The U.S. faces a major superpower conundrum

american-flag-and-eagle

America’s Got the #1 Military in the World — and It’s Increasingly Useless

The rise and fall of great powers and their imperial domains has been a central fact of history for centuries. It’s been a sensible, repeatedly validated framework for thinking about the fate of the planet.  So it’s hardly surprising, when faced with a country once regularly labeled the “sole superpower,” “the last superpower,” or even the global “hyperpower” and now, curiously, called nothing whatsoever, that the “decline” question should come up. Is the U.S. or isn’t it? Might it or might it not now be on the downhill side of imperial greatness?

Take a slow train — that is, any train — anywhere in America, as I did recently in the northeast, and then take a high-speed train anywhere else on Earth, as I also did recently, and it’s not hard to imagine the U.S. in decline. The greatest power in history, the “unipolar power,” can’t build a single mile of high-speed rail? Really? And its Congress is now mired in an argument about whether funds can even be raised to keep America’s highways more or less pothole-free.

Sometimes, I imagine myself talking to my long-dead parents because I know how such things would have astonished two people who lived through the Great Depression, World War II, and a can-do post-war era in which the staggering wealth and power of this country were indisputable.  What if I could tell them how the crucial infrastructure of such a still-wealthy nation — bridges, pipelines, roads, and the like — is now grossly underfunded, in an increasing state of disrepair, and beginning to crumble? That would definitely shock them.

And what would they think upon learning that, with the Soviet Union a quarter-century in the trash bin of history, the U.S., alone in triumph, has been incapable of applying its overwhelming military and economic power effectively? I’m sure they would be dumbstruck to discover that, since the moment the Soviet Union imploded, the U.S. has been at war continuously with another country (three conflicts and endless strife); that I was talking about, of all places, Iraq; and that the mission there was never faintly accomplished.  How improbable is that? And what would they think if I mentioned that the other great conflicts of the post-Cold-War era were with Afghanistan (two wars with a decade off in-between) and the relatively small groups of non-state actors we now call terrorists? And how would they react on discovering that the results were: failure in Iraq, failure in Afghanistan, and the proliferation of terror groups across much of the Greater Middle East (including the establishment of an actual terror caliphate) and increasing parts of Africa?

They would, I think, conclude that the U.S. was over the hill and set on the sort of decline that, sooner or later, has been the fate of every great power. And what if I told them that, in this new century, not a single action of the military that U.S. presidents now call “the finest fighting force the world has ever known” has, in the end, been anything but a dismal failure? Or that presidents, presidential candidates, and politicians in Washington are required to insist on something no one would have had to say in their day: that the United States is both an “exceptional” and an “indispensible” nation? Or that they would also have to endlessly thankour troops (as would the citizenry) for…well…never success, but just being there and getting maimed, physically or mentally, or dying while we went about our lives? Or that those soldiers must always be referred to as “heroes.”

In their day, when the obligation to serve in a citizens’ army was a given, none of this would have made much sense, while the endless defensive insistence on American greatness would have stood out like a sore thumb. Today, its repetitive presence marks the moment of doubt. Are we really so “exceptional”? Is this country truly “indispensible” to the rest of the planet and if so, in what way exactly? Are those troops genuinely our heroes and if so, just what was it they did that we’re so darn proud of?

Return my amazed parents to their graves, put all of this together, and you have the beginnings of a description of a uniquely great power in decline. It’s a classic vision, but one with a problem.

A God-Like Power to Destroy

Who today recalls the ads from my 1950s childhood for, if I remember correctly, drawing lessons, which always had a tagline that went something like: What’s wrong with this picture? (You were supposed to notice the five-legged cows floating through the clouds.) So what’s wrong with this picture of the obvious signs of decline: the greatest power in history, with hundreds of garrisons scattered across the planet, can’t seem to apply its power effectively no matter where it sends its military or bring countries like Iran or a weakened post-Soviet Russia to heel by a full range of threats, sanctions, and the like, or suppress a modestly armed terror-movement-cum-state in the Middle East?

For one thing, look around and tell me that the United States doesn’t still seem like a unipolar power. I mean, where exactly are its rivals? Since the fifteenth or sixteenth centuries, when the first wooden ships mounted with cannons broke out of their European backwater and began to gobble up the globe, there have always been rival great powers — three, four, five, or more. And what of today? The other three candidates of the moment would assumedly be the European Union (EU), Russia, and China.

Economically, the EU is indeed a powerhouse, but in any other way it’s a second-rate conglomeration of states that still slavishly follow the U.S. and an entity threatening to come apart at the seams. Russia looms ever larger in Washington these days, but remains a rickety power in search of greatness in its former imperial borderlands.  It’s a country almost as dependent on its energy industry as Saudi Arabia and nothing like a potential future superpower. As for China, it’s obviously the rising power of the moment and now officially has the number one economy on Planet Earth.  Still, it remains in many ways a poor country whose leaders fear any kind of future economic implosion (which could happen). Like the Russians, like any aspiring great power, it wants to make its weight felt in its neighborhood — at the moment the East and South China Seas. And like Vladimir Putin’s Russia, the Chinese leadership is indeedupgrading its military. But the urge in both cases is to emerge as a regional power to contend with, not a superpower or a genuine rival of the U.S.

