Reports from the Economic Front

a blog by Marty Hart-Landsberg

Too Many Whites Are In Denial About The Extent Of Race-Based Economic Inequality

A recently published paper by three Yale scholars reveals “that Americans, on average, systematically overestimate the extent to which society has progressed toward racial economic equality, driven largely by overestimates of current racial equality.”

The authors based their conclusion on the results of three different studies.  Participants in all three studies were asked to estimate differences between average Black and White Americans in five areas at a point in time in the past and the present.  The areas and time points were:

(i) employer provided health care benefits in 1979/2010; (ii) hourly wages of college graduates in 1973/2015; (iii) hourly wages of high school graduates in 1973/2015; (iv) annual income in 1947/2013; and (v), accumulated wealth in 1983/2010. Participants considered an average White individual or family earning $100 US and were asked to estimate how much an average Black individual or family would earn using a scale that ranged from $0–$200 US. For the health care item, the question was framed in terms of families with health coverage, and participants indicated how many Black families would be covered if 100 similarly employed White families had coverage. Participants were reminded that an answer of 100 meant equality between Whites and Blacks.

Two of the three studies included a sample of White and Black participants drawn from the top (over $100,000 yearly income) and bottom (below $40,001) of the income distribution.  The third study included just White participants, also drawn from the two ends of the income distribution.

The following figure, taken from a New York Times review of the study’s results, shows the views of participants about current racial differences for four of the five survey areas.

As noted above, participants were asked how much they thought an average Black family or individual held in wealth or earned in income or received in wages, if the average White family or individual had $100 in wealth or received $100 in income or in wages.  Their estimates are shown in grey while the reality is shown in red.  As we can see, the general perception is that discrimination exists, but is relatively small.  As we can also see, the reality, especially with regards to wealth and income, is far worse.

Because the authors asked participants to do this thought experiment for a period in the past as well as in the present, they were also able to draw some conclusions about people’s sense of progress in fighting discrimination.  Their results:

confirmed our hypothesis that Americans, on average, misperceive the extent to which society has made progress toward racial economic equality . . . Indeed, participants overestimated racial economic progress by more than 20 points across all studies and all domains of progress.

They also found, again in line with another of their hypotheses, that high-income White participants were more likely to overestimate racial equality than were low-income White participants or Black participants of either income group.  More specifically, high-income White participants overestimated past as well as current racial equality relative to the other three groups.  In fact, “high-income White participants were actually the only subgroup to overestimate the extent of racial equality in the past.”

The New York Times article concludes:

Why would people get these questions so wrong — and consistently in the direction of too much optimism? (This study was also conducted after the 2016 election.) Blacks overestimated equality, too, but the biggest effects were among wealthy whites.

The researchers suspect that the answer in part has to do with how little exposure Americans have to people who are unlike them. Given how economically and racially segregated the country remains, many Americans, and especially wealthy whites, have little direct knowledge of what life looks like for families in other demographic groups.

We’re inclined, as well, to believe that society is fairer than it really is. The reality that it’s not — that even college-educated black workers earn about 20 percent less than college-educated white ones, for example — is uncomfortable for both blacks who’ve been harmed by that unfairness and whites who’ve benefited from it. . . .

The researchers found in some additional surveys that whites answer these questions more accurately when they’re first asked to consider an America where discrimination persists. If we want people to have a better understanding of racial inequality, this implies that the solution isn’t simply to parrot these statistics more widely. It’s to get Americans thinking more about the forces that underlie them, like continued discrimination in hiring, or disparities in mortgage lending.

Sadly, as this paper makes clear, too many people continue to believe the myth of American social progress.  It is a myth that needs to be challenged if we hope to build a powerful working class-based movement for social change.  This means we must continue to work to paint an accurate picture of the reality of racial discrimination and its terrible social consequences for Blacks and other people of color.  But, as noted above, we will greatly increase the effectiveness of this effort if we also help White workers understand the underlying class-driven economic dynamics that encourage racial divisions and, even more importantly, in whose interests they work.

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Class, Race, and US Wealth Inequality

People tend to have a distorted picture of US capitalism’s operation, believing that the great majority of Americans are doing well, benefiting from the system’s long-term growth and profit generation.  Unfortunately, this is not true.  Median wealth has been declining, leaving growing numbers of working people increasingly vulnerable to the ups and downs of economic activity and poorly positioned to enjoy a secure retirement.  Moreover, this general trend masks a profound racial wealth divide, with people of color disproportionally suffering from a loss of wealth and insecurity.

A distorted picture of wealth inequality

In a 2011 article, based on 2005 national survey data, Michael I. Norton and Dan Ariely demonstrate how little Americans know about the extent of wealth inequality.  The figure below (labeled Fig. 2) shows the actual distribution of wealth in that year compared to what survey respondents thought it was, as well as their ideal wealth distribution.  As the authors explain:

respondents vastly underestimated the actual level of wealth inequality in the United States, believing that the wealthiest quintile held about 59% of the wealth when the actual number is closer to 84%. More interesting, respondents constructed ideal wealth distributions that were far more equitable than even their erroneously low estimates of the actual distribution, reporting a desire for the top quintile to own just 32% of the wealth. These desires for more equal distributions of wealth took the form of moving money from the top quintile to the bottom three quintiles, while leaving the second quintile unchanged, evincing a greater concern for the less fortunate than the more fortunate.

The next figure reveals that respondents tended to have remarkably similar perceptions of wealth distribution regardless of their income, political affiliation, or gender.  Moreover, all the groups embraced remarkably similar ideal distributions that were far more egalitarian than their estimated ones.

Capitalist wealth dynamics

Wealth inequality has only grown worse since 2005.  As I previously posted, in 2016, the top 10 percent of the population owned 77.1 percent of the nation’s wealth, while the bottom 10 percent owned -0.5 percent (they are net debtors).  Even these numbers understate the degree of wealth concentration: the top 1 percent actually owned 38.5 percent of the wealth, more than the bottom 90 percent combined. This was a sharp rise from the 29.9 percent share they held in 1989.

Perhaps more importantly, median household wealth is not only quite small–not nearly enough to provide financial stability and security–but is actually growing smaller over time.  In fact, median household wealth in 2016 was 8 percent below what it had been in 1998.

 

The racial wealth divide

Of course, not all families receive equal treatment or are given similar opportunities for advancement.  While US capitalism works to transfer wealth upwards to the very rich, it has disproportionately exploited families of color.  This is made clear by the results of a 2017 study titled The Road to Zero Wealth by Dedrick Asante-Muhammad, Chuck Collins, Josh Hoxie, and Emanuel Nieves.

As we saw above, median household wealth has been on the decline since 2007, despite the growth in overall economic activity and corporate profits.  The figure below shows median wealth trends for White, Black, and Latino households.

As of 2013, median White household wealth was less than it had been in 1989. However, the wealth decline has been far worse for Black and Latino families.  More specifically, as the authors write:

Since 1983, the respective wealth of Black and Latino families has plunged from $6,800 and $4,000 in 1983 to $1,700 and $2,000 in 2013. These figures exclude durable goods like automobiles and electronics, as these items depreciate quickly in value and do not hold the same liquidity, stability or appreciation of other financial assets like a savings account, a treasury bond or a home.

Education is supposed to be the great equalizer, with higher levels of education translating into more income, and then wealth.  But as we see in the figure below, the combination of class policies on top of a history of discrimination and exclusion has left families of color at a significant disadvantage. For example, the median wealth of a family of color with a head of household with 4 year degree is far less than the median wealth of a White family with a head of household with only a high school diploma/GED.

