Economics and politics - comment and analysis

Tales of extraordinary insanity. Part 3: in order to solve the climate crisis, the Left has to gain power

Introduction

According to Chris Hedges and Noam Chomsky, the reason why the problem of climate change, the most pressing issue humanity ever faced, remains unsolvable is because we live in what they call ‘the mafia state’ (see herehere, here and here). Hedges defines mafia states, somewhat cryptically, as “systems of governance that are seized by a tiny cabal”. In essence, democratic oversight and democratic policy-making have been completely lost. He also provides a historical timeline: there were the early years of Reagan and Clinton, which were marked by the promise that making the rich richer would benefit everyone. The years of George W. Bush and Barack Obama were marked by declarations that things are getting better even though they were getting worse (they were – see below). The era of final consolidation – Donald Trump — is characterised by “lunatic trolls, hedge fund parasites, con artists, conspiracy theorists and criminals that drop all pretense” (see here).

That our democratic institutions are not working is not in doubt and it is nothing new (see for example here). Erin Ackerman recently one again focused on one severe flaw in the US system: the dominance of organisations that are not genuine political parties with public participation but elite-run candidate-selection institutions which are described as the two factions of the single business party that dominates the political system (see also here). These ‘parties’ have protected themselves from competition by devices that bar political initiatives that grow out of the free association of participants, as would be the case in a properly functioning democracy. Beyond that there is the overwhelming role of concentrated private and corporate wealth. A recent study by Ferguson et al. on “How Money Drives US Congressional Elections,” reveals a close correlation between campaign expenditures and electoral outcomes in Congress over decades (see here). Work in political science – particularly by Martin Gilens et al. – reveals that most of the population is effectively unrepresented, in that their attitudes and opinions have little or no effect on decisions of the people they vote for, which are pretty much determined by the very top of the income-wealth scale (see here and here). Such results are not new. There is no doubt that this is true.

Oligarchy is only one of the characteristics of the ‘mafia state.’ It is not only the lack of democratic decision-making. As Hedges writes, we now live in a world in which CEOs demand – and receive – pay that is 200 or 300 times or more what their average workers earn. Is that morally acceptable? Is it good economics? When corporate executives commit massive fraud, such as the billing of hundreds of thousands of Wells Fargo customers for accounts they never opened, they elude punishment and personally profit. CEO John Stumpf left Wells Fargo with a pay package that averages nearly $15 million a year. Richard Fuld received nearly half a billion dollars from 1993 to 2007, a time in which he was bankrupting Lehman Brothers. Little wonder that people use words like pillage and mafia.

This predatory behaviour did become possible because the elite uses lobbyists and buys politicians to write self-serving laws. The two ruling political parties in the US corroded and destroyed the mechanisms and institutions that permitted democratic participation and provided protection for workers. It is this corporate coup that created a mafia capitalism and a mafia political system. A rentier class, composed of managers at hedge funds, banks, financial firms and other companies makes money not by manufacturing, but from the control of economic rents. It is now possible for Mylan to raise the price of an epinephrine auto-injector used to treat allergy reactions from $57 in 2007 to about $500 in 2016. What is more, incredibly, we count this as economic growth.

According to Hedges, this political constellation brought men and women to positions of power which, throughout history, had been confined to political, economic, cultural and intellectual irrelevance – the sort of people who should not govern: the scavengers without inhibition, men and women without any public qualities. The latest US presidential election provided a perfectly illustration of this cabal. The GOP presidential ‘debates’ showed a surrealistically embarrassing collection of ignorants, half-wits, racists and deviants yelling insults at one another. This circus was so good that CNN wanted more of it. The Democratic presidential ‘debates’ proved that no decency exists on either side. If these people are all what parties can come up with, the game is up.