Whatever may be happening to American power, there really are no potential rivals to shoulder the blame. Yet, uniquely unrivaled, the U.S. has proven curiously incapable of translating its unipolar power and a military that, on paper, trumps every other one on the planet into its desires. This was not the normal experience of past reigning great powers. Or put another way, whether or not the U.S. is in decline, the rise-and-fall narrative seems, half-a-millennium later, to have reached some kind of largely uncommented upon and unexamined dead end.

In looking for an explanation, consider a related narrative involving military power. Why, in this new century, does the U.S. seem so incapable of achieving victory or transforming crucial regions into places that can at least be controlled?  Military power is by definition destructive, but in the past such force often cleared the ground for the building of local, regional, or even global structures, however grim or oppressive they might have been. If force always was meant to break things, it sometimes achieved other ends as well. Now, it seems as if breaking is all it can do, or how to explain the fact that, in this century, the planet’s sole superpower has specialized — see Iraq, Yemen, Libya, Afghanistan, and elsewhere — in fracturing, not building nations.

Empires may have risen and fallen in those 500 years, but weaponry only rose. Over those centuries in which so many rivals engaged each other, carved out their imperial domains, fought their wars, and sooner or later fell, the destructive power of the weaponry they were wielding only ratcheted up exponentially: from the crossbow to the musket, the cannon, the Colt revolver, the repeating rifle, the Gatling gun, the machine gun, the dreadnaught, modern artillery, the tank, poison gas, the zeppelin, the plane, the bomb, the aircraft carrier, the missile, and at the end of the line, the “victory weapon” of World War II, the nuclear bomb that would turn the rulers of the greatest powers, and later even lesser powers, into the equivalent of gods.

For the first time, representatives of humanity had in their hands the power to destroy anything on the planet in a fashion once imagined possible only by some deity or set of deities. It was now possible to create our own end times. And yet here was the odd thing: the weaponry that brought the power of the gods down to Earth somehow offered no practical power at all to national leaders.  In the post-Hiroshima-Nagasaki world, those nuclear weapons would prove unusable.  Once they were loosed on the planet, there would be no more rises, no more falls. (Today, we know that even a limited nuclear exchange among lesser powers could, thanks to the nuclear-winter effect, devastate the planet.)

Weapons Development in an Era of Limited War

In a sense, World War II could be considered the ultimate moment for both the narratives of empire and the weapon. It would be the last “great” war in which major powers could bring all the weaponry available to them to bear in search of ultimate victory and the ultimate shaping of the globe. It resulted in unprecedented destruction across vast swathes of the planet, the killing of tens of millions, the turning of great cities into rubble and of countless people into refugees, the creation of an industrial structure for genocide, and finally the building of those weapons of ultimate destruction and of the first missiles that would someday be their crucial delivery systems.  And out of that war came the final rivals of the modern age — and then there were two — the “superpowers.”

That very word, superpower, had much of the end of the story embedded in it. Think of it as a marker for a new age, for the fact that the world of the “great powers” had been left for something almost inexpressible. Everyone sensed it. We were now in the realm of “great” squared or force raised in some exponential fashion, of “super” (as in, say, “superhuman”) power. What made those powers truly super was obvious enough: the nuclear arsenals of the United States and the Soviet Union — their potential ability, that is, to destroy in a fashion that had no precedent and from which there might be no coming back.  It wasn’t a happenstance that the scientists creating the H-bomb sometimes referred to it in awestruck terms as a “super bomb,” or simply “the super.”

The unimaginable had happened. It turned out that there was such a thing as too much power. What in World War II came to be called “total war,” the full application of the power of a great state to the destruction of others, was no longer conceivable. The Cold War gained its name for a reason. A hot war between the U.S. and the USSR could not be fought, nor could another global war, a reality driven home by the Cuban missile crisis.  Their power could only be expressed “in the shadows” or in localized conflicts on the “peripheries.”  Power now found itself unexpectedly bound hand and foot.

This would soon be reflected in the terminology of American warfare. In the wake of the frustrating stalemate that was Korea (1950-1953), a war in which the U.S. found itself unable to use its greatest weapon, Washington took a new language into Vietnam. The conflict there was to be a “limited war.” And that meant one thing: Nuclear power would be taken off the table.

For the first time, it seemed, the world was facing some kind of power glut. It’s at least reasonable to assume that, in the years after the Cold War standoff ended, that reality somehow seeped from the nuclear arena into the rest of warfare.  In the process, great power war would be limited in new ways, while somehow being reduced only to its destructive aspect and nothing more. It suddenly seemed to hold no other possibilities within it — or so the evidence of the sole superpower in these years suggests.

War and conflict are hardly at an end in the twenty-first century, but something has removed war’s normal efficacy. Weapons development has hardly ceased either, but the newest highest-tech weapons of our age are proving strangely ineffective as well. In this context, the urge in our time to produce “precision weaponry” — no longer the carpet-bombing of the B-52, but the “surgical” strike capacity of a joint direct attack munition, or JDAM — should be thought of as the arrival of “limited war” in the world of weapons development.

The drone, one of those precision weapons, is a striking example. Despite itspenchant for producing “collateral damage,” it is not a World War II-style weapon of indiscriminate slaughter. It has, in fact, been used relatively effectively to play whack-a-mole with the leadership of terrorist groups, killing off one leader or lieutenant after another.  And yet all of the movements it has been directed against have only proliferated, gaining strength (and brutality) in these same years. It has, in other words, proven an effective weapon of bloodlust and revenge, but not of policy.  If war is, in fact, politics by other means (as Carl von Clausewitz claimed), revenge is not. No one should then be surprised that the drone has produced not an effective war on terror, but a war that seems to promote terror.