The authors have created their own measure of “middle class wealth,” which they define:

using median White household wealth since it encompasses the full potential of the nation’s wealth-building policies, which have historically excluded households of color. More specifically, we use median White wealth in 1983 ($102,200 in 2013 dollars) as the basis for developing an index that would encompass “middle-class wealth” because it establishes a baseline prior to when increases in wealth were concentrated in a small number of households. Using this approach and applying Pew Research Center’s broad definition of the middle class, this study defines “middle class wealth” as ranging from $68,000 to $204,000.

As we can see in the figure above, only Black and Latino households with an advanced degree make it into that range. Moreover, trends suggest that, without major changes in policy, we can expect further declines in median wealth for households of color.  In fact,

By 2020, if current trends continue as they have been, Black and Latino households at the median are on track to see their wealth decline by 17% and 12% from where they respectively stood in 2013. By then, median White households would see their wealth rise by an additional three percent over today’s levels. In other words, at a time when it’s projected that children of color will make up most of the children in the country, median White households are on track to own 86 and 68 times more wealth, respectively, than Black and Latino households. . . .

Looking beyond 2043, the situation for households of color looks even worse. . . .If unattended, trends at the median suggest Black household wealth will hit zero by 2053. In that same period, median White household wealth is expected to climb to $137,000. The situation isn’t much brighter for Latino households, whose median wealth is expected to reach zero by 2073, just two decades after Black wealth is projected to hit zero. . . . Wealth is an intergenerational asset—its benefits passed down from one generation to the next— and the consequences of these losses will reverberate deeply in the lives of the children and grandchildren of today’s people of color.

Of course, knowledge of the fact that capitalism’s growth largely benefits capitalists, and that people of color pay some of the greatest costs to sustain its forward motion, does not automatically lead to class solidarity and popular opposition to existing accumulation dynamics.  Still, such knowledge does, at a minimum, help people understand that the forces pressing down on them are not the result of individual failure or lack of effort, but rather have systemic roots.  And that is an important step in the right direction.

Taxes, Inequality, And Class Power

No doubt about it, the recently passed tax bill is terrible for working people.  But as Lance Taylor states in a blog post titled “Why Stopping Tax ‘Reform’ Won’t Stop Inequality”: “Inequality isn’t driven by taxes—its driven by the power of capital in relation to workers.”  Said differently we need to concentrate our efforts on shifting the balance of class power.  And that means, among other things, putting more of our energy into workplace organizing and revitalizing the trade union movement.

The rich really are different

Taylor uses the Palma ratio to highlight the growth of income inequality.  The measure, proposed by the Cambridge University economist Jose Gabriel Palma, is defined as the ratio of the average income of a wealthy group relative to the average income of a poorer group.  Taylor calculates Palma ratios “for the top one percent vs. households between the 61st and 99th percentiles of the size distribution (the ‘middle class’) and the sixty percent at the bottom.”

The first figure looks at Palma ratios for pre-tax income.  The second figure uses disposable or after-tax income.

In both figures we see growing ratios, which means that the top 1 percent is increasing its income faster than the other two groups, although the gains are not quite as large in the case of after-tax income, suggesting that taxes and transfers do make a small but real difference.

Be that as it may, the ratio of the top group’s after-tax income relative to Taylor’s middle group grew 3.85 percent per year over the period 1986 to 2014, while the ratio with the bottom group grew 3.54 percent a year.  As Taylor comments, “Such rising inequality is unprecedented. These rates are a full percentage point higher than output growth, and are not sustainable in the long run.”

What is also noteworthy is that the Palma growth rates for both the middle and bottom groups are quite close.  This is important because it shows that inequality is largely driven by the top earners pulling income from the rest of the population, rather than a widening income gap between Taylor’s middle and bottom groups.

An IMF study of the relationship between income inequality and labor market institutions in twenty developed capitalist countries over the period 1980 to 2011 came to a similar conclusion, although it focused on the top 10 percent rather than the top 1 percent. As Florence Jaumotte and Carolina Osorio Buitro, the authors of the study, explain (and illustrate in the figure below):

As with measures of income inequality, changes in the distribution of earnings indicate that inequality has risen owing largely to a concentration of earnings at the top of the distribution. Gross earnings differentials between the 9th and 5th deciles of the distribution have increased over four times as much as the differential between the 5th and 1st deciles. Moreover, data from the Luxembourg Income Survey on net income shares indicate that income shares of the top 10 percent earners have increased at the expense of all other income groups. While there is some country heterogeneity, the increase in top income shares since the 1980s appears to be a pervasive phenomenon.  

Class power counts

As we can see in the first figure above, rich households, with a mean income of greater than $2 million a year, have “40 times the income of the bottom 60 percent and 13.5 times payments going to the middle class.” In the figure below, Taylor illustrates the source of that income.  One way or another, he finds that it comes from capital ownership and profits.

As we can see, labor compensation has grown rapidly over the last few years, and now exceeds $500,000 per year.  Still, it represents only roughly nine percent of the total, significantly less than either of the other two main income categories, proprietor’s income and interest and dividends.  Proprietor’s income, interest and dividends, and capital gains all flow from ownership.  So, in fact, does an important share of labor compensation which includes bonuses and stock options.

As Taylor explains:

Given that the bulk of income of the top one percent comes from profits through one channel or another, the obvious inference is that the rising Palma ratios in Figure 1 were fueled by an ongoing shift away from wages in the “functional” income distribution between labor and capital.

The question is why wages of ordinary households lagged.

After examining patterns and trends in business profits, Taylor concludes that the primary answer lies in the ability of firms to hold down wages.  Among the reasons for their success:

Changes in institutional norms (laws, unionization and other of the game) surely played a role. Robert Solow (2015) from MIT, the doyen of mainstream macroeconomics, observes that labor suffered for reasons including “the decay of unions and collective bargaining, the explicit hardening of business attitudes, the popularity of right-to-work laws, and the fact that the wage lag seems to have begun at about the same time as the Reagan presidency all point in the same direction: the share of wages in national value added may have fallen because the social bargaining power of labor has diminished.”

Divide-and-rule in a “fissuring” labor market, as described by David Weil (2014) is one aspect of this process. Globalization, which came to the forefront in the 2016 Presidential election, also played a role.

The IMF study again provides support for this conclusion. A simple correlation test of the relationship between labor market institutions and inequality produced “a strong negative relation between the top 10 percent income share and union density.”  Econometric tests that attempted to control for technology, globalization, financialization, tax rates and a host of other variables confirmed the relationship.  As the authors explain:

Our benchmark estimates of gross income inequality indicate that the weakening of unions is related to increases in the top 10 percent income share. A 10 percentage point decline in union density is associated with a 5 percent increase in the top 10 percent income share. The relation between union density and the Gini of gross income is also negative and significant.

On average, the decline in union density explains about 40 percent of the 5 percentage point increase in the top 10 percent income share . . . . By contrast, the decline in unionization contributes more modestly to the rise of the gross income Gini, reflecting the somewhat weaker relation between these variables. However, about half of the increase in the Gini of net income is explained by the decline in union density, evidencing the additional and statistically significant relation between this institution and redistribution. The decline in union density was a widespread phenomenon which, as our estimation results suggest, could be an important contributing factor to the rise in top income shares.

The takeaway

Taylor doesn’t minimize the significance of the ongoing tax changes.  But as he states:

it took 30 or 40 years for the present distributional mess to emerge. It may well take a similar span of time to clean it up.  Progressive tax changes of $100 billion here or $50 billion there are not going to impact overall inequality. The same is true of once-off interventions such as raising the minimum wage by a few dollars per hour.

Long-term improvement requires changes to the present situation that can cumulate over time.

