THE INHERITANCE OF LOSS

America’s new wealthy have so little to offer society

AP PHOTO/MATT SAYLES

Gatsby? What Gatsby?

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By Sean McElwee

United States May 9, 2014 This article is more than 2 years old.


In F. Scott Fitzgerald’s The Great Gatsby, East Egg represents inherited wealth and privilege, while West Egg represents wealth earned through innovation and hard work, a distinction at the core of the American ideal. We have always embraced a dynamic capitalism, marked not by stasis but rather “creative destruction,” lionizing trust-busters as heroes of competition. Joseph Schumpeter, who coined the phrase, feared that eventually capitalism would lead to corporatism and destroy the entrepreneur, the lifeblood of the capitalist system. One disturbing implication of Thomas Piketty’s new book, Capital, is that the American economy is slipping into a form of “rentier” capitalism, in which passive income from wealth, increasingly in the form of inherited fortunes, is supplanting dynamism, hard work and innovation. The term rentier came into use in the mid-19th century to describe people who lived off income from property rather than creating something of value. And now the rentiers have found a way to protect their gains—buying influence in the political system.
The rise of rentier capitalism

Richard Hofstadter observed about American capitalism, “Once great men created fortunes; today a great system creates fortunate men.” This was what Fitzgerald saw in the 1920s: dead, inherited wealth next to dynamic new money. He saw the former as aristocratic, with only the facade of knowledge and virtue, while the latter was entirely uninterested in wisdom and seduced by wealth. Oscar Wilde observed the same in Victorian England, where the illusion of virtue (being named Earnest) was far more important than its practice. Today, much the same dynamic exists between the inherited rentier wealth of the Kochs and Waltons and the new money of the Zuckerbergs and Brins. There was a day when aristocrats were at least cultured. Today, instead, we have a wealthy class with the culture of new money and innovativeness of old money (i.e., rather little of either). This new rentier class, with little to offer society, subsists largely on legalized grift or, in economic terms, rent.

Rents comes in two forms, both referring to income received as a result of status rather than earned by hard work or as compensation for a product, idea or service that benefits society broadly. The first form is inherited wealth and the second is monopolistic market power. The first is easy to see. The second has changed from vertical business trusts to Jamie Dimon as the reincarnation of J. Pierrepont Morgan armed with supercomputers, phalanxes of physicists for quantitative analysis and legions of lobbyists. In our post-liberal economy, these two types of rentiers interact in a feedback loop that has changed the meaning of American inspired (and imposed) western capitalism.

Thomas Piketty paints a dystopian picture of the consequences of this accumulation of wealth in his new book. Piketty describes an underlying property of capitalist economies—if return on capital assets exceeds growth of the economy, wealth will flow into investment in assets, land, companies and financial assets and away from entrepreneurial innovation. Innovation requires distribution of income to the workers who produce products and services, empowering them to consume such goods and services in a virtuous circle measured by consumption driven growth. In contrast, the pool of passive capital asset investment will grow as earnings accumulate instead of being used for consumption. For Piketty, this is the usual configuration of a capitalist economy, rather than the idyllic days of 1945-1979 during which equality increased and the financial well-being and security of the “typical American family” marched relentlessly forward.

Today, America’s top 1% makes its income primarily from capital, not labor.


Piketty writes, “In terms of total amounts involved, inheritance has thus nearly regained the importance it had for nineteenth century cohorts.”


He notes, however, that this truth has yet to reach popular culture, where “recent American TV series feature heroes and heroines laden with degrees and high-level skills.”

Piketty concludes that we may soon reach a point in which social rent-seeking àl la marrying wealthy will be a far more effective path to prosperity than entrepreneurship. This is how capitalism dies—not with a revolution—but rather vitiated by rentiers, increasingly myopic and addicted like a junkie to the high of wealth accumulation.
The rise of rentier finance

These conditions are closely related to the massive growth of an overtly rent-seeking financial sector. Rather than investing in the “real economy,” financiers make money through increasingly obfuscated and complex financial “innovations.” With the deregulation of finance in the Clinton era, finance became increasingly rent-seeking, building towers of leverage rather than companies. During the period of growing disparity of incomes and wealth described by Piketty, this differential between financial sector wages has increased by a staggering amount. Thomas Philippon and Ariell Reshef, find that, “that rents accounted for 30% to 50% of the wage differential between the financial sector and the rest of the private sector.”