One other factor should be added in here: that global power glut has grown exponentially in another fashion as well. In these years, the destructive power of the gods has descended on humanity a second time as well — via the seemingly most peaceable of activities, the burning of fossil fuels. Climate change now promises a slow-motion version of nuclear Armageddon, increasing both the pressure on and the fragmentation of societies, while introducing a new form of destruction to our lives.

Can I make sense of all this? Hardly. I’m just doing my best to report on the obvious: that military power no longer seems to act as it once did on Planet Earth.  Under distinctly apocalyptic pressures, something seems to be breaking down, something seems to be fragmenting, and with that the familiar stories, familiar frameworks, for thinking about how our world works are losing their efficacy.

Decline may be in the American future, but on a planet pushed to extremes, don’t count on it taking place within the usual tale of the rise and fall of great powers or even superpowers. Something else is happening on Planet Earth. Be prepared.

The political fraud of Syriza’s referendum on EU austerity in Greece

greece2

3 July 2015

Since Greek Prime Minister Alexis Tsipras called a referendum on European Union (EU) austerity last Saturday, the entire enterprise has been exposed as a political fraud. It is designed to engineer a further capitulation to the EU’s demands, regardless of the outcome of the vote.

On the eve of the referendum, the Syriza government is in full-scale retreat. If the “yes” vote carries, the Tsipras government is preparing to resign and give way to a more openly right-wing regime, dedicated to implementing whatever the EU demands. In his speech Monday calling for a “no” vote, Tsipras signaled that his government would step down after a “yes” vote, declaring that “we will respect this [vote], but we cannot serve such a mandate.”

If the “no” vote wins, Tsipras declared in a nationally televised address Wednesday that he will only use it to boost his positions in negotiations on austerity with the EU. In exchange for a €30 billion bailout, however, Tsipras has already made clear that he is willing to impose virtually all the EU’s demands. He is asking only for a slower phase-in of deep pension cuts and a partial exemption for the Greek islands of regressive increases in sales taxes (VAT).

Were Tsipras to concisely explain to working people the content of his referendum, he could say: heads the EU wins, tails you lose. Coming only months after Syriza won an election pledging to end five years of austerity, the referendum has been called to give political cover for a surrender to the EU. Had Syriza intended to fight, it would have had no need to call a referendum on EU austerity already rejected by the Greek people.

The referendum has been set up to create the conditions for a vote for austerity, giving a pseudo-democratic veneer to the escalating assault on the Greek working class. While there is widespread hatred of the years of brutal austerity, both Syriza and the EU have done everything they can to confuse and demobilize popular opposition.

The EU, predictably, is pressing for drastic austerity and regime change in Greece. On Wednesday, an anonymous high-ranking German conservative told the Times of London that Berlin will block any EU deal with Greece and expel it from the euro unless the “yes” vote wins and both Tsipras and Greek Finance Minister Yanis Varoufakis resign.

Varoufakis responded yesterday by promising that he also would resign if the “yes” vote carries. He added that he would help his successor implement whatever austerity package the EU demanded. While Varoufakis still claimed to be calling for a “no” vote, he had publicly disowned this position the day before, ordering guards to remove a banner draped over the Finance Ministry that read, “No to austerity and blackmail.”

Varoufakis’s announcement, on the eve of the referendum, that he is all but cleaning out his desk amounts to publicly broadcasting Syriza’s pessimism and demoralization. Listening to Syriza officials speak, one concludes that they not only expect a loss, they more or less welcome defeat, knowing as they do that there is plenty of money to be made from it. It is a clear example of the political duplicity and rottenness of this type of pro-capitalist, pseudo-left party.

The conflicting signals Syriza sends reflect the class interests it represents. It is a bourgeois outfit using democratic jargon to posture as a left-wing party giving voice to broad popular opposition to EU austerity. However, it is deeply committed to the structures of European capitalism, including the euro currency and the EU. The EU, for its part, will tolerate no opposition to its austerity agenda, and Syriza’s anti-austerity posturing has been exposed time and again as empty political theater.

Upon taking office, Syriza has done everything it can to smother opposition to austerity in the Greek and European working class. Tsipras and Varoufakis jetted around European capitals for a few weeks, fruitlessly looking for a deal with the EU, then signed a February agreement extending the austerity Memorandum Syriza had campaigned against. After the EU still refused to restore the flow of credit to Greece, Syriza looted billions of euros from the public coffers this spring to repay its creditors.

As these funds finally ran out last weekend, Syriza called its referendum on austerity as Greek banks closed and the state faced imminent collapse—the conditions of economic turmoil most likely to secure a panicked capitulation to the EU. Some Greek officials even suggested that this was their goal. After European officials responded by ending their bailout of Greece and threatening to expel Greece from the euro, a shocked Varoufakis responded that Syriza had intended to obtain a deal with the EU before the referendum, and ultimately campaign for a “yes” vote.

Syriza’s cowardice and dishonesty give political expression to the outlook of the sections of the affluent middle class and of the Greek bourgeoisie that it represents. These layers, who fear that an expulsion from the euro and a return to a weaker Greek national currency would slash the value of their bank holdings and stock portfolios, enthusiastically defend the EU and the euro. These moods are shared by the privileged parliamentarians, academics and trade union executives inside Syriza itself.

The Syriza government and the Greek referendum call are an immense experience of the Greek and international working class. Millions of workers in Europe and around the world are witnessing the political bankruptcy of parties like Syriza and its international allies—Podemos in Spain, the International Socialist Organization in the United Sates, the New Anti-capitalist Party in France, the Left Party in Germany—that cater to the affluent middle class.

