Friday, January 22, 2016

The strongest, most durable economy in the world, but very unequal

Obama went to Detroit this week, and defended his economic record, including the bailout of the auto-industry. He went further on the offensive, as in the State of the Union, and suggested that Republican candidates that complain about the economy don't have a clue. In his words:
"The United States of America, right now, has the strongest, most durable economy in the world... So when you hear people -- I won't say who -- but when you hear people claiming that America is in decline, they don't know what they're talking about. They're peddling fiction during a political season." [full speech here]
On the other hand, Bernie Sanders (Obama was certainly referring to the GOP candidates, not Bernie) has made the center of his campaign the poor state of the economy, the fact that only the wealthy have benefited to a significant degree from the recovery, and that we need revolutionary changes, including a higher minimum wage, health care for all, and free access to public education, besides re-regulation of the financial sector (breaking the too-big-to-fail banks as part of that). For example, see his take on democratic socialism here.

So who is right? In a sense, both are partially correct.

In a very broad sense, Obama is correct. Meaning that the US is not only in the middle of a recovery, but also that fears of the decline of American hegemony, economic and military, are incredibly exaggerated. The US spends way more than any other country in military terms (and the differences are probably underestimated) and there is no serious security threat to US global dominance. The more than 800 military basis abroad are clear indication of that. The expansion of NATO to areas that were for a long while considered out of reach in Eastern Europe is one example. And even if there is, and there will be more blow back, because of the disastrous decisions in the Middle East, there is little doubt that no other country has the power to resist US threat of military intervention.

But more importantly, American corporations are still dominant, with a significant amount of the technological innovations that will dominate the global economy in the future still coming from the US. And one should note a good chunk of that comes from the Department of Defense (DoD), in particular Defense Advanced Research Projects Agency (DARPA), and other government agencies that are crucial for technological innovation. Think, for example, about Google's driverless car, which would be impossible without DARPA's Grand Challenge. Note that private corporations depend, directly and indirectly, from the hidden developmental state, that promotes, subsidizes and funds many of their efforts.

So in a very real sense the American economy is still the strongest and the most durable economy in the world, as Obama said. And yet, most workers in the US have not benefited from the continuous dominance of American corporations. Only the ones at the top have benefited in any significant degree. Real wages have stagnated and lagged behind productivity, as it is well-known, and in this recovery only more recently have real wages started to increase, modestly, one might add. Even the labor market, with unemployment at 5%, while much better than Europe and many other advanced economies, is still relatively weak. The increase in employment has not been sufficient to increase the employment-to-population ratio from the same low levels that it reached after the crisis in 2008. That is, most job growth went hand-in-hand with the increase in population.

So Bernie is correct too (and in some weird way right-wing populists complaining about American decline are too, even though their pro-corporate policies would make things even worse). American corporations and elites are doing fine. The rest of the country not so much.

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