It is these ‘politicians,’ Chomsky cynically writes, who provide, together with their bureaucrats and their mandarins, the population with the service of living in a free market society. This implicit taxpayer ‘subsidy’ has been estimated by Bloomberg Businessweek at $80 bn per year. For this modest sum, the American population – which is of course forced to pay (all in the name of ‘freedom’) – buys economic dysfunction, political powerlessness and social demise because some of the rich and powerful always need “subsidies” – there are constant handouts for defence, big agriculture, GM foods, fracking, to those ‘too big to fail’ or too well connected, to those who pay their workers so little that their full-time employees still depend on social welfare (Walmart), to un-competitive companies which do not innovate because ‘Washington’ will ‘fix’ them anyway (GM), etc. Today, these groups that Adam Smith called the masters of mankind implement the same vile maxim he formulated: All for ourselves and nothing for anyone else. In the absence of a general, popular reaction that is what happens. And this is the essential point: the loss of democratic popular control, in concrete terms, the demise of labour as a politically relevant force, not only in the US, but everywhere in the West. And this is also why ‘we’ fail to ‘solve’ the climate change crisis.

All over the Western world, those at the sharp end have been hit the hardest. For the last thirty or so years, all political systems in the West have done the same: everything which could be cut has been cut. The result has been an extraordinary rise of inequality and human misery. Surreal as it sounds and impossible as it seemed even a couple of decades ago, nowadays food banks and homelessness are mushrooming in almost all Western countries. All of it got much worse in the aftermath of the great crisis of 2008-2009. Cuts are meant to pay for the collapse in corporate investment and for tax revenues which, of course, they do not (budget deficits rise). The political, economic, social and geographical consequences of these policies are clear, but a pernicious fanaticism reigns almost everywhere. It is backed up by a fundamentalist ideology. Society regressed to the point that many regard unemployed people as scroungers, parasites, people unfit for ‘participation,’ people who have to be disciplined, humiliated, sanctioned, made powerless and politically irrelevant – a process to which, scandalously, ALL mainstream political parties in all European countries contributed. No one will stand up and demand, for example, that companies invest. That is an utterly ridiculous idea – it would be ‘interference’ in the economy. No one will stand up and demand that companies pay their taxes – that is also utterly ridiculous. But look at what is happening. As Seamus Milne wrote in the Guardian, the richest 1,000 people in Britain have seen their wealth increase by £155bn since the crisis began – more than enough to pay off the whole government deficit of £119bn at a stroke (see here). The scale of tax avoidance by high-street brand multinationals became clear years ago, in 2012, in no small part thanks to campaigning groups such as UK Uncut. What happened in the meantime? Absolutely nothing.  Asda, Google, Apple, eBay, Ikea, Starbucks, Vodafone all pay minimal tax on massive UK revenues, mostly by diverting profits earned in Britain to their parent companies or lower tax jurisdictions via royalty and service payments or transfer pricing. Four US companies – Amazon, Facebook, Google and Starbucks – have paid just £30m tax on sales of £3.1bn over the last four years. Apple is estimated to have avoided over £550m in tax on more than £2bn worth of underlying profits in Britain by channelling business through Ireland. Starbucks has paid no corporation tax in Britain for the last three years. But no one cares – not really. The Irish government does not even want that Apple pays its taxes. Milne estimates 19 US-owned multinationals are paying an effective tax rate of 3% on British profits, instead of the standard rate of 26% (see here). Collecting the taxes that these companies have wriggled out of would go a long way to shrinking the deficit for which working- and middle-class Britain’s living standards are being sacrificed. The total tax gap between what’s owed and collected has been estimated by Richard Murphy of Tax Research UK at £120bn a year (£25bn in legal tax avoidance, £70bn in fraudulent tax evasion and £25bn in late payments). What happens in the meantime? Ministers are slashing the tax inspection workforce and introduced a new incentive for British multinationals to move their operations inbusiness to overseas tax havens. Taken together with the multiple individual tax scams of the elite, this roll call of corporate infamy is an intolerable scandal. What is the political world in the UK talking about today? The ‘necessity’ (sic) of the end to free migration!