As the EU points a gun to their heads, broad sections of workers in Greece intend to vote “no.” Such a vote can have meaning and deal a real blow to EU austerity policies, however, only in struggle against Syriza as well. It is evident that, whatever the outcome of the referendum, the ruling elites in Greece and across Europe will use it as a pretext to escalate attacks on the working class.

The working class faces a struggle against European capitalism and its pseudo-left defenders such as Syriza. The central precondition for waging such a struggle is the building of a new revolutionary political leadership in the working class. Reactionary instruments of the affluent middle class such as Syriza can bring the working class nothing but disaster.

Alex Lantier

 

http://www.wsws.org/en/articles/2015/07/03/pers-j03.html

Noam Chomsky: Austerity Is Just Class War

The esteemed scholar offers his views crisis over Greece’s debt problems.

As Greece defaults and faces a referendum this Sunday on a new bailout package, watch Noam Chomsky on Europe’s “savage response” to the pushback against austerity demands. He spoke to Democracy Now! in March.

http://www.democracynow.org/embed/blog/2015/7/1/chomsky_greece_s_syriza_spain_s

Click here to watch Monday’s segment, “As Greece Heads for Default, Voters Prepare to Vote in Pivotal Referendum on More Austerity.”

Below is an interview with Chomsky, followed by a transcript:

AMY GOODMAN: I wanted to ask you about Syriza in Greece, a movement that started as a grassroots movement. Now they have taken power, Prime Minister Alexis Tsipras. And then you have Spain right now. We recently spoke to Pablo Iglesias, the secretary general of the group called Podemos, that was founded, what—an anti-austerity party that has rapidly gained popularity. A month after establishing itself last year, they won five seats in the European Parliament, and some polls show they could take the next election, which would mean that Pablo Iglesias, the 36-year-old political science professor and longtime activist, could possibly become the prime minister of Europe’s fifth-largest economy. He came here to New York for just about 72 hours, and I asked him to talk about what austerity measures have meant in Spain.

PABLO IGLESIAS: Austerity means that people is expulsed of their homes. Austerity means that the social services don’t work anymore. Austerity means that public schools have not the elements, the means to develop their activity. Austerity means that the countries have not sovereignty anymore, and we became a colony of the financial powers and a colony of Germany. Austerity probably means the end of democracy. I think if we don’t have democratic control of economy, we don’t have democracy. It’s impossible to separate economy and democracy, in my opinion.

AMY GOODMAN: That was Pablo Iglesias, the head of this new anti-austerity group in Spain called Podemos, which means in English “We can.” The significance of these movements?

NOAM CHOMSKY: It’s very significant. But notice the reaction. The reaction to Syriza was extremely savage. They made a little bit of progress in their negotiations, but not much. The Germans came down very hard on them.

AMY GOODMAN: You mean in dealing with the debt.

NOAM CHOMSKY: In the dealing with them, and sort of forced them to back off from almost all their proposals. What’s going on with the austerity is really class war. As an economic program, austerity, under recession, makes no sense. It just makes the situation worse. So the Greek debt, relative to GDP, has actually gone up during the period of—which is—well, the policies that are supposed to overcome the debt. In the case of Spain, the debt was not a public debt, it was private debt. It was the actions of the banks. And that means also the German banks. Remember, when a bank makes a dangerous, a risky borrowing, somebody is making a risky lending. And the policies that are designed by the troika, you know, are basically paying off the banks, the perpetrators, much like here. The population is suffering. But one of the things that’s happening is that the—you know, the social democratic policies, so-called welfare state, is being eroded. That’s class war. It’s not an economic policy that makes any sense as to end a serious recession. And there is a reaction to it—Greece, Spain and some in Ireland, growing elsewhere, France. But it’s a very dangerous situation, could lead to a right-wing response, very right-wing. The alternative to Syriza might be Golden Dawn, neo-Nazi party.

Amy Goodman is the host of Democracy Now! and the co-author of The Silenced Majority.

http://www.alternet.org/economy/noam-chomsky-austerity-just-class-war?akid=13264.265072.Sa2xi5&rd=1&src=newsletter1038752&t=9

It was the creditors who pushed Greece over the edge

By Jerome Roos On July 1, 2015

Post image for It was the creditors who pushed Greece over the edgeIf they had truly cared, the creditors could have easily prevented a default. Sadly, they found it more important to punish Greece and set an example.

Image: sticking posters for the NO campaign ahead of Sunday’s referendum.

On Tuesday, Greece became the first developed country to default on the IMF — and the pro-creditor camp is already propagating the convenient self-serving myth that the country’s “radical” and “irresponsible” government is somehow to blame for this. Nothing could be further from the truth.

To begin with, we should note that defaults come in many forms and guises — and not all of them are the debtor’s fault. In my own research on the political economy of sovereign debt, I identify at least four types of default: (1) negotiated reschedulings; (2) voluntary restructurings; (3) unilateral moratoriums; and (4) outright debt repudiations.

What is interesting about sovereign debt in general (and about international lending in particular) is the almost wholesale absence of repudiation. By and large, countries try extremely hard to repay their debts in full and on time — even when they cannot. In the worst case scenarios, they may be able to negotiate a rescheduling or restructuring of the debt with their lenders. In exceptional cases, countries can declare a moratorium on repayments. While this was very common prior to World War II, it is extremely rare today.