And that requires rebuilding labor’s strength so as to secure meaningful wage increases and a transformation in economic institutions and dynamics.  As the IMF study makes clear, fighting for strong unions must be an important part of the process.

The 2016 Survey of Consumer Finances paints a grim picture of working class finances

The Survey of Consumer Finances (SCF) is a triennial survey of U.S. families that is sponsored by the Federal Reserve Board (Fed) and carried out by the NORC at the University of Chicago.  It includes information on families’ balance sheets, pensions, income, and demographics. As the Fed notes, “No other study for the country collects comparable information.”

Sadly, as we see below, the wealth data from the 2016 survey paints a grim picture of working class finances, reinforcing what many people already know, that US capitalism works to enrich the few at the expense of the many.

The following figure and table from the 2016 survey shows trends in the median net worth for all families, measured in 2016 dollars.  Strikingly, the median in 2016 was 8 percent below what it had been in 1998.

Of course, while the median value is useful for capturing broad trends, the next figure and table, also from the 2016 survey, makes clear that capitalism’s motion does not treat all families equally.  More specifically, the bottom fifth of families saw their net worth fall by 24 percent over the period 1998 to 2016, while the next lowest income tier experienced an even greater decline, 34 percent.  Those in the next two higher income tiers basically treaded water.  In sharp contrast, the top ten percent enjoyed a net worth increase of 146 percent over the same period.

Matt Bruenig, drawing on data from the survey, provides an even clearer picture of wealth inequality in the following figure.  As he explains:

[it] shows what percent of wealth is owned by each wealth decile.  The way this reads is as follows: the bottom 10 percent owns -0.5 percent of the wealth in the country (they are net debtors) while the top 10 percent owns 77.1 percent of the wealth in the country.

In fact, wealth is even more concentrated than it appears in this figure.  In 2016 the top 1 percent owned 38.5 percent of the wealth, more than the bottom 90 percent combined. This was a sharp rise from the 29.9 percent share they held in 1989.

So, the next time you hear media analysts celebrate US capitalism as a great wealth creating machine, remember that they are celebrating a social system that largely works for the benefit of a very few.

Media Complicity Increases The Possibility Of A New Korean War

Tensions between the US and North Korea are again rising in the wake of North Korea’s November 28th test of an ICBM that experts believe has the potential to deliver a nuclear bomb to cities on the east coast of the US, including Washington D.C.

As I have written before, we desperately need to change US foreign policy towards North Korea.  North Korea’s leaders continue to seek talks with the United States, with all issues on the table, those of concern to them and those of concern to the US government.  But the US government continues to refuse.  The Trump administration has even rejected North Korean offers to freeze its production and testing of missiles and nuclear weapons in return for a halt to US war games directed against North Korea.

Instead, Trump continues Obama’s strategy of responding to every North Korean missile launch or nuclear test with new military threats and sanctions.

Unfortunately, changing US foreign policy towards North Korea is no easy matter.  One reason is that there are powerful forces opposing a de-escalation of tensions.  Sadly, the tension is useful to the US military industrial complex, which needs enemies to support its desire increase in the military budget.  It is also useful to the US military, providing it with a justification for maintaining troops on the Asian mainland and in Japan.  The tension also helps the US government isolate China and boost right-wing political tendencies in Japan and South Korea, developments favorable to our own militarists and right-wingers.  Of course, the costs of US policy fall on ordinary people.

Another reason for the difficulty in changing US policy towards North Korea is that the US media does little to provide the context necessary for people in the United States to understand its lawless and destructive nature.

The illegality of Trump administration threats of destruction

The Trump administration has repeatedly threatened North Korea with total destruction.  What is missing from media accounts of these threats is the explanation that they represent a violation of the UN Charter and international law.  As Gavan McCormack explains:

According to the UN Charter’s Article 2 (3), disputes between states must be settled by peaceful means and (4) “All members shall refrain in their international relations from the threat or use of force against the territorial integrity or political independence of any state …” [italics added]. Article 33 further specifies the obligation of parties to any dispute likely to endanger international peace and security to “first of all, seek a solution by negotiation inquiry, mediation, conciliation … or other peaceful means of their own choice.” By ruling out negotiations with North Korea and insisting only on submission, the US, Japan and Australia ignore or breach this clear rule (and Japan breaches also the proscription on the “threat or use of force as means of settling international disputes” in its own constitution). Going beyond that, President Trump has also not only insulted the North Korean leader from the platform of the UN General Assembly but actually threatened his country with “total destruction,” by “fire and fury, and frankly power the likes of which this world has never seen before.” That surely qualifies as threat. It is even genocidal, and therefore criminal behavior, not only on the part of those (Trump) who utter it but on the part also of those like Abe and Turnbull (to whom perhaps now India’s Modi is to be added) who endorse and encourage it.

Moreover, in 1996, the International Court of Justice, in response to a UN request, ruled that threats to use nuclear weapons against another country are a violation of international law except “in an extreme circumstance of self-defense, in which the very survival of a State would be at stake.”  In certainly seems clear that the US is in violation of international law because of its repeated threats and military exercises designed to practice a nuclear attack on North Korea.

Tragically, the US media has remained silent about this lawlessness on the part of the US government.

The illegality of US-initiated UN sanctions on North Korea

The US has aggressively pursued the adoption of UN sanctions on North Korea.  The ones adopted in August and September are the most sweeping yet. They call for blocking North Korean exports of coal, iron, iron ore, lead, lead ore, seafood and textiles, all of which are important earners of foreign exchange. The resolutions also ban countries from opening new or expanding existing joint ventures in North Korea or renewing labor export agreements.  They also impose a cap on the amount of oil North Korea is allowed to import and call for a total ban on the country’s import of natural gas and condensates.  If rigorously enforced these sanctions will devastate living conditions for the great majority of North Koreans.

However, sanctions that target an entire population with the aim of causing economic collapse, such as those being imposed on North Korea, are illegal under the UN charter.  As McCormack points out:

Only sanctions carefully tailored to apply to those who act in the name of the government and bear responsibility for its offensive actions may be legitimate. . . . The point is clear that that those imposing sanctions bear an obligation to ensure they impact only upon those who are in a position of power, not on innocent civilians. There is reason to wonder if the United Nations itself, by the ordering of collective punishment of the entire North Korean people for offenses committed by their government, may be acting criminally.

Again, where are the stories pointing out the lawlessness of US and UN actions?

The missing explanation of North Korean responses to US policy

The reporting on North Korea’s November 28th ICBM test offers another example of the US media’s failure to educate its readers. For example, here is the LA Times:

The launch is North Korea’s first since it fired an intermediate-range missile over Japan on Sept. 15, and may have broken any efforts at diplomacy meant to end the North’s nuclear ambitions. U.S. officials have sporadically floated the idea of direct talks with North Korea if it maintained restraint. . . .

Italy’s U.N. Ambassador Sebastiano Cardi, the current Security Council president, told reporters late Tuesday that “it’s certainly very worrying. Everybody was hoping that there would be restraint from the regime.”

This reporting certainly suggests that North Korea just doesn’t want peace no matter how hard the US and broader international community try.  But the story changes if we provide some missing context.

Since 2013 North Korea has offered to halt its testing of missiles and nuclear weapons if the US would halt its war games.  The US organizes two different annual war games in South Korea, the first is held over March and April and the second is in August.  But from time to time, it also engages in other smaller military exercises on and near the Korean peninsula.

The August 2017 war games included planning for a nuclear attack and “decapitation” of North Korea’s leadership.  These August war games are smaller than the March-April ones but still large.  This one included some 20,000 US and 50,000 South Korean troops.  And this year, for the first time, they were combined with a separate 18 day live-fire exercise involving US and Japanese forces on the northern Japanese island of Hokkaido.