Investment in the rent-supercharged financial sector itself has been a primary destination for accumulated wealth and it has greatly increased returns relative to growth. This capital investment fuels the growth of the rent-seeking business of the financial sector, which causes wealth to accumulate and need to be invested, and so on in a loop. The two trends reinforce each other.

The politics of rent

The development of rentier capitalism was not inevitable. The most nakedly self-interested class in modern history owes a substantial debt to a slavish political system. As Paul Krugman notes of Bush era policies, “True, the top tax bracket on earned income fell from 39.6 to 35 percent. But the top rate on dividends fell from 39.6 percent (because they were taxed as ordinary income) to 15 percent — and the estate tax was completely eliminated.”

The Koch brothers, who bankroll a large portion of the conservative dis-information machine are great examples. They claim to love free markets but in truth nothing terrifies them more. The freedom that they seek is the freedom to exploit the market power that their inherited wealth affords them. They use the political sphere to entrench the wealth inherited from their father. Piketty notes that the American tradition is one of high progressive taxation, especially on bequests, to prevent an American analog to European-style aristocracy. Even the patron saint of libertarianism, Robert Nozick, argued that an estate tax was fair, and suggested that, “taxes will subtract from the possessions people can bequeath the value of what they themselves have received through bequests.” Two generations of rentiers are rather enough.

As we have seen, the financial sector perpetuates and is fueled by the new rentier class. In her book, All The Presidents’ Bankers, Nomi Prins traces the history of banker influence in the highest corridors of power, when “the titans of banking” replaces “the barons of industry as the beacons of economic supremacy in the United States.”

Economic inequality perpetuates itself through political inequality, which breeds cronyism. Supreme Court decisions like McCutcheon and Citizen’s United enhance the power of the super wealthy to use the political system to extract rents. Larry Bartels, Martin Gilens, Dorian Warren, Jacob Hacker, Paul Pierson, and Kay Lehman Schlozman have found that the rise in economic inequality has coincided with a rise in political inequality. The wealthy are using the political system to bolster their wealth, and while both parties are certainly complicit, in few eras has the political system been so nakedly captured by big money.
The implications

The implications are stark. First, liberals must note the important distinction between wealth earned through creativity and labor and wealth accumulated to capital, and focus their attention on the latter.

A growing portion of today’s moneyed elite is neither virtuous nor meritorious, it is parasitic. Second, government must create an economy that rewards work, not property. The Lockean ideal quickly becomes farce when one family owns more wealth than the poorest 40 million Americans.

Taxing inheritance and empowering the middle and lower income segments of society will slow the drift toward an economy dominated by a growing rentier class. Moreover, a moderate increase in inflation could greatly benefit the vast majority of Americans. Higher inflation, even higher than the official target, would adversely affect the asset-holding super rich whose asset value would erode with inflation, but would benefit the rest of the public by encouraging immediate consumption and decreasing the burden of existing debt.

But there is a more fundamental way to address the problem. The modern financial sector constitutes a powerful extra-governmental system of redistribution in favor of the wealthiest Americans. A large portion of the financial sector is in the business of extracting value from the flows of money within the economy with little or no benefit to the intermediation of the allocation of investment capital to socially beneficial uses.

The financial reforms that were adopted in response to the 2008 financial crash were overwhelmingly focused on reducing the potential for a repeat of the catastrophic run on the financial system that triggered the crisis. While this was an admirable endeavor, a second phase of reform of the financial sector limiting its role in the accumulation of wealth at the top and the stagnation and decline of the well-being and security of the rest of society is essential to a return to a sustainable economy. The myriad practices through which the financial sector extracts value from the system without enhancing the process of allocating capital to purposes that serve the public must be eliminated to reverse the drift toward a rentier economy. These practices can be identified, starting with high-speed trading, predatory derivatives transactions, and tax incentives for hedge funds. Policy makers simply need to develop the backbone to deal with them.

Reply To Stupid Angry Canajun

The SAC blog has a rant on individual property rights where upon he says;

"As much as I respect Mr. Plawiuk, I disagree that the right to individual property ownership is evil."