In this respect, the first thing to note is that Greece clearly did not repudiate its debts outright: despite the preliminary conclusions of the Greek parliamentary debt audit committee, which found much of the country’s debt to be odious, illegitimate and illegal, the Syriza/ANEL government still formally recognizes the legally binding character of the debt contracts. Its IMF default therefore looks more like an undeclared moratorium: Greece could still settle its arrears with the Fund at a later stage if it somehow managed to secure new credit.

The second thing to note is that Greece clearly cannot repay its debts in full: even the IMF recognizes that it needs serious debt relief to make its debts sustainable. Still, the country’s left-led government committed itself to remaining current on its obligations even under the most difficult circumstances imaginable. Over the past five months, Syriza basically did the impossible: it continued to repay foreign creditors even though it didn’t receive a dime in foreign financing.

So how did it find the money for these practically unsustainable debt payments? Well, it generated them domestically from taxes and budget cuts — along with ade facto default on government suppliers. Long before Greece defaulted on the IMF, it defaulted on its own people and on the private sector firms that do business with the government, just so it could keep servicing its external debts.

In fact, for all the talk of Greek “profligacy” and Syriza’s free-spending ways, the left-led government would have run the largest primary surpluses in the EU by far. In fact, Syriza’s budget would have been the most austere on the continent:

Source: Economist (2015)

Now, the reason Greece has hit a wall and defaulted on the IMF is very simple: despite running primary surpluses, it basically ran out of cash reserves — and the fact that it ran out was clearly not its own fault.

For one, Greece’s repayment schedule for 2015 was simply unrealistic; the summer especially is full of huge payments. Moreover, the creditors showed absolutely no willingness to reschedule or restructure Greece’s debt profile. The creditors’ stubborn refusal to make any concessions in the negotiations also contributed to continued uncertainty, affecting growth and tax collection. This combination of factors made an involuntary moratorium on the IMF inevitable.

But it gets worse. If the creditors had truly cared about preventing a Greek default, they could have done so at the flick of a switch. The Eurogroup and IMF still owed Greece the last 7.2 billion euro tranche of its previously agreed bailout package, while the ECB owed it nearly 2 billion euros in withheld profits on Greek bonds, which it was supposed to return to the government. If the lenders really didn’t want Greece to default, they could have simply transferred this money from one part of the Troika to another — problem solved!

But it should be clear by now that the standoff between Greece and its creditors is no longer about the money: it’s about power and control. The creditors were adamant not to encourage Syriza’s resistance, for this might embolden anti-austerity forces elsewhere — most notably in Spain, where Podemos might well win the next elections. They wanted to set an example.

The only possible way Greece could have obtained further financing to repay the IMF this week would have been to sign up to the self-defeating “take-it-or-leave-it” offer made by the creditors last Friday. This would have been suicidal both for Syriza and for Greece. It was obvious from the start that Tsipras would be unwilling and unable to submit to the same austerity measures that had produced such disastrous economic consequences under previous governments, and against which he had been campaigning so aggressively for all those years.

And so the bottomline is that Greece was pushed over the edge by its own creditors. Its left-led government is clearly still willing to pay — just not at all costs, like previous governments. In fact, Syriza rightly demands a fairer distribution in the burden sharing, a sustainable long-term payment trajectory, and a sovereign say in the way it chooses to meet its obligations — by taxing shipowners, bankers and media magnates, for example, rather than cutting the wages and benefits of workers, pensioners and the unemployed.

If this is considered “radical” and “irresponsible” in Europe today, it’s only because the center has shifted light-years to the right. Unfortunately, that is precisely what has happened. If anyone bears responsibility for the Greek default on the IMF, it is the extremists in the creditor camp who would rather suffocate their borrowers than ensure continued repayment.

Jerome Roos is a PhD researcher in International Political Economy at the European University Institute, and founding editor of ROAR Magazine. Follow him on Twitter at @JeromeRoos.

 

http://roarmag.org/2015/07/greece-debt-default-imf/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+roarmag+%28ROAR+Magazine%29

US income inequality continued to soar in 2014

102626504-income-inequality

By Andre Damon
2 July 2015

Income inequality in the United States continued to grow in 2014, according to updated figures released last week by University of California, Berkeley economist Emmanuel Saez.

According to Saez’s report, the top one percent of income earners increased their share of total income from 20.1 percent in 2013 to 21.2 in 2014 percent.

The income shares of the highest-earning 10 percent, 1 percent, and 0.1 percent of income earners all grew in 2014. The top ten percent of earners received 49.9 percent of income in 2014, more than any other year besides 2012.

Saez noted that the top 1 percent of earners received 58 percent of income gains during the so-called economic “recovery” between 2009 and 2014. The incomes of the bottom 99 percent grew by just 4.3 percent during that period.

The figures for 2014 mark the first year that real incomes for the bottom 99 percent of earners increased by any significant amount since the 2008 financial crisis. Incomes for the bottom 99 percent grew at a rate of 3.8 percent last year.

Saez wrote that “the incomes of most American families are still far from having recovered from the losses of the Great Recession.” He added that by 2014, the bottom 99 percent of income earners had recovered less than 40 percent of the annual income they had lost during the 2007-2009 recession.

The modest growth in incomes for the bottom 99 percent was dwarfed by the increase in the incomes of the super-rich. The incomes for the top 1 percent of earners grew at a rate of 10.8 percent last year, more than three times faster than the average for the bottom 99 percent.

