Is America Headed For Civil War Or Collapse?

Perhaps we are, according to a mathematical model by Professor Jack Goldstone.  Based on trends in inequality, selfish elites, and political polarization that began since the 1980s, the conditions for civil violence are the worst they have been since the 19th century.  In fact, this same model accurately predicts the (first) American Civil War, and if it is correct this time around, we are dangerously close to the precipice of another one very soon.  If so, it will make the pandemic look like a walk in the park by comparison, and the past three months look quaint.

The powder keg has been building for decades now, and recent events have been both a consequence (our national failure to mount anything close to an effective response to COVID-19 before it was too late) and a spark (recent civil unrest from pent-up rage over both persistent racial injustice and increasing police-state authoritarianism, along with the toxic effects of the lockdowns).  Throw in record levels of unemployment and economic anxiety followed by the cliff that results from the impending and abrupt ending of the extra $600 per week in unemployment benefits come July 31 (unless extended further).

But the biggest flashpoint of all is yet to come in a few months from now:  the 2020 presidential election.  Whichever side wins, the other side loses, and plenty of people on the losing side will be very, very angry.

It is probably not too late to stop a full-blown civil war and/or collapse before the Rubicon is crossed, but that window is closing very, very fast indeed.

So what do we need to do to save the Republic (again) before it is too late?  I mean, we really don't want to give the reich-wing accelerationists like the Boogaloo movement the satisfaction, right?  For starters:

• Immediately implement Universal Basic Income (UBI) for all, no strings attached, via federal or central bank money creation.  Start it at $2000 per month for everyone over 18 and $1000 for everyone under 18, for three months, then drop it to half that amount ($1000 and $500, respectively) indefinitely. 
• Immediately implement single-payer Medicare For All.  Yesterday.  And along with that, increase much-needed funding for hospitals and healthcare providers across the board.
• For both above items, include anyone with a SSN or ITIN, regardless of citizenship or immigration status.  No means test, no discrimination, no perverse incentives.  And no bank account required--use debit cards whenever needed.
• Free college (and trade school) for all, thus improving stagnant economic mobility.
• Implement the rest of Rodger Malcolm Mitchell's Ten Steps to Prosperity as well.  That includes, among other things, progressively taxing the very rich 0.1% very heavily to reduce inequality.
• Implement the Green New Deal, including a federal job creation program. 
• Implement much-needed and long-overdue reforms to police nationwide, rooting out structural racism and abuses of power.  Yesterday.  What are we waiting for? 
• Extend any moratoriums on evictions and foreclosures for an additional 30 days or until the aforementioned UBI payments reach everyone, whichever is longer.
• It should go without saying, but DO NOT LOCK DOWN EVER AGAIN!  Even in the worst COVID-19 hotspots, mandatory mask requirements and bans on very large gatherings are sufficient to prevent a worst case scenario at this point.
• And of course, we must go back to actually being a Constitutional Republic rather than an unconstitutional empire.  No more over-bloated military and unnecessary wars of choice to make the rich richer.

As the saying goes, "all models are wrong, but some are useful".  The TSAP sure hopes that this model is very wrong, but there is no denying that this one is highly useful.  The evidence is all around us.

The Real Cause of "Secular Stagnation": Extreme Inequality

Much has been made of the concept of "secular stagnation", namely, that the current and future long-term potential for economic growth has slowed dramatically compared with the not-too-distant past.  Larry Summers defines it as "a prolonged period in which satisfactory growth can only be acheived by unsustainable financial conditions".  And at least since the Great Recession, the data do indeed seem to bear this out.  Most notably, for decades now the American economy has been requiring lower and lower interest rates to get the same effect in terms of boosting aggregate demand, the sine qua non of economic growth.  One can even argue that, relatively speaking, the United States will have had a whopping "lost two decades" of growth from 2000-2020.  We are "turning Japanese", and not in a good way either.

But why is this happening, exactly?  Some blame demographic changes, particularly population aging, as one of the causes.  But while this theory is interesting, it only seems to explain, at most, a tiny portion of the overall trend of secular stagnation.  In fact, a recent study by the American  Economic Association found that there is essentially no robust correlation between population aging and economic growth (or lack thereof).  Why?  Advances in automation and robotics seem to offset the putative adverse effects of an aging workforce to the point where the effect of aging is practically negligible.

In fact, another recent study finds the ideal total fertility rate (TFR) in terms of standards of living overall is in fact in the 1.5-2.0 range, basically the same as what the TSAP has long advocated since our founding nearly a decade ago in 2009.  Yes, really.  Take that, birth dearthers!

Others blame the decline in EROEI (Energy Returned on Energy Invested) as cheap and easy fossil fuels are increasingly less readily available than in the past, as well as the planetary limits to growth.  That is indeed true in the very long run at least, and all the more reason to end our inane and insane addiction to growth for the sake of growth, the ideology of the cancer cell which eventually kills its host, by the way.  Though meanwhile, renewable energy technologies are making massives strides, which again looks like it will offset such trends at least partially.

