Friday’s post a couple days later than I wanted to because my home Internet connection was down. In that post, I reflected on the degree to which elite arrogance had led to Donald Trump’s astonishing victory. But for anyone who thought voting for Trump was a vote for reform, I have news for you: We’re about to enshrine an oligarchy in power, where they can finish the wrecking of the American economic base. And We the People made it happen.
The Triumph of Neoliberalism
While liberals were wrecking windows and cars in a heartwarming display of love and inclusiveness, wearing safety pins for solidarity (because they don’t need them to hold their diapers together), and boomers and Gen-Xers were displaying their contrasting maturity and level-headedness by abusing Hispanics and committing hate crimes, the President-elect was putting a team together of the very people he promised to kick out of Washington to help him plan out the pillaging of the American economy and environment on behalf of the 1%. Speaking of promises, Trump is thinking of keeping some of Obamacare in place — most likely, the parts that keep your rates jacked up, while disposing of those parts that impose costs on the rich.
While you all were fretting over whether Trump would turn SCOTUS to the far right or Hillary would turn it to the far left, whether Christians would be herded into re-education camps or undocumenteds into deportation camps, whether we’d build a wall between us and Mexico or tear down the walls between “gendered” bathrooms, you missed the elements of Trump’s platform which signaled that he really is as much a member of the Establishment as Clinton … and that he really doesn’t empathize with the lower classes. All Trump’s race-baiting, rabble-rousing rhetoric was to distract you from the least appealing feature of his platform — his tax plan.
As I’ve argued elsewhere, it’s by no means unfair or unreasonable for those who own 89% of the nation’s assets and 95% of our financial wealth to pay 2/3rds or more of the government’s expenses. Those who rape — er, reap — more of the benefit of the laws should pay more for the establishment which guarantees those benefits. But Trump’s tax plan ignores all that. As Paul Waldman explains, “Trump’s tax plan would give 47 percent of its benefits to the richest one percent of taxpayers. Paul Ryan’s tax plan is even purer — it gives 76 percent of its cuts to the richest one percent in its first year, and by 2025 would feed 99.6 percent of its benefits to the top 1 percent.” Dodd-Frank is slated to be axed, freeing the financial industry to make risky gambles with other people’s money once more. And while there won’t exactly be an “energy-regulation bonfire”, expect clean-energy initiatives to be cut.
More Money to Buy Competitors
But giving the 1% all that money will create a lot of jobs, won’t it? Actually, no; investors will be under no obligation to put that money in fixed assets or infrastructure improvements. Economist Jordan Brennan points out that, since 1980, investment has been increasingly devoted to stock repurchases, mergers, and acquisitions rather than capital investments — i.e., investments that would actually create a significant number of jobs.
Unlike investment in fixed assets, which is linked with job creation, M&A [mergers and acquisitions] merely redistributes corporate ownership claims between proprietors. The motivation for M&A is straightforward: large firms absorb the income stream of the firms they acquire while reducing competitive pressure, which increases their market power.
In the century spanning 1895 through 1990, for every dollar spent on fixed asset investment, American business spent an average of just 18 cents on M&A. In the period since 1990, for every dollar spent on fixed asset investment an average of 68 cents was spent on M&A — a four-fold increase. …
At the same time, the 100 largest firms have spent more repurchasing their own stock than they have on machinery and equipment. And because many executives have stock options in their contracts, the share price inflation associated with stock repurchase has led to soaring executive compensation.
“Well, Raise My Economic Rent!”
Remember that the Republicans are looking to get rid of green regulations and initiatives? Economist Didier Jacobs found that “American industries that produce more billionaire wealth than average relative to their size share one of three characteristics:
- “They depend heavily on the state whether through government procurement, licenses, or subsidies, and are therefore prone to rent-seeking [see below]. This category includes for instance oil, gas and mining, gambling, or forestry [italics mine.—ASL].
- “They are plagued by market failures such as imperfect information, like finance,[*] or by the combination of intellectual property and so-called “network externalities”, which create monopolies like those that pervade the IT industry and industries prone to fads like fashion and music.
- “The billionaire wealth they have generated is largely inherited.”
Economic rent is unearned income. In the strict sense, it’s money paid in excess of the market value of the goods and services offered; in a looser sense, it refers to any exchange in which what the recipient gives in exchange is substantially of lesser value than what they receive.[†] It’s the closest phenomenon in economics to the free lunch people claim there’s no such thing as. Rent-seeking (behavior), then, is “the use of the resources of a company, an organization or an individual to obtain economic gain from others without reciprocating any benefits to society through wealth creation.”
In case you missed the point of this economics lesson, let me spell it out for you: Economic rent doesn’t create wealth; it simply transfers wealth from the many to the few. An outstanding example of economic rent is the increasing price of several drugs out of proportion to the actual costs of manufacture, due at least in part to government-protected market exclusivities which effectively create mini-monopolies. Subsidies are direct rent; tax breaks are indirect, but economic rent nevertheless. Economic rent transforms capitalists from job creators to rentiers, upper-class leeches who take far more from the commonwealth than they give.