While the growth of social inequality has dramatically accelerated following the 2008 crash, this is a continuation of a decades-long process. The report notes, “Top 1 percent incomes grew by 80.0% from 1993 to 2014. This implies that top 1 percent incomes captured almost 60% of the overall economic growth of real incomes per family over the period 1993-2014.”

Saez warns that the growth of inequality is not likely to slow down, noting, “Based on the US historical record, falls in income concentration due to economic downturns are temporary unless drastic regulation and tax policy changes are implemented and prevent income concentration from bouncing back. Such policy changes took place after the Great Depression during the New Deal and permanently reduced income concentration until the 1970s.”

He notes, “The policy changes that took place coming out of the Great Recession… are modest relative to the policy changes that took place coming out of the Great Depression. Therefore, it seems unlikely that US income concentration will fall much in the coming years, absent more drastic policy changes.”

In fact, the US government’s response to the 2008 crash has been dedicated to inflating the wealth of the super-rich while driving down incomes for the vast majority of the population. The White House has protected Wall Street executives from legal prosecution, while the Federal Reserve has handed out trillions of dollars in cheap money through “quantitative easing” programs, leading share values to triple on major US exchanges.

Saez notes that a significant contributor to the growth of income inequality has been the growth of the salaries for top earners, particularly top executives. He observes, “The income composition pattern at the very top has changed considerably over the century. The share of wage and salary income has increased sharply from the 1920s to the present, and especially since the 1970s. Therefore, a significant fraction of the surge in top incomes since 1970 is due to an explosion of top wages and salaries.” He adds that, by some estimates, “the share of total wages and salaries earned by the top 1 percent wage income earners has jumped from 5.1 percent in 1970 to 12.4 percent in 2007.”

There are signs that this process is accelerating. The same day that Saez published his report, the Wall Street Journal published a separate survey of executive pay, which found that CEOs at major corporations it surveyed had their pay increase by 13.5 percent in 2014, hitting $13.6 million.

The soaring wealth of the financial elite, driven by surging stock prices and executive pay, is driving demand for luxury goods and housing in major financial centers. Manhattan real estate prices have reached an all time high, with the average home price hitting $1.87 million, according to reports cited by the New York Times Wednesday. The Times noted that real estate developers are scrambling to create enormous multi-million-dollar high-rise apartments, which are being snapped up by members of the financial elite.

Meanwhile, the housing situation for the great majority of the population has only worsened since 2008. Last week a study by Harvard University’s Joint Center For Housing Studies found that the share of the US population that owned a home hit the lowest level in two decades, with the homeownership rate for those aged 35-44 plunging to the lowest level since the 1960s. The report attributed the fall in home ownership to falling incomes for typical US households, noting that median household income in the US remained 8 percent below its level in 2007.

On Thursday, US President Barack Obama plans to unveil what he has called a major new policy initiative in a speech in La Crosse, Wisconsin. The proposal entails new federal rules that would make an additional 3 percent of the US population eligible for overtime pay. If adopted, the change would add a mere $1.3 billion to worker’s wages annually. This is a tiny fraction of the trillions of dollars that have been transferred to the financial elite since the 2008 financial crisis.

To put things in perspective; Obama’s program would transfer less income to working people each year than Facebook CEO Mark Zuckerberg made in a single day last year.

 

http://www.wsws.org/en/articles/2015/07/02/saez-j02.html

The IMF defaulted on Greece a long time ago

By Jerome Roos On June 30, 2015

Post image for The IMF defaulted on Greece a long time agoEven its own officials recognize that the IMF played a leading role in Greece’s economic collapse. It is time for the Fund to own up and pay its dues.

Image: Protesters in Athens rally against austerity and for a ‘NO’ vote in next Sunday’s referendum (Monday, June 29).

Tuesday marked the deadline for Greece to transfer a 1.6 billion euro debt repayment to the IMF. The country’s Finance Minister Yanis Varoufakis had already announced that his government could not — and would not — pay. And so, at 6pm Washington-time, 1am locally, Greece officially defaulted on the IMF.

The default is an unprecedented event in the history of finance: never before has a developed country fallen into arrears on a loan from the Fund. Unsurprisingly, the international press is already conjuring up unflattering comparisons with notorious failed states like Zimbabwe and Somalia, which are among the few countries to have gone down the same path of utter financial ignominy. With all due respect for Zimbabwe and Somalia, the implication of this media narrative is clear: Greece is about to become a hopeless basket case.

In truth, superficial parallels like these are dangerously misleading. Not only do they compare apples and oranges; they also end up obscuring the IMF’s own role in the decimation of the Greek economy, which basically made an eventual Greek default inevitable. By uncritically reproducing narratives of Greece’s “failure” to repay the Fund, many in the international media are directly overlooking the fierce internal criticism that top IMF officials have expressed about their ownresponsibility for the utter disaster of the Troika’s bailout programs.

Yes, it’s true: never before has a developed country failed to repay the IMF on time. But, then again, never before has a developed country experienced such a catastrophic economic collapse in peacetime — and never before have official creditors been so criminally complicit in producing the collapse (although the brutal structural adjustment programs in Latin America, Africa and East-Asia were in many ways even more inhumane).

Greece has by now lost a quarter of its total economic output since the start of the crisis. Unemployment is still higher than it was in the United States during the Great Depression. Public health and other public services have completely imploded. Almost 1 million Greeks are without health insurance; 11.000 people are estimated to have committed suicide as a result of economic hardship. The depth of this crisis is absolutely unprecedented, and the creditors themselves (including the IMF) owe a great deal of the responsibility.