But in the relatively near term at least, the biggest elephant in the room by far in terms of the causes of secular stagnation would be the extreme level of economic inequality in this country that is now back at Gilded Age levels.  Or should we say, at banana republic levels these days.  The top 1% controls roughly 40% of the nation's wealth, the top 20% controls roughly 90%, and the bottom 80% is left to fight over crumbs.  Wages have lagged behind the cost of living for decades despite exponential increases in technological progress and resulting increases in labor productivity.   The oligarchs at the top took nearly all of the gains.  And the rest of us simply cannot afford to keep spending enough to keep the economy going without digging ourselves deeper and deeper in debt.  Eventually, something has to give, since there is not enough aggregate demand, and increasing debt clearly cannot be sustained forever.

Thus, a more accurate definition of "secular stagnation", would be, in the words of the Economic Policy Institute, "a chronic shortage of aggregate demand constraining economic growth".  They really hit the nail right on the head here.  After all, one person's spending is another person's income, by definition, and any business without enough customers will clearly not stay in business for long.

Which, by the way, was also one of the causes of the Great Depression and the long period of secular stagnation that followed until WWII.  The Roaring Twenties also had similarly extreme inequality as well, along with a wildly unregulated financial system.  And we also had a trade war from 1930-1934, which further deepened the Depression.  The only real difference now (aside from the levels of debt today) is the Feral Reserve's monetary policy, but even that will run out of ammo very fast (as interest rates are already low) unless their methods are truly overhauled to accomodate today's realities.

But what about in the long run?  Well, the Keynesian punch line to that is, "in the long run, we are all dead".  Seriously, though, an inequality-induced chronic shortage of aggregate demand not only reduces actual economic growth in the short run, but also reduces potential growth well in the future as well.  That is because less demand today leads to less business investment tomorrow, degrading the economy's productive capacity over time and thus leading to significantly less growth in the long run as well as the short run, creating a vicious cycle and downward spiral.  Hoarding such ludicrous amounts of wealth at the top of the pyramid clearly has serious consequences for the economy and society, and with much larger effect sizes than originally thought.

Thus, policies designed to tackle economic inequality would be beneficial in this regard.  In addition to more progressive taxation of both individuals and corporations (like it was before Reagan) and/or the Universal Exchange Tax and/or Georgist taxation on natural resources, that would also include things like Universal Basic Income (UBI) as well.  And nationalizing the Feral Reserve to make it a truly public national bank that creates money interest-free would be even better still, since usury (interest) and debt-based currency are essentially the biggest weapons of the oligarchy.  Problem solved.

In fact, in our Monetarily Sovereign federal government, Congress can simply spend new money into existence without the strings of interest attached, and without any corresponding increase in tax revenue either.  Rodger Malcolm Mitchell notes this in his Ten Steps to Prosperity, which includes, among other things, Medicare For All, free college for all, and a form of UBI as well.  Interest rates can still be used by the central bank as an inflation-fighting tool, but the creation of money will be decoupled from it.

(Note to Japan:  You should do the same thing as well, especially the helicopter money (QE for the People) and UBI.  Then you will finally get out of your 30 year funk, and possibly even raise your birthrates a bit.)

At the very least, in the meantime, we need to raise the minimum wage to $15/hour to give the lowest-paid workers a boost, which will also have a positive spillover higher up the wage scale.  Also, macroeconomic policy (both fiscal and monetary) should seriously prioritize very low unemployment over very low inflation, since tight labor markets have long been known to give workers much more bargaining power relative to employers. And labor unions also need to be revitalized as well.  Yesterday.

So what are we waiting for?

How to Prepare for the Next Big Crash (Part Deux)

As we have noted before, things are really not looking good for the global economy this year.  Whether we actually experience another financial crisis on the order of 2008 or even 1929 (or worse) is a matter of debate, but the time to prepare for such a scenario is yesterday.  At the very least, another recession is inevitable at this point by 2017 at the latest, since no economic expansion has lasted much more than eight years straight in this country (with the notable exception of 1991-2001 that lasted exactly ten years).  Granted, the expansion from July 2009 to the present mostly benefited the rich, and until around 2014 practically entirely benefited the rich, but it was still technically an expansion of the economy even if the growth was largely uneconomic in practice.  And expansions can only go on so long before a contraction (i.e. recession or depression) inevitably occurs--it's just a fundamental truth of the business cycle.