North Korea responded to these threatening maneuvers by first firing a missile over Hokkaido on August 29, the day after the completion of the US-led exercises.  Then on September 3, it conducted its sixth and largest test of a nuclear weapon.  And finally, on September 15, it tested a new intermediate-range missile to demonstrate its ability to hit the major US air base in Guam.

There are 75 days from September 15 to November 28; this is an important interval.  The reason is that the US had publicly called upon North Korea to halt its missile testing for at least 60 days to show its good will.

For example, in August, Secretary of State Rex Tillerson told a group of reporters that “The best signal that North Korea could give us that they’re prepared to talk would be to stop these missile launches . . . We’ve not had an extended period of time where they have not taken some type of provocative action by launching ballistic missiles. So I think that would be the first and strongest signal they could send us is just stop, stop these missile launches.”  And in October, Joseph Yun, the U.S. State Department’s top official on North Korea policy, told an audience at the Council on Foreign Relations “that if North Korea halted nuclear and missile testing for about 60 days, that would be the signal the United States needs to resume direct dialogue with Pyongyang.”

As we have seen, the North Koreans did refrain from missile launches and weapon tests for more than 60 days.  But, what did the US do during that time to encourage North Korea?

On September 23 the Pentagon sent B-1B Lancer bombers, nicknamed “the swan of death,” to fly over international airspace just off the coast of North Korea, the first time since the Korean War that a U.S. bomber flew over North Korea’s east coast.

Then for five days, starting October 16, the US conducted joint naval exercises with South Korea that included the nuclear aircraft carrier Ronald Reagan, three nuclear submarines, Aegis destroyers and more than 40 other battleships and numerous fighter aircraft.

In November, the US conducted more navel drills.  This time it was a four-day exercise involving three aircraft carriers–the USS Ronald Reagan, Theodore Roosevelt and Nimitz–and their multiship strike groups in the waters between South Korea and Japan.  This was the first time all three aircraft carriers were together in the Western Pacific in a decade.  South Korean and Japanese warships also participated in the exercise.

Also in November, President Trump placed North Korea back on the list of state sponsors of terrorism, which meant new sanctions.  And finally, again in November, the US announced yet another war game to be scheduled for the period December 4-8 involving US, Japanese, and South Korean forces.  Called Vigilant Ace, the military announced that this exercise would includeenemy infiltration” and “precision strike drills” and involve 8 air bases, 12,000 soldiers, and 280 aircraft, including the two stealth fighters, the F-22 and the F-35.  This was to be the first time that the F-22 and F-35 would be used in war games on the Korean peninsula.

So, after waiting 75 days, and observing US actions, all of which were hostile, North Korea not surprisingly responded with the launch of its most powerful ICBM, showing the US that it could target even its capital if attacked.  But by presenting this missile launch without the appropriate context the media made it appear as just another example of North Korea’s recklessness and hostility.

 

Sadly, we have a lot of work to do.

Just Say No To NAFTA

The North American Free Trade Agreement (NAFTA) is unpopular with many working people in the United States, who correctly blame it for encouraging capital flight, job losses, deindustrialization, and wage suppression.   President Trump has triggered the renegotiation of the agreement, which will likely conclude early next year.  Unfortunately, progressives are in danger of missing an important opportunity to build a working class movement for meaningful economic change.  By refusing to openly call for termination of the agreement, they are allowing President Trump to present himself as the defender of the US workers, a status that will likely help him secure the renewal of the treaty and a continuation of destructive globalization dynamics.

The NAFTA debate

According to a recent poll commissioned by Public Citizen:

At a time of great peril for our democracy and deepening public opposition to Donald Trump on many fronts, he wins high marks from voters on handling trade and advocating for American workers: 46 percent approve of his handling of trade agreements with other countries, 51 percent, his ‘putting American workers ahead of the interests of big corporations’ and 60 percent, how he is doing “keeping jobs in the United States.”

This perception of Trump’s advocacy for workers is encouraged by media stories of the strong opposition by leading multinational corporations to several of President Trump’s demands for changes to the existing NAFTA agreement.

The most written about and controversial proposals include:

  • Major modifications to NAFTA’s investor-state dispute settlement system, which allows foreign investors to sue host governments in secret tribunals that trump national laws if these investors believe that government actions threaten their expected profits. The Trump administration proposes to change this system by (1) establishing an “opt-in” provision that would make participation voluntary and (2) ending the ability of private investors to use claims of denial of “minimum standard of treatment” or an “indirect expropriation” as grounds for filing a claim.
  • A tightening of the rules on the origins of car parts. NAFTA rules govern the share of a product that must be sourced within NAFTA member countries to receive the agreement’s low tariff benefits. The Trump administration wants to raise the auto rules of origin to 85 percent from the current 62.5 percent and include steel as one of the products to be included in the calculations.  It has also proposed adding a new US-only content requirement of 50 percent.
  • The introduction of a NAFTA sunset clause that would allow any of the participating countries to terminate the deal after five years, a clause that could well mean a renegotiation of the agreement every five years.

Canadian and Mexican government trade representatives have publicly rejected these proposals.  The US corporate community has called them “poison pills” that could doom the renegotiating process, possibly leading to a termination of the agreement.  The president of the US Chamber of Commerce has said that:

All of these proposals are unnecessary and unacceptable. They have been met with strong opposition from the business and agricultural community, congressional trade leaders, the Canadian and Mexican governments, and even other U.S. agencies. . . . The existential threat to the North American Free Trade Agreement is a threat to our partnership, our shared economic vibrancy, and clearly the security and safety of all three nations.

Corporate lobbyists are hard at work, trying to convince members of Congress to use their influence to get Trump to withdraw these proposals, but so far with little success.  In fact, the Trump administration has pushed back:

In remarks to the news media in mid-October, Robert E. Lighthizer, the United States trade representative, said that businesses should be ready to forego some of the advantages they receive under NAFTA as the United States seeks to negotiate a better deal for workers. In order to win the support of people in both parties, businesses would have to “give up a little bit of candy,” he said.

It is this kind of public back and forth between corporate leaders and the Trump administration that has encouraged many working people to see President Trump as sticking up for their interests.  In broad brush, workers do not trust a dispute resolution settlement system that allows corporations to pursue profits through secret tribunals that stand above national courts.  They also welcome measures that appear likely to force multinational corporations to reverse their past outsourcing of jobs, especially manufacturing jobs, and promote “Buy American” campaigns.  And, they have no problem with periodic reviews of the overall agreement to allow for ongoing corrections that might be needed to improve domestic economic conditions.

The rest of the story

Of course, NAFTA negotiations are not limited to these few contentious issues.  In fact, trade negotiators have made great progress in reaching agreement in many other areas.  However, because of the lack of disagreement between corporations and the Trump administration on the relevant issues, the media has said little about them, leaving the public largely ignorant about the overall pace and scope of the renegotiation process.

Perhaps the main reason that agreement is being reached quickly on many new issues is because many of the Trump administration’s trade proposals closely mirror those previously agreed to by all three NAFTA country governments during the Transpacific Partnership negotiations.  These include “measures to regulate treatment of workers, the environment and state-owned enterprises” as well as “new rules to govern the trade of services, like telecommunications and financial advice, as well as digital goods like music and e-books.”  In short, taken overall, it is clear that the Trump administration remains committed to “modernizing” NAFTA in ways designed to expand the power and profitability of transnational corporations.

A case in point is the proposed change to the existing NAFTA side-agreement on labor rights.  NAFTA currently includes a rather useless side agreement on labor rights.  It only requires the three governments to enforce their own existing labor laws and standards and limits the violations that are subject to sanctions.  For example, sanctions can only be applied—and only after a long period of consultations, investigations, and hearings–to violations of laws pertaining to minimum wages, child labor, and occupational safety and health.  Violations of the right to organize, bargain collectively, and strike are not subject to sanctions.

