Two points about today’s political economy – and then a prediction involving Illinois:
Point One: What’s coming is poetic justice for the aristocracy. The wave of populism/socialism/proto-fascism that’s sweeping the US and Europe is a direct result of the breathtaking hubris of a ruling class that didn’t know when to quit stealing.
While it is possible for societies dominated by a small group of rich/connected people to endure and even thrive, they can do so only if the 99% enjoys a rising standard of living and a certain amount of upward mobility. In other words, people will accept the existence of an entrenched elite as long as everyone else does a little better each year.
Today that’s not the case. The current crop of aristocrats (Google “Davos World Economic Forum images” for faces to go with the concept) are now simply harvesting the wealth of their subjects without much thought for their own vulnerability.
For an easy-to-grasp example of how this works, look at interest rates. Over the past couple of decades, the world’s central banks have been pushing rates lower in each cycle, impoverishing small savers and retirees who depend on income from bonds and bank accounts while enriching the already rich by raising the prices of stocks and real estate. The following two charts (from Charles Hugh Smith’s recent Who Killed The Middle Class?) illustrate the widening gap between the pay and assets of the haves and the used-to-haves. To put this in economist-speak, capital is gobbling up labor.
So the coming political tsunami is bit of French Revolution-style poetic justice, since most of the resulting policy changes will be aimed – either explicitly or accidentally – at the 1%.
Point Two: Politics is now just entertainment. In America and much of Europe, the vast majority of voters think they’ll be okay if their side wins the next election and fear hell on earth if the other side wins. They’re wrong. Pretty much the same thing is coming either way.
In today’s US, for instance, the “small government” Republicans are in charge and running trillion-dollar deficits to cover endless wars and massive corporate tax cuts, while fretting (correctly) that if the Democrats win they’ll implement vast new social programs without considering how to pay for them. See the problem? Whoever is in charge will borrow us (which is to say the dollar) into oblivion. The specifics are different but the numbers are devastating either way.
So the best way to approach the political chaos of the next few years is to treat it as a form of guilty-pleasure entertainment, a reality show of epic scope and multitudinous cast. What you absolutely should not do is fall in love with any current politician or ideology, because they’ll break your heart along with your bank account.
As in the original Ghostbusters, we’re being asked to choose the form of our destruction, and our Stay-Puft Marshmallow Man appears to be something called “democratic socialism.”
For an example of what this benign-sounding term involves, let’s visit that state-of-the-art laboratory of fiscal madness, Illinois. Before we start, please note that Illinois and its biggest city Chicago are already functionally bankrupt. Public sector pensions have devoured their host and are now trying to animate the corpse just enough to fool the rating agencies into another year of investment grade bond issuance. In other words, the state and its cities are toast regardless of what happens next.
But what happens next is instructive because it’s going to happen everywhere else in short order. Here’s an excerpt from a Wirepoints’s Mark Glennon article titled Radicals Positioning To Destroy Illinois If Its Fiscal Crisis Doesn’t:
Consider a few of the new left’s plans for Illinois, and how far they have gotten with Illinois Democrats:
• Progressive real estate transfer tax. It’s best seen as an exit tax on wealthier homeowners fleeing. It’s supported by both Chicago mayoral candidates who won a place in the runoff election, Toni Preckwinkle and Lori Lightfoot. The heavily Democratic City of Evanston is already implementing it.
• Rent control. Illinois politicians should be setting the rent, we’re told. A bill authorizing rent control is pending in the General Assembly and Governor Pritzker has indicated approval in concept. Preckwinkle supports rent control; Lightfoot hasn’t indicated her position.
• Universal basic income in Chicago. Just give at least $500 to every family in Chicago, no strings attached. Mayor Rahm Emanuel evidently saw enough force behind the idea that he authorized a task force to look into a pilot program. It’s leading proponent, Alderman Ameya Pawar, may well become Chicago’s new treasurer, having just won his way into the runoff election. Its cost to the city if fully implemented would be about $12.6 billion annually. Chicago’s annual budget for fiscal 2018 was $8.6 billion.
• Statewide $15 per hour minimum wage. Governor Pritzker made this a top priority and already signed the new law raising the minimum to $15 by 2025, statewide. That might seem reasonable around Chicago, but opposition came largely from lower income communities across the state. The Rockford Park District, for example, gives hundreds of teenagers and young adults get their first jobs at a lower wage, and the new law will open a $2 million per year hole in its budget.
Regarding [the current financial crisis’] primary cause, pensions, the Pritzker Administration and both Chicago mayoral candidates are firm: No pension reform. Not one dime’s worth. Pritzker outlined the rest of his fiscal approach in his recent budget address: More borrowing to fund pension debt, a can-kick delaying the schedule for pension contributions and gifting public assets to pensions. Illinois’ new left seems fine with all of that.
That all this new taxing and spending is occuring in an already flat-broke state illustrates a crucial point about revolutions, which is that they’re focused on crushing the old order (i.e., restoring justice) without regard for the cost of implementing the new. That’s why revolutions are frequently followed by hyperinflations and war. And the fact that the main victims will be the 1% is pretty much the only good thing that will come of this one.