Interestingly, the IMF itself has long since recognized this. Just consider what the Fund wrote in its ex-post evaluation of the first Greek bailout of 2010. The program, the IMF blatantly states, “only served to delay debt restructuring and allowed many private creditors to escape … leaving taxpayers and the official sector on the hook” (p. 28). Moreover, the Fund admits that “earlier debt restructuring could have eased the burden of adjustment on Greece and contributed to a less dramatic contraction in output” (p. 33).

In the same report, the IMF also conceded that “the burden of adjustment was not shared evenly across society” (p. 24); that “ownership of the program was limited” (p. 24); that “the program was based on a number of ambitious assumptions” (p. 26); that “the risks were explicitly flagged” (p.27); and that “ex-ante debt restructuring was not attempted” (p. 27).

“An upfront debt restructuring would have been better for Greece,” the Fund concludes, “although this was not acceptable to the euro partners. A delayed debt restructuring … provided a window for private creditors to reduce exposures and shift debt into official hands.” Or to put that in ordinary language: the IMF basically admits that it should have canceled a large chunk of Greece’s debt at the very start, but decided not to do so because the Europeans needed them to help save their private banks. There you have it, from the horse’s mouth.

Miranda Xafa, a former member on the IMF executive board, has reached the same conclusion. Noting that the reason for delaying a much-needed debt restructuring was simply to allow private banks to reduce their exposure to Greece, she penned a highly critical paper in which she confirms that “The exposure of core euro area banks, especially French and German banks, was a key reason why a debt restructuring was not attempted sooner.”

By early 2011 it was already clear that the first bailout would not be enough to keep Greece afloat. Unsurprisingly, given the ferocity of the austerity measures demanded by the IMF and the European creditors, the Greek economy was contracting much faster than the wildly optimistic IMF prognoses had foreseen (see the graph below). In a widely disseminated mea culpa, IMF chief economist Olivier Blanchard later acknowledged that the Fund’s unrealistic (and ultimately false) prognoses hinged on a set of assumptions that massively underestimated the contractionary effects of the Troika’s austerity measures.

This was no mere methodological error. According to Susan Schadler, former deputy director of the IMF’s European Department, the Fund’s notoriously inadequate multipliers were the direct outcome of a set of “fundamental political pressures” that compelled IMF staff to paint a much rosier picture of the Greek bailout program than reality merited.

The Fund’s scheme was obvious for everyone to see. As Martin Wolf of theFinancial Timesnoted: “instead of making the debt sustainable, the programme merely let many private creditors escape unscathed. All this tells us depressing things about the politicisation of the IMF and the inability of the eurozone to act in the best interests of its weaker members.”

It was not all about the money, however. After 2012, the European banks had basically divested themselves of Greek debt and a Greek default no longer appeared to be a systemic risk. Still, the debt provided the Europeans with a powerful instrument to exert long-term fiscal control over Greece. Schadler:

Several interviewees suggested that apart from domestic political considerations, one reason the Europeans did not want to commit openly to absorbing the costs of the crisis and establishing an endgame [i.e., granting Greece debt relief] was that they felt it necessary to perpetuate uncertainty as a method of holding the feet of the Greek government to the fire.

Last Saturday, hours after Tsipras announced the Greek referendum, former IMF chief Dominique Strauss-Kahn decided to weigh in on the matter too. In ashort paper entitled “Learning from one’s mistakes”, Strauss-Kahn (who was in charge of the Fund at the time of the first Greek bailout, until he resigned following a sex scandal involving rape allegations) said he was willing to “take responsibility” for his part in forcing an “asymmetrical” and overly “counter-cyclical” adjustment upon Greece.

The evidence for the IMF’s criminal complicity in the collapse of the Greek economy is simply overwhelming. Yes, the officials at the Fund bear direct responsibility for the years of untold suffering they have inflicted upon millions, including the tens of thousands who died because they could not obtain adequate medical treatment or who, driven to despair by the lack of economic prospects, took their own lives. In any civilized country, those responsible for such vast suffering and loss of life would have been sentenced to prison years ago.

In its review of the 2010 bailout, the IMF itself admitted that “in retrospect, the program served as a holding operation” to allow private creditors and domestic elites to escape the crisis without having to share in the burden of adjustment. This can only lead us to one possible conclusion: Greece may have defaulted on the IMF tonight, but the IMF itself defaulted on the Greeks a long, long time ago. It is high time for the creditors to pay their dues and return the immense moral and material debt they owe to the people of Greece.

It is time to cancel the debt.

Jerome Roos is a PhD researcher in International Political Economy at the European University Institute, and founding editor of ROAR Magazine. Follow him on Twitter @JeromeRoos.

 

http://roarmag.org/2015/06/greece-imf-default-bailout/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+roarmag+%28ROAR+Magazine%29

Global parasitism creates conditions for a new financial meltdown

abutres-vultures-argentina-default-imf-wb

1 July 2015

The way in which financial parasitism, fed by the ultra-cheap money policies of the US Federal Reserve and other central banks, is creating conditions for another crisis is revealed in figures on takeovers and mergers in the first half of this year.

According to a report published in the Financial Times on Tuesday, a “heady cocktail of ultra-low financing costs” lifted US merger and acquisition activity to almost $1 trillion in the first six months of the year, an increase of 60 percent over the same period in 2014 and the highest level since records started to be kept in 1980. The price paid to purchase companies has reached new highs, averaging 16 times earnings before interest, taxes, depreciation and amortisation. This compares to 14.3 times in 2007. In one major takeover, the ratio was 20.