The labor standards agreement that the US proposes to include in NAFTA is one that it has used in more recent trade agreements and was to be part of the Transpacific Partnership.  It says that “No Party shall fail to effectively enforce its labor laws through a sustained or recurring course of action or inaction in a manner affecting trade or investment between the Parties, after the date of entry into force of this Agreement for that Party.”

This labor agreement is included in the US-Dominican-Central American Free Trade Agreement (DR-CAFTA) and we now have an example of how it works, thanks to a case filed in 2011 by the US against Guatemala.  The panel chosen to hear the case concluded, in June 2017, that the US “did not prove that Guatemala failed to conform to its obligations.”  The reason: the three person panel made its own monetary calculations about whether Guatemalan labor violations were serious enough to affect trade or investment flows between the two countries and decided they were not.

As Sandra Polaski, former Deputy Director-General for Policy of the International Labor Organization, writes:

The panel reached its decision that Guatemala had not breached its obligations under the DR-CAFTA because the violations had not occurred “in a manner affecting trade” between the parties. . . . The panel chose to establish a demanding standard in its interpretation of that phrase, requiring that a complaining country would have to prove that there were cost savings from specific labor rights violations and that the savings were of sufficient scale to confer a material competitive advantage in trade between the parties.  This threshold is unprecedented in any analogous applications: WTO panels have interpreted similar language much more narrowly, as affecting conditions of competition, without requiring demonstration of costs and their effects. Demonstrating changes in costs at this level would require access to sensitive internal company accounts (at a minimum), and the perpetrators of labor violations would likely have hidden them in any case. This standard could not be met without subpoena power, which does not exist under the trade agreements. . . .

The decision is disturbing for multiple reasons: because of the injustice toward the affected Guatemalan workers; because it invalidated the parties’ explicit commitment to broad enforcement of labor rights contained both in the obligatory commitments and the overall stated purposes of the agreement; and because as the first and as of now only arbitration arising from a labor clause (or environmental clause) it set a precedent for future cases.

In short, labor exploitation is likely to continue unchecked under a possible new NAFTA, which can be expected to remain as corporate friendly as the original agreement.

The need for a new progressive strategy of opposition

President Trump has threatened to withdraw the US from NAFTA if the other two countries do not agree to his demands for key NAFTA changes, in particular to the investor-state dispute settlement system and rules on the origins of car parts, the inclusion of a sunset clause, and an end to government procurement restrictions.  While we cannot predict the future, the odds are great that compromises will be reached on these issues, allowing President Trump to present a renegotiated NAFTA as a win for working people.

As Jeff Faux, founder of the Economic Policy Institute, comments:

The erratic and belligerent Trump might, of course, drive US-Mexican relations over a cliff. But he prides himself as a deal-maker, not a deal-breaker. So the most likely outcome is a modestly revised NAFTA that: 1) Trump can boast fulfills his pledge 2) Peña Nieto can use to claim that he stood up to the bullying gringo 3) doesn’t threaten the low-wage strategy for both countries that NAFTA represents.

Revisions might include weakening NAFTA’s dispute settlement courts, raising the minimum required North American content for duty-free goods, and reducing the obstacles to cross-border trade for small businesses on both sides of the border.

Changes like this could marginally improve the agreement, and would be acceptable to the Canadians, who have been told by Trump that he is not going after them. But from the point of view of workers in the American industrial states who voted for Trump, the new NAFTA is likely to be little different from of the old one. The low-wage strategy underlying NAFTA that keeps their jobs drifting south and US and Mexican workers’ pay below their productivity will continue.

But you can bet that Trump will assure them that it is the greatest trade deal the world has ever seen.

Sadly, the progressive movement has pursued the wrong strategy to build the kind of movement we need to oppose the likely NAFTA renewal or take advantage of a possible US withdrawal.  In fact, it has largely allowed President Trump to shape the public discussion around the renegotiations.

To this point, progressive trade groups, labor unions, and Democratic Party politicians have refrained from calling Trump’s bluff and demanding termination of the agreement, despite the fact that this and other so-called free trade agreements are not really reformable in a meaningful pro-worker sense. Instead, they have concentrated on demonstrating the ways that NAFTA has harmed workers, highlighting areas that they think are in most need of revision and offering suggestions for their improvement, and mobilizing their constituencies to press the US trade representative to adopt their desired changes.  Progressive trade groups have generally turned their spotlight on the investor-state dispute resolution system and outsourcing, as have Democratic Party politicians.  Trade unions, for their part, have emphasized outsourcing and labor rights.

Significantly, these are all areas, with the exception of labor rights, where the Trump administration has put forward proposals for change which if realized would go some way to meeting progressive demands.  The result is that the progressive movement appears to be tailing or reinforcing Trump’s claims to represent popular interests.  And, by focusing on targeted issues, the movement does little to educate the population about the ways in which the ongoing negotiations are creating new avenues for corporations to enhance their mobility and profits, especially in services, finance, and e-commerce.

Apparently, leading progressive groups plan to wait until they see the final agreement and then, if they find it unacceptable with regards to their specific areas of concern, call for termination of the agreement.  But this wait and see strategy is destined to fail, not only to build a movement capable of opposing a revised NAFTA agreement, but even more importantly to advance the creation of a working class movement with the political awareness and vision required to push for a progressive transformation of US economic dynamics.

For example, this strategy of creating guidelines for selective changes in the agreement tends to encourage people to see the government as an honest broker that, when offered good ideas, is likely to do the right thing.  It also implies that the agreement itself is not a corporate creation and that a few key changes can make it an acceptable vehicle for advancing “national” interests.  Finally, because agreements like NAFTA are complex and hard to interpret it will be no simple matter for the movement to help its various constituencies truly understand whether a renegotiated NAFTA is better, worse, or essentially unchanged from the original, an outcome that is likely to demobilize rather than energize the population to take action.  Of course, if Trump actually decides to terminate the agreement, the movement will be put in the position of either having to praise Trump or else criticize him for not doing more to save NAFTA, neither outcome being desirable.

There is, in my opinion, a better strategy: engage in popular education to show the ways that trade agreements are a direct extension of decades of domestic policies designed to break unions and roll back wages and working conditions, privatize key social services, reduce regulations and restrictions on corporate activity, slash corporate taxes, and boost multinational corporate power and profitability.  Then, organize the most widespread movement possible, in concert with workers in Mexico and Canada, to demand an end to NAFTA.  Finally, build on that effort, uniting those fighting for a change in domestic policies with those resisting globalization behind a campaign directed at transforming existing relations of power and creating a new, sustainable, egalitarian, and solidaristic economy.

It is not too late to take up the slogan: just say no to NAFTA!

Tax Cuts: Its All About Capitalism

Powerful corporations and the rich in the United States continue their winning ways.  By narrow margins, both the House of Representatives and Senate have agreed on a budget proposal that calls for an increase in the federal deficit of $1.5 trillion dollars in order to fund a major reform of the US tax system that will make the rich and powerful even more so.

Proposed tax changes

Republicans in each house of Congress still need to work out the specifics of their desired tax reform and then negotiate any differences before they can send the budget to President Trump for his signature.  But, there seems to be general consensus on the following business tax changes:

  • slash the top tax rate on pass-through business income from partnerships and limited liability companies or sole proprietorships from 39.6 percent to 25 percent; most law firms, hedge fund and real-estate companies are pass-through companies in which profits are counted and taxed as the owner’s personal income
  • reduce the corporate income tax from 35 percent down to 20 percent
  • repealing the corporate alternative minimum tax
  • replace the current global profit tax on business with a territorial tax, which means corporations will no longer be required to pay taxes on their foreign earnings.
  • institute a one-time lower tax rate on repatriated corporate profits currently held outside the country.