Wealth Concentration Kills Economic Growth
Understand, Trump, Ryan et al. really do believe what they’re doing will work for the economy as a whole; the fact that it will benefit their buddies in the 1% is merely gravy. And, as Michael Hudson notes, there’s a cottage industry within the economist community dedicated to upholding the rentier class’ claims. But neoliberal economics doesn’t work, except as a means for sucking wealth out of the middle classes and increasing inequality. Wealth concentration kills economic growth because it reduces the ability of the lower 80% to consume, and consumption drives the economy.
However, as economist Sally Goerner observes, “What we’re now facing is a combination of: 1) people who still believe [in neoliberal economic theory]; and 2) people who doubt, but: a) would have to sacrifice their livelihood to act on it; or, b) are willing to leave the system but don’t necessarily know what comes next.”
Scientifically speaking, oligarchies always collapse because they are designed to extract wealth from the lower levels of society, concentrate it at the top, and block adaptation by concentrating oligarchic power as well. Though it may take some time, extraction eventually eviscerates the productive levels of society, and the system becomes increasingly brittle.
The Cycle of Oligarchic Corruption
According to Goerner, oligarchic corruption follows a cycle:
- Economic Royalists infiltrate critical institutions and rig political and economic systems to favor elites.
- Rigged systems erode the health of the larger society, and signs of crisis proliferate:
- Elite power and well-being increase and is manifested in displays of wealth;
- Elites become heavily focused on maintaining a monopoly on power inside the society; laws become more advantageous to elites, and penalties for the larger public become more draconian;
- The middle class evaporates;
- The “misery index” mushrooms, witnessed by increasing rates of homicide, suicide, illness, homelessness, and drug/alcohol abuse;
- Ecological disasters increase as short-term focus pushes ravenous exploitation of resources;
- There’s a resurgence of conservatism and fundamentalist religion as once golden theories are brought back to counter decay, but these are usually in a corrupted form that accelerates decline.
- The crisis reaches a breaking point, and seemingly small events trigger popular frustration into a transformative change. If the society enacts effective reforms, it enters a new stage of development. If it fails to enact reforms, crisis leads to regression and possibly collapse.
- Over time, transformed societies forget why they implemented reforms; Economic Royalists creep back and the cycle starts anew.
So yes, Trump and the Republicans are planning the completion of our conversion from a democratic republic to an oligarchy. But don’t get the idea that Hillary Clinton would have stopped it. Neoliberalism is distinct from our usual understanding of liberalism because it’s closer to the classic economic liberalism of the 18th and 19th centuries; it’s laissez-faire capitalism with more complex mathematical models and has no reference to culture wars. The Fabian socialism of the Democrat Part doesn’t truly address the market failures or the rent-seeking of the wealthy; the Democrat elite is almost as economically neoliberal as is the Republican elite. Clinton, an Establishment robot to the bottom of her soul-facsimile, would have applied some brakes but not halted the oligarchic extraction of wealth.
You’ve Been Conned
Trump is not a real reformer. He’s no Hitler, either. Hitler at least had a complete (albeit irrational) motivating ideology; “Make America Great Again” is a catchphrase, nothing more. Much of what Trump has said he’ll do in his first 100 days either has little to no support among the Republicans or is impractical under existing laws and conditions. For all his Nietzschean scorn for the weak and admiration of power, Trump is clearly out of his element and is about to find out how little real control the President has over the way the system is rigged.
That’s not to say Trump can’t do any damage while he’s at 1600 Pennsylvania Avenue. Nor is it to say that the fears many people have for the future aren’t well-founded. But don’t expect Roe v. Wade or Obergefell v. Hodges to be overturned anytime within the next two decades, let alone within Trump’s Administration. Even if Trump gets two or more SCOTUS picks, expect those justices to help quash any attempt to base immigration restrictions on religion.
But also don’t expect your wallet to become fatter any time soon. You may see a small benefit from the tax cuts. But don’t expect well-paying factory jobs to come back like the buffalo. Don’t expect health care or post-secondary education to become more affordable. Don’t expect your insurance or medication costs to dwindle. And don’t expect to be able to afford to live on Social Security when you qualify for whatever chump change “full benefits” will mean. In fact, if some Republicans have their way, when you send your children off to work, it won’t be for their personal development but for the family’s survival.
That’s what the Trumpsters voted for — the complete loss of everything gained for the middle class since the end of World War II. You wanted 1959; you’ll get 1929. And by the time you figure out that you’ve been conned, it’ll be too late.
[*] Jacobs lists health care services as an industry prone to “asymmetries of information”.
[†] Yes, interest qualifies as economic rent, though few people will admit to it. It’s a drain on disposable income that’s neither consumption nor savings, and as such isn’t reflected in the most basic economic equations.