Are Hedges and Chomsky right when they talk about the ‘mafia state’? It is not that important how we call it. The essence is that it does not work. If the fight against climate change depends on such people, nothing will ever come of it. Nothing proves this better than the empty shell that the global elite produced in December 2015: their famous and historical milestone, the Paris Agreement.

The Paris climate deal is a danger to humanity

The COP21 Paris Agreement on Climate Change is now thirteen months old and in the meantime it achieved nothing. Unbelievably, the Agreement contains no reference to “coal,” “oil,” “fracking,” “shale oil,” “fossil fuel” or “carbon dioxide.” The words “zero,” “ban,” “prohibit” or “stop” do not occur (see here). It contains nothing of substance on the cause of climate change. The word “adaptation” occurs 85 times, although the responsibility to adapt is nowhere mentioned. Liability and compensation are explicitly excluded (see here). The Agreement sets out a goal which cannot be reached. There is no action plan. The proposed emission cuts by the nations are voluntary. There is no enforceable compliance mechanism, let alone that there would be sanctions. In a real sense, the Agreement cannot be considered “binding” to the signatories because there is nothing to bind. It does not even matter if it is being ratified or not. The Paris Agreement is like negotiating an agreement to achieve world peace without mentioning weaponry, while all signatories continue to subsidise the arms dealers. In 2014, an estimated $550bn in fossil fuel subsidies was paid out worldwide, skewing investment away from sustainable options.

Even if the countries would implement the measures which are necessary to reach their ‘voluntary national commitments,’ emissions in 2030 will be substantially higher than in 2015. The emissions will be consistent with a 3.1 °C warming path by 2100. At least, that was the expectation at the end of 2015. We know better in the meantime.

There is ample reason to expect much more than a 3°C rise (see the Friedrich paper in part 1 here). This is the fault of the IPCC, which, for political reasons, choose to err on the side of caution for decades. The IPCC left absolutely essential carbon and methane cycle feedbacks out of the equation. The Paris Agreement proves that those in power do not have the will to stand up to the biggest threat humanity has ever faced.

The politically correct distinction between a warming between 1 and 2°C, which is considered “dangerous,” and more than 2 degrees, which is considered “very dangerous,” is also fallacious (see here). Global average temperature (although this is, in more than one way, an inappropriate measure because it is the effects at the latitudinal gradients which count the most) did not increase yet by 1.5 C and there is now clear evidence of tipping points – a summer sea-ice free Arctic will become reality this decade, there is the loss of West Antarctic glaciers at a pace unimaginable to anyone even months ago, the coming reality of multi-metre sea level rise, the slowing of the Atlantic conveyor (the ‘Gulf Stream’), accelerating ice-mass loss from Greenland, the Amazon which is now a net carbon emitter, the gigantic problem of methane leaching out the permafrost, the earth itself responding to higher temperatures by emitting more CO2 (see here), the possibility of Hansen’s storms down the line (see here), the  Friedrich result (see here) and much else. In other words, climate change is already highly dangerous (see here). According to the WHO, at least 250.000 people die worldwide each year as a direct consequence of climate change. They are, for the most part, poor Africans. Worldwide, more than four million people die every year as a direct consequence of air pollution. Not only is the Paris Agreement useless, it is a danger to humanity.

As Shah writes, if we look at the dangers that are here already and those that are coming and if we consider the actions that we are taking, the conclusion must be that the UNFCC has simply given up on the goal of preventing “dangerous climate change” (see here). It is now a question of après nous le déluge and sauve qui peut. The UNFCCC key goals ”to ensure that food production is not threatened” and achieving “a time-frame sufficient to allow ecosystems to adapt naturally to climate change” have been discarded. Food production is already threatened by rising sea levels and inundation, shifting rainfall patterns and desertification, extreme heat waves and wildfire episodes. Ecosystems including corals, mangroves and kelp forests in Australia are degrading fast as the world’s six mass extinction gathers pace. Major ecosystems are now severely degraded and climate policy-makers have no realistic agreement to save or restore them, from the Arctic to the Amazon, the Great Barrier Reef to the Sahel (see here).