The Tax Policy Center estimates that these and other less significant changes would give corporate America a $2.6 trillion tax cut over the next decade.

There will also be changes to the personal tax code, although in dollar terms not nearly as large as the likely business tax changes highlighted above.  There seems to be agreement in both the House and Senate on ending the inheritance tax and alternative minimum income tax and reducing the number of individual income tax brackets from seven to three, with tax rates of 12 percent, 25 percent and 35 percent, although some members of congress would like to add a fourth higher bracket for very high-income earners.

The only serious disagreements involve whether to raise funds to offset the huge deficits that will be generated by the business tax cuts by ending federal deductions for state and local government taxes and restricting the yearly contributions taxpayers can make to their tax deferred 401(k) retirement accounts, both changes that would hit middle income earners hard.

The Tax Policy Center estimates that the likely personal income tax changes would be roughly revenue neutral, although as much as two-thirds of the likely personal income tax cuts would go to the top 1 percent of income earners.

No doubt as both houses of congress set to work, public attention will be directed away from both corporate tax cutting, which is the main aim of the tax reform and the primary driver of a growing federal debt, and the various tax give-aways to high income earners, and towards possibly heated congressional debates over the possible loss of personal tax deductions enjoyed by middle income earners.

Business, at least for now, no longer cares about the deficit

It is the business community that is driving this push to slash corporate taxes.  As an article in Bloomberg Businesweek explains:

It was only about five years ago that powerful people in finance loved talking about the horrendous consequences for the U.S. if it didn’t get its finances under control. They warned that the federal debt—and the interest payments—could eventually get high enough to drag down the economy, burden future generations, and even threaten national security. Chief executive officers of five of the biggest U.S. banks joined a campaign called Fix the Debt, signing on with hedge fund billionaires, asset managers, and private equity executives, as well as former lawmakers and others.

It was not long after Trump’s election that everything changed.  From then on, the business community, including most of the leading members of Fix the Debt, embraced tax cuts without concern for the deficit:

Case in point: Goldman Sachs Group Inc. CEO Lloyd Blankfein, a Fix the Debt supporter who in 2012 told CNBC he’d be for higher taxes if they helped mend the fiscal gap. After the election, Blankfein told colleagues in a companywide voicemail that Trump’s proposals, including tax reform, “will be good for growth and, therefore, will be good for our clients and for our firm.”

He wasn’t alone. It’s “about capitalism,” JPMorgan Chase & Co. CEO Jamie Dimon said in February, as he pushed Washington to lower corporate taxes. He suggested that if corporate rates fell, wages would come up. A few weeks earlier, Bank of America Corp. head Brian Moynihan said Trump should focus on cutting taxes. They were part of the antidebt campaign, too.

Dimon is right—it is about capitalism, which means that business leaders have one goal—maximize profits.  And if their desired tax cuts cause deficit problems down the road, well, these business leaders will effortlessly shift their message back to “fix the debt,” which translates into the need to slash critical social programs, all in the name of promoting a healthy capitalism.

Ideological cover

Of course, there is always an attempt to present policies designed to enrich the powerful as beneficial for all.  The argument has to be made and publicized, regardless of who really believes it.  And here it is: Kevin Hassett, the Chair of President Trump’s Council of Economic Advisers, has announced that the corporate tax cuts being discussed could be expected to increase a typical American household’s income by $3000 to $7000 a year.

The argument made by Hassett and the rest of the Council of Economic Advisers is that high corporate taxes force companies to invest overseas and reduce hiring in the United States.  In contrast, lower corporate taxes ill lead corporations to invest and complete for workers, all of whom would be more productive thanks to the investment, thereby driving up growth and worker earnings.

There is, in fact, little support for this notion that tax cuts lead to higher wages.  As the New York Times reports:

Other research has cast doubt on the theory that businesses would pass tax savings on to their workers in the form of higher wages. A 2012 Treasury Department study, which Treasury recently removed from its website, found that less than a fifth of the corporate tax falls on workers. A Congressional Research Service report last month concluded that the effects of corporate taxes fell largely on high-income Americans, not average workers.

So, how did the Hassett and the Council get its result?  Jared Bernstein, a Senior Fellow at the Center on Budget and Policy Priorities, examined the model used.  As he explains:

The interesting economics question is to why the model predicts such an unrealistic result for the US economy? Which of the assumptions most fail to comport with reality? To the extent that we want to train students to be useful practitioners as opposed to proficient, yet unrealistic, modelers, answering those questions would also provide some real educational value-added.

In this case, the model assumes that the US is a small, open economy such that capital inflows instantaneously fund more investment, such investment immediately boost productivity, and the benefits of faster productivity immediately accrue to paychecks. The simple model ignores the extent to which these inflows would raise the trade deficit as well as their impact on revenue losses and higher budget deficits.

The model assumes away imperfect competition, which is relevant today as a) monopolistic concentration is an increasing problem, and b) the one thing economists agree on in this space is that in these cases, the benefits of the corporate cut flows to profits and shareholders, not workers, other than maybe some “rent sharing” with high-end workers.

 

It may well be too late to stop this round of tax giveaways to business and the rich.  But it is not too late to use the moment to help working people develop a clearer picture of how capitalism works and a more critical understanding of the arguments used to defend its interests.  It wont be long before new economic tensions and difficulties present us with another opportunity to resist and hopefully, if we have used this time well, advance a meaningful movement for change.

Budget Wars: The Rich Want More

The rich and powerful keep pushing for more.  And the odds are increasingly good that they will get what they want through the federal budget process now underway. As the Center on Budget and Policy Priorities explains:

Congressional Republicans this fall are poised to launch step one of a likely two-step tax and budget agenda: enacting costly tax cuts now that are heavily skewed toward wealthy households and profitable corporations, then paying for them later through program cuts mostly affecting low- and middle-income families.

The potential gains for those at the top from this first step are enormous.  For example, the Republican plan currently calls for ending the estate tax, slashing the top tax rate on pass-through income from partnerships and limited liability companies from 39.6 percent to 25 percent, lowering the corporate income tax rate from 35 percent down to 20 percent, and repealing the corporate alternative minimum tax.  Republicans are also considering a tax holiday on repatriated multinational corporate profits.

The Tax Policy Center estimates that the Senate tax plan would lower personal income taxes by an average of $722,510 for the top 0.1 percent of income earners compared with just $60 for those in the lowest quintile; as much as two-thirds of personal income tax cuts would go to the top 1 percent.  Corporate America, for its part, would be reward with a $2.6 trillion cut in business taxes over the next decade.

Naturally, President Trump and his family are well positioned to gain from these changes.  Democracy Now reports that the Center for American Progress Action Fund estimates that “President Trump’s family and Trump’s Cabinet members would, combined, reap a $3.5 billion windfall from the proposed repeal of the estate tax alone.” And capping the pass-through income tax rate “would give Trump’s son-in-law, his senior adviser, Jared Kushner, an annual tax cut of up to $17 million.” The Center for American Progress estimates that Trump, based on his 2016 financial disclosures, would enjoy a $23 million tax cut.

As for the second step in two-step agenda, it would work as follows: the Senate’s budget resolution provides a very general outline of federal spending and revenues over the next decade.  It calls for an allowed increase in the budget deficit of $1.5 trillion as well as the achievement of a balanced budget within a decade.  House leaders are hopeful that the House will approve the Senate budget resolution with few if any changes, thereby speeding the path for the House and Senate to quickly agree on the specific tax changes that will drive the budget deficit and then deliver the completed budget to President Trump for his signature before the end of the year.

