pritzker, current US Commerce Secretary, has voiced similar concerns, as has Obama—i.e. Pritzker’s protégé since his early days in the Illinois state legislature. While Obama the candidate in 2008 promised to rewrite the NAFTA free trade treaty if elected, as soon as he was elected he morphed into the biggest presidential advocate of free trade in US history—thus coming around to the view of Pritzker’s Chicago corporate clan of free traders. Most politically well-connected economists, and media mouthpieces in and out of academia—like Paul Krugman, Thomas Friedman, and a host of others—all defend free trade and therefore have joined the growing army of pundits attacking Trump’s positions on the subject. Christine Lagarde, director of the Washington-based and US dominated International Monetary Fund, IMF, has chimed in recently as well, labeling Trump’s trade proposals “disastrous” for the world economy. The presidents of the NAFTA economies—the USA, Canada, and Mexico—recently met in their ‘three amigos’ NAFTA summit in Ottawa, Canada recently and jointly reaffirmed their elites’ view of the benefits of free trade, and the dangers of ‘Trump-like’ trade protectionism.

According to the academic theory of free trade all countries involved benefit from trade. But do they? Free trade theory says nothing of how the benefits get distributed and to whom—i.e. to corporations, investors, and shareholders or to wage earners. If corporations and investors benefit on both ends of the trade exchange, the same is not necessarily so their respective working classes. Free trade theory conveniently ignores income distribution effects. However, that doesn’t deter mainstream economists treating it like a ‘holy grail’ of neoliberal economics nonetheless.

Trade and Working Class Incomes

The record of US free trade policies for working and middle class America reveals devastation, not benefit. For example, total US employment since NAFTA and China trade the past two decades has witnessed a loss of more than 6 million US manufacturing jobs. Perhaps as many as two thirds of which have been due to free trade alone, according to studies. Additional millions of jobs have been lost in communications, professional services, and other non-manufacturing industries. For the jobs that remain, moreover, wages in US companies that export more have risen less than wages have fallen in companies harmed by the rise in imports. The net result is that both jobs and wages—and therefore median working class incomes—are both negative. And that’s due to direct export-import effects. There’s more.

Free trade is also about money and investment flows, as well as goods and services net export-import flows. Read the provisions of NAFTA. It’s as much about terms and conditions for US corporations ease of US money investing into Mexico as about goods and services. With free trade enabled money and investment outflows from the US have come US investment offshoring and consequent US job offshoring. Job offshoring is thus an indirect, and no less significant, consequence of free trade. In the past 15 years, US households’ median wages and incomes have declined by more than 10%–much of that due to the above free trade direct and indirect job and wage effects.

In the past two decades, and especially since 2009, US workers have become more informed and conscious of the negative impact of trade on their jobs, incomes, and living standards. They see the wealthiest 1% of household take 95% of all the net income gains since 2010, while their wages and incomes decline. They see high paying manufacturing jobs disappear to other countries, while more than half of the jobs that have been created in the US since 2010 have been low paying, part time, temp jobs averaging less than $36k a year. And they sense even less opportunity for their children. Recent reports project that more than 90% of new jobs created in the next decade will earn about the same $36k a year. Due to all this, they are, legitimately, pissed off.

Trump has identified and played to this discontent. That Trump is popular and leading in polls in states with a high concentration of white, middle age and up, male, non-college educated working class voters is not surprising, given his aggressive criticism of US trade policies and their devastating effects. Trump has embraced the trade issue in no uncertain terms, and his attack on US trade policies have resonated deeply with this working class segment—i.e. a voting bloc in key swing states and a group that cares little what Trump says on other non-economic issues, however outrageous, whether on race, ethnic, gender, foreign policy, or other subjects. Trump speaks to their ‘rage’ at being ignored by US political and economic elites now for decades, and especially since the 2008-09 recession, the recovery from which has mostly passed them by, as well as to their fears for future prospects for their children. The more that US economic elites, in whichever party, attack Trump the more this working class bloc is convinced he, Trump, must be for real because they’re attacking him.

Donald Trump: Populist or Panderer

The important question, however, is whether Trump is honestly serious about changing US free trade policies, or whether he is just cleverly pandering to the discontent of this bloc of working class voters. He has called for ‘tearing up’ the NAFTA treaty; imposing tariffs on imports from China and Mexico of 45% and 35% respectively; stopping China from manipulating its currency; and building a fence to stop immigration flows from central and Latin America.