The corporate / political mainstream interpretation is to mitigate to a level where adaptation to hotter conditions can be reasonably achieved and to consequently adapt to what cannot be mitigated. But this is the great danger. The strategy assumes that there is a “sweet spot” somewhere, around 2°C or preferably more (sic!), where the capacity to mitigate and the capacity to adapt somehow overlap (see here). It is clear that this will not work. Their non-existing mitigation efforts will take us take us forwards to 3°C or, if Friedrich et al. are right (and there is no reason to expect they are wrong), to between 4.8 and 7.3 °C by 2100, all of this while ecological systems around us are already collapsing or are close to collapse at a ‘mere’ 1.2 °C increase. This is this now called the “adaptation gap.” International conferences dealing with this gap are being organised (Marrakech COP 22). Nothing happens.

The climate in 2016 and future prospects

 As Scribbler writes, what is happening in the meantime is absolutely beyond belief (see here). In 2016, atmospheric concentrations of CO2 rose at the fastest rate ever. For the first 11 months of the year, 2016 atmospheric carbon dioxide concentrations exceeded those of 2015 by an average of 3.45 parts per million. The past two record jumps were 2015, with a 3.05 ppm annual increase and 1998, with a 2.93 annual increase. 2016 exceeded these two record values by a hefty margin, pushing atmospheric CO2 values for 2016 to an average range of 404 ppm – 124 ppm higher than the pre-industrial value of 280 ppm. Human beings have never seen atmospheric CO2 values so high. They predate our distant relative Australopithecus by about 7 million years (see here). Atmospheric CO2 equivalent concentrations, which include other greenhouse gasses, averaged 485 ppm in 2015 and are around 490 ppm in 2016. These CO2e values approach the upper Middle Miocene range. During the Miocene of 14-16 million years ago, atmospheric CO2 levels, which had hovered around 400 parts per million for about 10 million years, jumped higher due to volcanic activity. Global temperatures rose from about 2-3°C hotter than Holocene values to temperatures which were around 4°C hotter. Antarctic ice melted and seas, which were around 18.3 metres higher than today, lifted to around 39.6 metres above present day levels (see here). However, according to a Canadian report, even half a metre of sea level rise will create a social crisis. Houses and other assets are becoming un-insurable. When they are lost – together with roads and other essential infrastructure – people living near the coasts in Canada and the US will be forced to move. But how many people? And where to? To a place where they can have jobs and rebuild their lives? Where will that be (see here)?

Nowhere is the situation worse than in Africa. According to a recent report of Max Planck Institute for Chemistry and the Cyprus Institute, temperatures in North Africa and the Middle East are increasing at such incredible pace that, at some point in this century, they will become so hot that human habitability will be compromised (see here). Additional warming will multiply the occurrence of heat waves, droughts and dust storms that are already happening today many times over. By 2050, extreme heat related events will occur five times more frequently along a desiccating crescent in Africa and throughout a good chunk of the Middle East. During summers, by mid Century, temperatures throughout this vulnerable zone could be as much as 5 degrees Celsius hotter than they are today. More than 500 million people live in this region. According to the Max Planck report, extremely hot days of which there were 16 each year within this vulnerable area from 1986 to 2005 will increase five-fold to 80 by 2050 and up to 118 to 200 by 2100 (see here). Added persistent heat will bake moisture out of soils, ruin forests and advance deserts. In the end, numerous places are likely to become basically unliveable (see here). In 2016, however, the world once again did nothing to lower its emissions. And that is a scandal of unspeakable dimensions.