However, all independent analysts agree that the Republican tax plan will push the deficit far beyond its stated limit of $1.5 trillion.  The table below, based on estimates by the Tax Policy Center, is representative.

It shows that business tax cuts are likely to lead to $2.6 trillion in lost revenue, producing an overall estimate of a $2.4 trillion deficit increase.  What we can expect then, is the return of the “deficit hawks.”  If Republicans succeed in passing their desired tax cuts, and they produce the expected ever growing budget deficits, we can count on these legislators to step forward to sound the alarm and call for massive cuts in social spending, targeting key social programs, especially Medicare and Medicaid, thereby completing the second step.

Not surprisingly, the Republican leadership denies the danger of growing deficits.  It presents its tax plan as a pro-growth plan, one that will generate so much growth that the increased revenue will more than compensate for the tax cuts.  It’s the same old, same old: once we get government off our backs and unleash our private sector, investment will soar, job creation will speed ahead, and incomes will rise for everyone.  The history of the failure of past efforts along these lines is never mentioned.

Of course, it is possible that political differences between the House and Senate will throw a monkey wrench in the budget process, forcing Republicans to accept something much more modest.  But there are powerful political forces pushing for these tax changes and, at least at present, it appears likely that they will be approved.

One of the most important takeaways from what is happening is that those with wealth and power remain committed to get all they can regardless of the social consequences for the great majority.  In other words, they won’t stop on their own.  If we want meaningful improvements in working and living conditions we will have to do more to help build a popular movement, with strong organizational roots, capable of articulating and fighting for its own vision of the future.

Challenging US Foreign Policy Toward North Korea

It is an understatement to say that relations between the US and North Korea are very tense—the US government continues to threaten to further tighten economic sanctions on North Korea and launch a military attack to destroy the country’s missiles and nuclear weapons infrastructure.  And the North for its part has said it would respond to any attack with its own strikes against US bases in the region and even the US itself.

Making matters worse are Trump’s personal attacks on Kim Jong Un, the head of the North Korean government.  And as an indicator of how much tensions have ramped up, Kim himself spoke, responding in kind to Trump.  It is very rare, in fact this may be the first time, that a North Korean leader has personally responded to comments made by another government; usually the North Korean position is conveyed by a government official or their news service.

This is obviously not a good situation, but it is also important to realize that what is happening now is not new.  The US began conducting war games with South Korean forces directed against the North in 1976 and it was not long before those included simulated nuclear attacks against the North, and that was before the North had any nuclear weapons.  In 1994, President Bill Clinton came very close to launching a military attack on North Korea.  In 2002, President Bush talked about implementing a naval blockade of North Korea and seizing its ships, an act of war, and also announced the adoption of a new National Security Strategy under which the US announced its right to take pre-emptive military action against any nation that it felt posed a threat to US interests, with North Korea said to be at or near the top of the list.  Since 2013, the US has conducted annual war games involving planning for preemptive attacks on North Korean targets that include the use of nuclear weapons and what the military calls the decapitation of the North Korean leadership.

The point here is not just that we have a history of threatening war, including nuclear attack, against the DPRK, but that it is a bipartisan history, involving both Democratic and Republican administrations.

Although we have thankfully so far averted a new Korean war, the cycle of belligerency and threat making on both sides is intensifying, and it is always possible that a miscalculation could trigger the start of military actions.  However, and this is very important, even if war is averted, the high level of tension between the US and North Korea itself comes with unacceptably high costs.

President Trump is continuing the strategy of past administrations of responding to every North Korean missile launch or nuclear test with new sanctions.  These sanctions are cutting deep, hurting North Korean living conditions.  It is collective punishment of the entire North Korean population.  As Gregory Elich explains, the US is already at war with North Korea, “doing so through non-military means, with the aim of inducing economic collapse.”

For example: UN resolution 2371, passed August 5, 2017, aims to block North Korea “from exporting coal, iron, iron ore, lead, lead ore, and seafood, all key commodities in the nation’s international trade. The resolution also banned countries from opening new or expanding existing joint ventures with the DPRK.”  UN resolution 2375, passed September 11, 2017, is designed to further limit “North Korea’s ability to engage in international trade by barring the export of textiles. It is estimated that together, the sanctions may well eliminate 90 percent of the DPRK’s export earnings. . . . The September resolution also adversely impacts the livelihoods of North Korea’s overseas workers, who will not be allowed to renew their contracts once they expire.”

The social costs of US policy are not limited to North Koreans, although they bear the greatest burden.  The tensions generated by the escalating US-NK standoff are helping to fuel greater military spending and militarization in Japan and China, as well as the US.  This is a dynamic that strengthens the political power and influence of dangerous rightwing forces in all these countries.  And in South Korea, these tensions are already at work undermining democratic possibilities, as labor leaders are jailed, civil rights curtailed, and progressive political parties disbanded in the name of national security.

So, it is not enough for us to just work to oppose outright military conflict.  We need to change the dynamics driving US and North Korean relations.  And, there is no mystery about the best way to achieve this end: the US needs to accept DPRK offers for direct negotiations to end the state of hostility between the two countries.  Unfortunately, there is no shortcut to forcing the US to the negotiating table. It requires building a strong popular movement that can cut through the myths and distortions that the US media and government promote in defense of current policy.  For an example of some of what we must overcome, see “The need for a new US foreign policy towards North Korea.”

Cutting through the myths and distortions also requires that we hear progressive voices from South Korea.  Jang Jinsook, Director of Planning of the Minjung Party of South Korea, a new progressive party that will formally launch on October 15, is one such voice.  What follows is a short excerpt from her talk titled “Honoring The Candlelight Revolution In A Time Of Looming War In Korea” that was given at the People’s Congress of Resistance at Howard University in Washington, D.C., in mid-September: 

The U.S.-North Korea Conflict: The Final Stage

Military tension between North and South Korea has always been headline news in Korea. Every year in March and August, when the U.S. and South Korean militaries conduct their massive military exercises, tensions escalate, and each time, people in Korea experience renewed fear: “Maybe this time, it will really lead to war.”

The U.S. and South Korean militaries say these are routine exercises, but they deploy weapons of mass destruction, rehearse the occupation of North Korea, and simulate real-war scenarios as well as the decapitation of the North Korean leadership. North Korea has strongly objected to these exercises, but this has been going on for a long time.

The Korean peninsula has always lived with the imminent threat of war. But until recently, it never made headline news in the United States.

I’ve been seeing the headlines in U.S. news in the few days I’ve been here: “Kim Jong-un, North Korea, missiles….” This ironically pleased me because finally what was once considered only a problem of the Korean peninsula has now become a U.S. problem. Now that the war threats are acute, it has finally become headline news in the United States.

It is the United States that has conducted the greatest number of nuclear tests, possesses the greatest nuclear arsenal, and has actually dropped atomic bombs on a civilian population. North Korea is in the stage of developing and testing nuclear weapons, opposes U.S. aggression and sanctions, and demands a peace treaty. Which party is the real threat?

For the first time in a long time, defending the U.S. mainland from the threat of nuclear war has become a priority policy agenda for the U.S. government. Of course, news about North Korea must be distressing for the people who live in the United States.

But it is the U.S. government that has created this situation, and the solution is quite simple. It is to realize a peace agreement between the United States and North Korea.

The more the United States piles on sanctions against North Korea through the UN, the more North Korea will become hostile and the two countries will inch closer to war. And the more this crisis intensifies, the U.S. government will sell more weapons to South Korea and increasingly meddle in South Korea’s internal affairs.