But he won’t say what he means by ‘tearing up’, which therefore appears more a rhetorical appeal than a proposal. If he means it literally, treaties cannot be ‘torn up’ by Presidents in the US system. That’s potentially grounds for impeachment. Nor has any president legal authority to unilaterally raise tariffs, except temporarily for 150 days and no more than 15%, after which Congressional legislation is required, according to the 1974 trade act. Nor is Trump correct that China is a currency manipulator, since for more than a decade now China has pegged its currency, the Yuan to the dollar in a narrow trading band. Its Yuan has risen and fallen in synch with the US dollar. If any countries are currency manipulators, they are Japan and the Eurozone—both having made their currencies more competitive by 20%-30% to the dollar by monetary means in recent years in order to gain exports at US expense. But one hears nothing from Trump (or US elites) complaining about Japan or Europe currency manipulation. And Trump has said nothing about changing US tax policies that subsidize US multinational corporations offshore investing and therefore promote job offshoring. And he conveniently ignores the impact of hundreds thousands of high paying tech jobs being given every year to tech workers imported to the US on H1-B and L-1 visas, most of whom come from Asia and not Latin America. Asian tech workers take high paying jobs Americans want; Latin American immigrants mostly assume ultra-low pay service jobs that US workers generally don’t want. Does Trump maybe want to build a wall along California beaches and pacific coastline as well?

Certainly Trump and his advisers know all this. One can only conclude, therefore, that Trump is not really serious about attacking free trade. He is pandering to those with a legitimate and serious real concern who have been deeply harmed by US trade policies. Trump is in that great US presidential candidate tradition, promising voters what they want to hear and then, if elected, doing whatever the economic elites want them to do. US presidential candidates, of either wing—Republican and Democrat—of the Corporate Party of America, are habitual liars and cannot be trusted. We had our pseudo-populist from the ‘left’, Barack Obama, elected eight years ago promising to reform free trade treaties. And he became the biggest free trade advocate in US economic history. In Trump, we have our Obama analog, a pseudo-populist this time from the ‘right’, promising the same. And who then will do the same. To paraphrase an ancient saying, US voters now considering voting for Trump based on his anti-trade views would do well to ‘Beware of Billionaires Bearing Gifts’.

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To listen to my Alternative Visions July 15 radio show on the above topic,

go to:

http://prn.fm/category/archives/alternative-visions/

or go to:

http://www.alternativevisions.podbean.com

SHOW ANNOUNCEMENT:

A centerpiece of Trump’s campaign, that is gaining support for him among white working class voters in key swing states like Pennsylvania and Ohio, is his attack on free trade treaties from NAFTA to TPP. Today’s show examines the conditions behind the current stagnation of global trade the past 18 months, growing wage stagnation and income inequality in the US, and increasing US voters’ associating of their loss of quality jobs and declining wages with free trade. Dr. Rasmus briefly reviews policies in China, Japan, Europe, and the slowing of world trade. How US economic elites—from the Business Roundtable and others— are becoming terrified of Trump’s successful manipulation of voter discontent with free trade. The elements of Trump’s position on trade are discussed, including ‘tearing up’ treaties, imposing tariffs on Mexico and China, charges of China as currency manipulator, tax policy incentives encouraging job offshoring, and US visa policies. Jack critiques Trump’s positions and concludes that Trump—like Obama before and Hillary now—is simply pandering to the discontent and will reverse his promises on trade if elected. Pandering to the trade issue, however, may just provide Trump enough votes to win key states’ electoral majorities.

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In conjunction with the Peninsula Peace and Justice group’s community TV project, Dr. Jack Rasmus is now presenting 10 minute Youtube interviews on topics of contemporary global economic and political importance. Below are the first three interviews in the series–on Greece’s debt crises, France workers protests against labor market reforms, and the economic origins of the recent UK ‘Brexit’ vote.

To access the Youtube presentation on Greece, go to the following:

To access the Youtube presentation on France Labor Protests against labor reforms, go to the following:

To access the Youtube presentation on the UK ‘Brexit’ referendum vote, go to the following:

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