 ‘Responsible investment,’ green manufacturing, energy efficiency

What can we do against climate change? As Jason Hickel recently wrote in the Guardian, important as clean energy and infrastructure are, they will not save us from climate change (see here). Even if we switch to 100% clean energy – a vital step in the right direction – we will not avert catastrophic climate change in the longer term. The burning of fossil fuels accounts for about 70% of all anthropogenic greenhouse gas emissions. The remaining 30% comes from deforestation, industrial agriculture, which degrades the soils to the point where they leach out CO2. Industrial livestock farming produces 90m tonnes of methane per year and most of the world’s anthropogenic nitrous oxide. Livestock farming contributes more to global warming than all the cars, trains, planes and ships in the world. Industrial production of cement, steel, and plastic forms another major source of greenhouse gases and then there are landfills, which pump out huge amounts of methane – 16% of the world’s total. Our tropical forests will be completely destroyed by 2050, releasing a 200bn tonne carbon bomb into the air. The world’s top soils could be depleted within just 60 years, releasing more still. Emissions from the cement industry are growing at more than 9% per year and our landfills are multiplying: by 2100 we will be producing 11m tonnes of solid waste per day, three times more than we do now. What will switching to clean energy do to all of this (see here)?

The problem is not the type of energy we use, but what we do with it. What would we do with 100% clean energy? Hickel answered this question in the Guardian: exactly the same as what we are doing already (see here and here). There is no reason to expect that we will not destroy more forests, build more meat farms, expand industrial agriculture, produce more cement and fill more landfill sites. There is just no way that we can go on “growing” like this. This does not mean that there can be no growth. It is not an argument for “de-growth” (as has been argued by Serge Latouche for example (see here and here)). It is not a question of growth or no growth. We need to grow an economy which benefits the needs of mankind. Growth has to take place within certain limits, for example within something like Hueting’s National Sustainable Income (see here or here).

Pipe dreams: ‘decoupling’ and dematerialisation.

‘Optimists’ claim that technological innovation will “de-couple” economic growth from material throughput. There is not one shred of evidence in favour of this thesis. Global material extraction and consumption has grown by 94% since 1980, and is still going up. Current projections show that by 2040 we will more than double the world’s shipping miles, air miles, and trucking miles – along with all the material stuff that those vehicles transport (see here). Sullivan and Gouldson analysed climate change strategies and performance of the UK supermarket sector (see here). Their research suggests that large companies such as Tesco and Salisbury have the potential to achieve long-term sustained reductions in emissions and that reducing emissions and energy consumption align with general business pressures to be more efficient. But this focus on improved business efficiency ultimately does not work. Over the period 2007-2010, the five big companies that Sullivan and Gouldson looked at managed to reduce their emissions in absolute terms in some cases by as much as nearly 20 per cent. But the historical data suggest that companies struggle to stabilise or reduce their emissions and that business growth will run ahead of emissions reductions. The business model involves more stores and higher volumes of sales and, in turn, upward pressure on greenhouse gas emissions (see here).

This problem can be observed everywhere. Cars have become much more efficient since the 1970s – in specific cases, gains of over 70 % of fuel efficiency were realised. Nonetheless, because of the worldwide growth of the number of cars, the net result is one of upward pressure on greenhouse gas emissions. It is not only Jevons paradox (see here). Social regression also plays. According to Dorling, American cars produced in 2013 were less fuel efficient than American cars from 1995 (see here). Companies like GM do not feel they had to innovate. The management had no interest in ecological problems. GM subsidised groups acting against action on climate change and against federal governmental legislation. Their perception was that they were too big to fail: ‘Washington’ would bail them out anyway.