For the past sixty years, since the Korean War and the 1953 signing of the Mutual Defense Treaty between South Korea and the United States, South Korea has been a military outpost for the United States. The so-called U.S.-ROK alliance seriously undermines the sovereignty of South Korea. The forced deployment of the U.S. THAAD missile defense system is a case in point.

We demand the following:

  1. The United States must end sanctions against North Korea, which are an act of war.
  2. North Korea and the United States must sign a permanent peace agreement.
  3. U.S. forces in Korea should withdraw from the Korean peninsula along with their weapons of mass destruction.
  4. The United States must stop meddling in South Korea’s internal affairs.
  5. Lastly, we must build enduring solidarity for peace in Korea and across the world.

 

You can read her entire speech and learn more about the Minjung Party of South Korea here, on the Korea Policy Institute website.

The Bipartisan Militarization Of The US Federal Budget

The media likes to frame the limits of political struggle as between the Democratic and Republican parties, as if each side upholds a radically different political vision. However, in a number of key areas, leaders of both parties are happy to unite around an anti-worker agenda.  Support for the military and an aggressive foreign policy is one such area.

On September 18, US senators approved the National Defense Authorization Act (NDAA) of 2018.  Donald Trump had proposed increasing the military budget by $54 billion.  The Senate voted 89-9 to increase it by $37 billion more than Trump sought.  In the words of the New York Times:  “In a rare act of bipartisanship on Capitol Hill, the Senate passed a $700 billion defense policy bill on Monday that sets forth a muscular vision of America as a global power, with a Pentagon budget that far exceeds what President Trump has asked for.”

The NDAA calls for giving $640 billion to the Pentagon for its basic operations and another $60 billion for war operations in other countries, including Iraq, Syria, and Afghanistan.  The House passed its own version of the bill, which included a smaller increase over Trump’s request as well as new initiatives such as the creation of a Space Corps not supported by the Senate.  Thus, the House and Senate need to reconcile their differences before the bill goes to President Trump for his signature.

It is clear that Democratic Party opposition to Trump does not include opposition to US militarism and imperialism. As Ajamu Baraka points out:

Opposition to Trump has been framed in ways that supports the agenda of the Democratic Party—but not the anti-war agenda. Therefore, anti-Trumpism does not include a position against war and U.S. imperialism.

When the Trump administration proposed what many saw as an obscene request for an additional $54 billion in military spending, we witnessed a momentary negative response from some liberal Democrats. The thinking was that this could be highlighted as yet another one of the supposedly demonic moves by the administration and it was added to the talking points for the Democrats. That was until 117 Democrats voted with Republicans in the House—including a majority of the Congressional Black Caucus—to not only accept the administration’s proposal, but to exceed it by $18 billion. By that point, the Democrats went silent on the issue.

It is important to keep in mind that, as William D. Hartung shows, “there are hundreds of billions of dollars in ‘defense’ spending that aren’t even counted in the Pentagon budget.” Hartung goes agency by agency to show the “hidden” spending.  As he notes:

You might think that the most powerful weapons in the U.S. arsenal — nuclear warheads — would be paid for out of the Pentagon budget.   And you would, of course, be wrong.  The cost of researching, developing, maintaining, and “modernizing” the American arsenal of 6,800 nuclear warheads falls to an obscure agency located inside the Department of Energy, the National Nuclear Security Administration, or NNSA. It also works on naval nuclear reactors, pays for the environmental cleanup of nuclear weapons facilities, and funds the nation’s three nuclear weapons laboratories, at a total annual cost of more than $20 billion per year.

Hartung’s grand total, which includes, among other things, the costs of Homeland Security, foreign military aid, intelligence services, the Veterans Administration, and the interest on the debt generated by past spending on the military, is $1.09 Trillion.  In short, our political leaders are far from forthcoming about the true size of our military spending.

Militarization comes home

Opponents of this huge military budget are right to stress how it greatly increases the dangers of war and the harm our military interventions do to people in other countries, but the costs of militarism are also felt by those living in the United States.

For example, ever escalating military budgets fund ever new and more deadly weapons of destruction, and much of the outdated equipment is sold to police departments, contributing to the militarization of our police and the growing use of force on domestic opponents of administration policies, the poor, and communities of color.  As Lisa Wade explains:

In 1996, the federal government passed a law giving the military permission to donate excess equipment to local police departments. Starting in 1998, millions of dollars worth of equipment was transferred each year, as shown in the figure below. Then, after 9/11, there was a huge increase in transfers. In 2014, they amounted to the equivalent of 796.8  million dollars.

Those concerned about police violence worried that police officers in possession of military equipment would be more likely to use violence against civilians, and new research suggests that they’re right.

Political scientist Casey Delehanty and his colleagues compared the number of civilians killed by police with the monetary value of transferred military equipment across 455 counties in four states. Controlling for other factors (e.g., race, poverty, drug use), they found that killings rose along with increasing transfers. In the case of the county that received the largest transfer of military equipment, killings more than doubled.

Militarization squeezes nondefense social spending 

Growing military spending also squeezes spending on vital domestic social services, including housing, health, education, and employment protections, as critical programs and agencies are starved for funds in the name of fiscal responsibility.

The federal budget is made up of nondiscretionary and discretionary spending.  Nondiscretionary spending is mandated by existing legislation, for example, interest payments on the national debt.  Discretionary spending is not, and thus its allocation among programs clearly reveals Congressional priorities.  The biggest divide in the discretionary budget is between defense and nondefense discretionary spending.

The nondefense discretionary budget is, as explained by the Center on Budget and Policy Priorities:

the main budget area that invests in the nation’s future productivity, supporting education, basic research, job training, and infrastructure.  It also supports priorities such as providing housing and child care assistance to low- and moderate-income families, protecting against infectious diseases, enforcing laws that protect workers and consumers, and caring for national parks and other public lands.  A significant share of this funding comes in the form of grants to state and local governments.

As we see below, nondefense discretionary appropriations have fallen dramatically in real terms and could potentially fall to a low of $516 billion if Congress does not waive the sequestration caps established in 2011.

The decline is even more dramatic when measured relative to GDP.  Under the caps and sequestration currently in place, nondefense spending in 2017 equaled 3.2 percent of GDP, just 0.1 percentage point above the lowest percentage on record going back to 1962.  According to the Center on Budget and Policy Priorities, “That percentage will continue to fall if the caps and sequestration remain unchanged, equaling the previous record low of 3.1 percent in 2018 and then continuing to fall (see the figure below).”

Looking ahead

As the next figure shows, the proposed Trump budget would intensify the attack on federal domestic social programs and agencies.

If approved, it “would take nondefense discretionary spending next year to its lowest level in at least six decades as a percentage of the economy and, by 2027, to its lowest on that basis since the Hoover Administration — possibly even earlier.”  Of course, some categories of the proposed nondefense discretionary budget are slated for growth–veterans’ affairs and homeland security–which means that the squeeze on other programs would be worse than the aggregate numbers suggest.

No doubt the Democratic Party will mount a fierce struggle to resist the worst of Trump’s proposed cuts, and they are likely to succeed.  But the important point is that the trend of militarizing our federal budget and society more generally will likely continue, a trend encouraged by past Democratic as well as Republican administrations.

If we are to advance our movement for social change, we need to do a better job of building a strong grassroots movement in opposition to militarism.  Among other things, that requires us to do a better job communicating all the ways in which militarism sets us back, in particular the ways in which militarism promotes racism and social division, globalization and economic decay, and the deterioration of our environment and quality of life, as well as death abroad and at home, all in the interest of corporate profits.  In other words, we have to find more effective ways of drawing together our various struggles for peace, jobs, and justice.