The feeding frenzy is now greater than that which preceded the financial crisis of 2008, and it is not confined to the US. Global merger and acquisition activity has risen by 38 percent in the first half of 2015 compared to a year ago, reaching $2.18 trillion, its highest level since 2007.

These figures are another expression of the fact that parasitic activity—purchasing a company, often with borrowed money obtained at very low rates, and carving up its assets—is increasingly replacing productive investment as a source of profits.

But there is a sense, even among participants, that this orgy cannot continue indefinitely. One “senior banker” told the Financial Times that this year “feels like the last days of Pompeii: everyone is wondering when will the volcano erupt.”

Warnings of another financial explosion and the incapacity of central banks and financial authorities to deal with it were at the centre of the annual report of the Bank for International Settlements issued on Sunday.

The BIS, which is sometimes called the central bankers’ bank, has been severely critical of the low-interest regime established by the pouring of money into financial markets by central banks. It was one of the few official institutions to warn of the build-up of conditions for a crisis in the years preceding 2008, and has been critical of the policies pursued since then.

According to the BIS, “In some jurisdictions, monetary policy is already testing its outer limits, to the point of stretching the boundaries to the unthinkable.”

Its report points out that the roots of the crisis are to be found in the steady decline in real interest rates starting in the 1980s. The fall in interest rates gave rise to an increase in debt, meaning it was increasingly difficult to increase rates lest this set off a crisis. When a crisis did emerge, the response was to lower interest rates still further.

In his comments on the report, the head of the BIS monetary and economic department, Claudio Borio, said that real interest rates in the major economies had never been so low for so long. “Rather than reflecting the current weakness,” Borio said, “they [low interest rates] may in part have contributed to it by fuelling costly financial booms and busts and delaying adjustments. The result is too much debt, too little growth and too low interest rates.”

Puncturing the myth that central bankers and monetary authorities are somehow in control of the global financial system and have a clear idea about what they are doing, the BIS report notes that “there is great uncertainty about how the economy works.” It says “risk-taking in financial markets has gone for too long,” and the “illusion that markets will remain liquid when under stress has been too pervasive.”

Fear about the “illusion” of liquidity refers to a situation where investors and speculators all want to sell and suddenly there are no buyers to be found.

The BIS warned that the flooding of the markets, giving rise to record low interest rates, is creating the conditions for a crisis which central bankers may not be able to control because of their previous policies. “The more one stretches an elastic band, the more violently it snaps back,” the report said.

Therefore, there should be a move to normalise monetary policy to meet the situation when the next recession comes, “which will no doubt materialise at some point.” Central banks would not be able to meet that situation by lowering rates because they are already at or near zero. “Of what use is a gun with no bullets left?” the report asks.

The basic thrust of the BIS report is that while financial bubbles, fuelling inflated share buybacks and merger and acquisition deals, may provide solutions in the short term, in the long run they simply create the conditions for another crisis.

While it is not spelt out directly, the BIS critique of the present policies is an expression of the fact that, in the final analysis, the source of all forms of profit is the surplus value extracted from the working class. Therefore, the only way for capital to overcome its crisis and restore stability is a massive increase in exploitation.

Thus, the central policy recommendation in the report is for a shift away from reliance on monetary policy and the imposition of “initiatives that are more structural in character.”

The bitter experiences of the past decade have already underscored what this means—the destruction of working conditions and cuts to vital social services and other government funding, coupled with “flexibility” of labour markets. An environment conducive to “innovation and entrepreneurship”—that is, a free rein for business—must be established, according to the BIS.

It also calls for measures aimed at “boosting labour force participation.” This means making available new sources of cheap labour by forcing those on disability or other forms of pensions back into the workforce as their entitlements are slashed.

The report does not spell out how such measures—which are already being implemented in all the major economies—are to be intensified, other than saying that it will be “politically difficult.” The difficulties refer to the fact that their imposition is fundamentally incompatible with the maintenance of any kind of democratic regime.

The BIS chose to keep silent on what its prescriptions meant politically. But a report issued by the American banking and investment giant JPMorgan Chase two years ago spoke out very clearly on what it saw as the major problems in the political systems of a number of countries in Europe, including Greece, Spain, Portugal and Italy.

The constitutions of those countries, it said, had been drawn up after the defeat of fascism and incorporated features inimical to a resolution of the problems for capital created by the financial crisis. These included “weak executives, weak central states relative to regions, constitutional protection of labour rights; consensus-building systems which favour political clientalism, and the right to protest if unwelcome changes are made to the status quo.”

In other words, the kind of political, economic and social conditions that prevailed in fascist regimes, where capital had unrestricted freedom of operation, should be restored.

Two years on, this agenda is being carried out in Greece through the dictates of the European Union, the International Monetary Fund and the European Central Bank, which insist that any expression of the interests of the mass of the people, even within the limited framework of bourgeois democracy, must be overridden and trampled on in the interests of the profit system. But it is not confined to Greece.

The economic and social devastation in Greece does not arise from conditions peculiar to that country, but from the breakdown of the global capitalist system. Greece is the testing ground for the kind of measures to be carried out in every country, which, as the BIS report makes clear, are assuming ever-greater urgency for the financial and corporate elites.

Nick Beams

 

http://www.wsws.org/en/articles/2015/07/01/pers-j01.html