Another pipe dream is ‘dematerialisation.’ The claim made by the proponents of the dematerialisation thesis is that, as processes become more efficient and gadgets and many products in general are miniaturised, we use, in aggregate, fewer materials (see here). Again, there is no sign that dematerialisation is taking place. Iron ore production has risen by 180 per cent in ten years. According to Forest Industries, a trade body, global paper consumption is at a record high level and will continue to grow. If, in the digital age, we will not reduce even our consumption of paper, what hope is there for any other commodity (see here)? Everything points to the direction that the consumption of raw materials will increase. Consumption of semi-finished and finished products will also continue to grow. Global demand for energy is estimated to rise with 40 percent by 2040. In some countries of the Far East, China, Vietnam, Malaysia, Indonesia and in India a middle class is emerging: not a couple of hundreds of millions of consumers (as in Europe and the US), but, potentially, 1.5 or 2 billion people aspiring ‘Western’ middle class status, incomes and consumption levels. In order to support such avalanche of consumption, we need three to four planets. None of these heavenly bodies would be ecologically sustainable.

The Modern Monetary Theory evasion  

While figures differ according to the source, basically the global economy has to grow by at least 3% per year. This means that the size of the economy doubles every twenty years. How is this feasible given the limits of a finite planet? The proponents of MMT give an answer to this, which is in my opinion, completely insufficient and wrong. According to Hickel, the main driver of ‘growth’ is debt (see here). Hickel’s article is an MMT explanation of money creation by private banks. The upshot is clear: what is needed to save capitalism (and the world) is reform of the financial sector. The problem is that banks create money out of thin air. They loan it into existence. This accounts for approximately 90% of all money. It is not created by governments, but by commercial banks in the form of loans. Because our money system is based on debt and interest, it has a growth imperative baked into it – debtors need to grow enough to at least match the growth of their debts. Once this analysis is accepted, the ‘solution’ is also clear to the MMT proponents: banks need to keep a bigger fraction of reserves behind the loans they make. This would go a long way toward diminishing the amount of debt sloshing around and helping reduce the pressure for economic growth. Or else, debt-based currency could be abolished altogether. Instead of letting commercial banks create money by lending it into existence, the state could create money and spend it into existence. New money would get pumped into the real economy instead of just going straight into financial speculation where it inflates asset bubbles (see here).

Trade, globalization, inequality, the rate of profit, democratisation

Banks create money ex nihilo. Is that the reason why our system is unsustainable? If private banks would not create money, would we stop plunder the world for fossil fuels, minerals, metals and all else we can use, would we stop burning down the tropical forests of the world, would we invest in green manufacturing, consume less, live better, wage less wars, drive less cars, have less industrial agriculture? Would there be less inequality, more social welfare state, less privatisation? Would there be no mafia state? It is nonsense. It is pertinently untrue to hold that the system can be changed so that it will serve the needs of human populations by reforming the financial sector (mind you, not that this is anywhere near possible (see here – Stiglitz tried). In that sense, MMT is political and intellectual regression. It fits so well into these times. MMT proponents do not even analyse capitalism beyond some trivialities about the inadequacies of measuring growth by GDP. It would make a difference if Hickel would say that debt has been used as a political and economic weapon for many decades in order to ruin developing countries. This would, in fact, be incredibly relevant for climate change. But the MMT proponents do not go there either.

The essential change: the tragedy of the loss of labour as a political force

Let me show how wrong all of this is by referring to the discussion about the underlying cause of the crisis of 2008 – 2009 and the rise of inequality. Although the debates about these issues are far from settled, a clear picture has emerged the last couple of years. This picture explains an absolutely critical relationship.

Studies show that few US manufacturing jobs would have been saved with different trade policies or by not agreeing to NAFTA. Manufacturing employment in the US fell from around a quarter of the work force in 1970 to 9% in 2015.  A study by Cooke et al. reckons that competition from China led to the loss of 985.000 American manufacturing jobs between 1999 and 2011 – less than a fifth of the absolute loss of manufacturing jobs over that period and a quite small share of the long-term manufacturing decline (see here and here).