One thing is for sure--things are very different this time around at least in terms of monetary policy.  At least in 2008, interest rates were well above-zero, and could be cut to stimulate the economy (or, more accurately, stop or slow down the hemorrhaging).  When that proved to be futile, then the Feral Reserve and many of the world's other major central banks resorted to "quantitative easing" (i.e. creating money out of thin air and giving it to the banks directly).  In late 2014, the USA tapered off and ended its QE policy, and in December 2015 ended its zero interest-rate policy by raising the Fed Funds Rate to 0.25-0.50%.  But now, the central banks of the world are starting from zero or close to zero--and some banks including the European Central Bank and the Bank of Japan have even resorted to negative interest rates recently.  That means they are effectively charging depositors for the "privilege" of depositing money, and effectively paying borrowers to borrow money, which basically turns the world of finance upside-down.  Such negative rate territory is uncharted waters, since until a few years ago no country has ever dared to do such a thing.  And there is currently no evidence that such a move will be beneficial, and may in fact turn out to do more harm than good overall.

So monetary policy basically needs a new set of tools and a new game plan to deal with the next crisis, whenever it occurs.  The Feral Reserve and the other central banks of the world are basically still using an outdated playbook.  In the near-term, two things need to change yesterday.  First of all, they need to abandon interest-rate targets altogether for the time being, and instead focus on targeting the growth of the overall economy.  Like Paul Volcker did in 1979-1982, but done in reverse since the "inflation dragon" is not the problem this time.  Secondly, implement Quantitiative Easing for We the People in general (as opposed to the banks, which only benefits the ultra-rich) by injecting newly-created money into everyone's bank accounts.  Granted, the latter measure would probably require an Act of Congress to allow it to occur legally, but as the Feral Reserve is currently debating the legality of negative interest rates in the future, I'm sure they could find some sort of a loophole to allow it in an emergency such as a massive financial crisis.  And of course fiscal stimulus would likely be necessary as well, in additional to much needed reforms to regulate Wall Street and the big banks (a law that rhymes with "brass seagull" comes to mind, as well as a financial transactions tax and better regulation of the shadow banking system), but those two changes to monetary policy would go a long way towards preventing the next recession/crisis from turning into another 2008 or worse.  And of course the silly idea of negative interest rates needs to be abandoned as well.

But let's be brutally honest.  What we are really witnessing these days is the death of an obsolete system, one that has been kept on life support for many years now.  And eventually we will have to pull the plug on it, sooner or later.  It's just a matter of time.

Detroit: The Canary in the Coal Mine

"Hey, at least we're not Detroit!"

That is probably what every city and town in America is saying to themselves now that Detroit has declared bankruptcy after decades of decline.   Yes, Detroit's decline is by far the worst of any city in the nation without a doubt, and their historic bankruptcy is unprecedented.  However, the rest of the country probably wouldn't be so smug if they knew the facts about the crises facing the nation as a whole.   They would realize that Detroit is simply the canary in the coal mine, and now that canary is essentially dead.  And both parties (two sides of the same ugly coin) are to blame for such crises facing our declining American Empire.

Much like Detroit, our nation's once-great manufacturing base has been hollowed out over the past few decades as a result of "free trade" and other failed policies.  As a result, we are essentially becoming a plunder economy that is increasingly based on looting existing resources rather than producing anything new, while the rest of the economy is based primarily on manipulating finance.  Ever notice that the states with the lowest unemployment rates tend to be the oil-rich ones?  Not only is such an economy inherently unsustainable in the long run for obvious reasons, it also eviscerates the middle class and widens the gap between the haves and have-nots, which makes things even less sustainable.  Just ask the ancient Romans how well that worked out for them.

The other big long-run problem is the pensions crisis, which is true for all levels of government as well as much of the private sector as well.   The wolf is now at the door for Detroit, and will soon be arriving elsewhere as well.  Both unions and management are to blame for this crisis:  the former demanded too much and bit off far more than they could chew, while the latter deliberately underfunded the pension system, essentially stealing the money from the workers (albeit legally).  Simple demographics also compound the crisis; as the population ages, there will be more retirees with fewer current workers to support them, and the whole Ponzi scheme eventually unravels.  Though not as acute and much easier to solve, a similar problem exists for Social Security as well.   The trust fund is continually being raided while the population ages and the wealthiest Americans refuse to pay their fair share of contributions.  And neither party has the intestinal fortitude to solve it at this time, while the basic social contract that once held this country together is essentially broken.

Finally, as a result of three decades of reckless and wasteful spending, warmongering, tax cuts for the wealthy, and the aforementioned problems, the nation is now mired in a debt crisis, with our national debt topping $16 trillion.  While it is true that the deficit is down, we are still adding to the debt every minute of every day with no end in sight.   America is already technically bankrupt, and it is highly unlikely anyone will bail us out but ourselves.  Fortunately, there is still time to prevent the entire nation from turning into Detroit, but we need to act fast.  But as long as we keep on electing Republicans and Democrats, the chances for salvation grow increasingly slim each year.      

The TSAP is well aware of what needs to be done to save this country from the fate of the Romans (or worse).  Our party platform contains several crucial planks that must be implemented sometime within the next few years in order for there to be any hope left at all.  Anything else is just rearranging deck chairs on the Titanic.