How then can more of 80% of the loss of manufacturing jobs in the US between 1970 and 2015 be explained? According to Michael Roberts, these manufacturing jobs were lost in part to efficiency (see here). Manufacturing output in the US was at an all-time high in 2015. Over the past three-and-a-half decades, manufacturers have shed more than seven million jobs. Today output is bigger than ever before. According to the Economic Policy Institute (EPI), “80% of jobs lost in the US were not replaced by workers in China, but by machines and automation.” (see here and also here).

As Roberts explains, under capitalism, increased productivity comes through mechanisation and labour shedding (see here). This has always been the case. Investment takes place for profit, not to raise output or productivity.  If profit cannot be sufficiently raised through intensifying efficiency, labour productivity can only be increased by new technology. There is absolutely nothing controversial about that. The calculations that Roberts made show that the value of technology and plants (in Marxist terms, the organic composition of capital) to the value of labour power in wages rose 46% in the last 70 years (see here). This is essential, because this ‘capital bias’ in technology explains the falling labour share and growing inequality. Workers can fight to keep as much of the new value that they have created as part of their ‘compensation,’ but capitalism will only invest for growth if that share does not rise too much that it causes profitability to decline (see here).

This ‘capital bias’ also explains inequality. In mainstream economics, rising inequality is assumed to be the result of different skills in the work force. The share going to labour depends on the race between workers improving their skills and education and the introduction of machines to replace past skills. It is by now abundantly clear that the declining share of income going to labour is due to an altogether other factor: the struggle between labour and capital over the appropriation of the value created by the productivity of labour (see here). Labour has been losing that battle during the last four decades, under the pressure of anti-trade union laws, ending of employment protection and tenure, the reduction of benefits, a growing reserve army of underemployed and through the globalisation of manufacturing. As Roberts explains admirably well, the falling share going to labour in national income began when US corporate profitability was at an all-time low in the deep recession of the early 1980s.  Capitalism had to restore profitability.  It did so partly by raising the rate of surplus value through sacking workers, stopping wage increases and phasing out benefits and pensions and by the introduction of new technology to replace labour after a major slump in production (see here). According to Roberts, it was the weakened bargaining power of unions and higher unemployment combined with a marked decrease in redistribution through taxes and transfers that was the main explanation why Americans have fallen behind in income since the 1980s.

In this way the extreme inequalities of income in the US also become perfectly explicable. Roberts cites a new study by Piketty, Saez and Zucman who find that the bottom half of the income distribution in the US has been completely shut off from economic growth since the 1970s (see here). From 1980 to 2014, average national income per adult grew by 61% in the US, yet the average pre-tax income of the bottom 50% of individual income earners stagnated at about $16,000 per adult after adjusting for inflation. In contrast, income skyrocketed at the top of the income distribution, rising 121% for the top 10%, 205% for the top 1% and 636% for the top 0.001%! (see here). From 1980 to 2014, none of the growth in per-adult national income went to the bottom 50%, while 32% went to the middle class (defined as adults between the median and the 90th percentile), 68% to the top 10% and 36% to the top 1% (see here).

The absolutely essential insight is that ALL of this has been due to politics. As Piketty, Saez and Zucman write:

“The diverging trends in the distribution of pre-tax income across France and the United States—two advanced economies subject to the same forces of technological progress and globalization—show that working-class incomes are not bound to stagnate in Western countries. In the United States, the stagnation of bottom 50 percent of incomes and the upsurge in the top 1 percent coincided with drastically reduced progressive taxation, widespread deregulation of industries and services, particularly the financial services industry, weakened unions, and an eroding minimum wage” (see here). 

As Roberts writes: “(Rising inequality) is due to the inexorable attempt of American capital to reduce its labour costs through mechanisation or through finding new cheap labour areas overseas to produce.  The rising inequality in incomes is a product of ‘capital-bias’ in capitalist accumulation and ‘globalisation’ aimed at counteracting falling profitability in the advanced capitalist economies. But it is also the result of ‘neo-liberal’ policies designed to hold down wages and boost profit share” (see here).

It is not true that financialisation superseded productive capitalism as the main motor of exploitation (see here). The financial crisis of 2008/09 is due to many factors such as financial over-levering and sub-prime mortgages, but these factors are a consequence of a much bigger underlying cause which has been plaguing Western economies and their political systems since the 1970s – the need for capitalism to restore profitability which was achieved by destroying labour as a politically relevant force.

It is absolutely insufficient to analyse these factors in isolation from one another or to concentrate on ‘financialisation.’ Financialisation did not fall out of the sky. Neither did ‘neoliberalism.’ Bill Clinton deregulated the financial sector – he ultimately repealed the Glass Steagall Act – at the historical moment when the world’s biggest creditor had become the world’s biggest debtor and when foreign countries and capitalists put enormous amounts of capital in American banks. Then the idea arose that American banks could perform god’s work (see here for a good analysis and historical oversight)

Conclusion

The idea that we need more democratisation in order to ‘solve’ (or, at least, fight climate change) is not very popular. Many climate scientists consider climate change a technical problem. To the Right, climate change is either not a problem (the view of the Trump Administration) or else it is a problem that we have under control. What we need are some more carbon markets, some tweaking here and there. For the rest, there is a lot of rhetoric, but no action. The Left came up with a plethora of ‘solutions,’ including green manufacturing, green infrastructure, increased energy efficiency, carbon taxes, land redistribution, sustainable agriculture, technology transfers to poor countries, the revision of patents and more. These are all great ideas. The only problem is that nothing happens on scale that makes a real difference. The idea that labour in the West has to regain political power to make things work strikes some as bizarre and antiquated thinking. Was it not industrial society – when social democracy was a relevant political force – that historically contributed the most to the avalanche of greenhouse gas emissions? Social democracy once was an motor of social progress. It can play this role again. It may be trivial to the point of tautology, but the conservative revolution would have never succeeded, neoliberalism would have never remained dominant and, as a consequence, a plethora of economic, social and political dysfunctions and perversions (including the ‘mafia’ state) would have never arisen if social democracy would not have succumbed to the seduction of becoming neoliberal itself. It is here that the solution lies. Globalization, outsourcing, poverty, inequality, German wage moderation, the problems of development and climate change are inherently political problems. They cannot be solved without changing power relations. This is what the Left must try to accomplish, but how? There is no united left front anywhere.

Are we for the Brexit or for the reform of the European institutions? Are we for free migration or for restrictions? What is the Leftist position with regards to the the refugee “crisis?” What is the Leftist position towards tax evasion (the degree to which it should be fought is by no means clear)? Shall the Left argue for the renationalisation of certain services and former public goods? Shall the Left argue for the rebuilding of the social welfare state or not? To me, personally, the answers to these questions have always been clear: the more social democracy moves to the Left, the more votes it will win. The fear that social democracy will lose votes if it would move to the Left is the fear of the party elites which tremble by the idea that their time may be up. If the Corbyn phenomenon ever proved anything at all, it is exactly this. For a while, I thought I was the only one who promotes this view, but last week, to my delight, Nancy Fraser, professor of political theory at the New School for Social Research took a similar view (see here). I have no doubt. Move to the Left. Win elections. Build a just world for every human being on this planet. Tackle climate change. It is a matter of survival. If we leave it to the masters of mankind, we surely are doomed.

Addendum (10/01/2017): in December 2016 the average temperature in the Arctic was 50 degrees F (10 degrees Celsius) above normal. On Antarctica, the demise of the Larsen C ice shelf is now imminent. This will send an iceberg the size of Delaware into the southern ocean. In the meantime, A. Scaramucci, an advisor for the executive committee of Trump’s transition team, forcefully denied the existence of climate change, stating that the earth is 5.500 years old. This is what happens when the mafia governs the world (see here).