I never said Property was evil, perse, it is not. What I said was that private property is the origin of capitalism and its state, it is theft as Proudhon called it. He also said it was freedom, that is you have the right to what you possess, but not the right to possess more, that is to become a rentier. Proudhons whole work on Property was against the idea of the rentier class, which by the by Mr. Canajun is exactly the problem with deals made like the example you have given;

"Individual responsibility must return to our lives or we will not have lives worth living. If I sign a great deal with an oil company regarding my property, and I care about my neighbours, I tell my neighbours about the deal."

And if you don't care so what, in most cases of individual responsibility from the right the next phrase used is MYOB. You made a deal there is no need to say anything to anyone about it.

But again your land use is no longer a matter of your own use, but now is subject to being land use by a rentier, whose impact on others may include poisioning their ground water. Which by the by would mean you have a social responsibility to your neighbours to inform them of the deal you made. Once you no longer merely use your property for yourself, but now involve a third party, whose environmental impact goes beyond your property to impact on others, you no longer are a sovereign individual with their own possessions, you are now involved in a contractual arrangement which may have an impact beyond you and your property.

Mr. Canajun goes on to say;

If I sign a deal with an oil company because I am forced to, by way of required association with my neighbours, I undoubtedly end up with a loser of a deal because human nature ensures one or more of the group is corrupt or too stupid to understand the implications of the deal and this person frequently ends up in a position of power over the rest of the group who are too tired, busy or otherwise not motivated to get involved.

There is that force issue, who forced you? Ah right you are required to associate with your neighbours, for a common good. But what if your actions, a private deal with the oil company has the same impact, you are then the corrupt power hungry individual who affects their community without regard of their neighbours property rights. This is of course a straw man arguement, full of typical right wing assertions , that the common good of all is a threat to the individuals rights. Which of course is untrue. The historic case is that the large landowner is a tyrant over his neighbours, he is in effect the rentier with a monopoly, like his aristorcratic ancestors. For an excellent example of this see the movie Missouri Breaks.

The nature of private property is that it arises from the commons, from the encroachment acts of the state which limit the communal farm lands and creates private lands which can be fenced. It is this privatization of farming which creates capitalism in its modern form, and continues to plague the world today with despotism of the landlords/ladowners over the peasants. It is in effect theft of the peasants property both individual and communal that allows you Mr. Canajun to have the right to property.






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As if Poverty and Debt Will Make Us Rich

BY RON JACOBS
JULY 8, 2022

Photograph Source: Jay Tamboli – CC BY 2.0

I’ve been the president of my union local since May 2021. A couple weeks ago we shook hands with the negotiating team for the City of Burlington, Vermont on a contract that beat most everyone’s expectations. Some of the highlights are a minimum 12% wage increase over the first two years and the first paid family leave clause in any municipal contract in Vermont. Meanwhile, another set of negotiations with the local school district seem to be heading in the opposite direction. Sitting in these two different negotiations while also reading economist Michael Hudson’s latest book, The Destiny of Civilization: Finance Capitalism, Industrial Capitalism, or Socialism, provides me with a unique vantage point regarding that destination. Working people carry on their lives knowing on some level that it could all go to hell no matter how much they are getting paid. At the same time, they seem to still believe enough in the ability of US capitalism to adjust itself, thereby making the future less intimidating than it would be with no such faith.

While both sides in the negotiations attempted to predict the future of the economy over the next four years, Hudson’s warnings that the basis of the current phase of capitalism resides in the creation of debt and the manipulation of that debt by the financial industry loomed ominously in my brain. Indeed, the very fact that an economic entity that produces nothing but debt for most of the world’s people is considered an industry should be ominous enough. Yet, cities, corporations, individuals with retirement accounts and students with student loans stumble on, borrowing and processing debt as if it were a promise of a better future instead of just a promissory note. Then again, what other choices do they have?

That question is not necessarily answered in Hudson’s text. What is answered, however, is how the world economy—especially that part of it tied into Washington and Wall Street—got to this point. Originally presented as a series of lectures at China’s Global University for Sustainability, The Destiny of Civilization is a fairly plainspoken and incredibly astute history of US capitalism, especially in its most recent phase known as neoliberalism. It is also an economic textbook of a kind one will rarely see in any university economics syllabus today.

Hudson’s fundamental argument is that the US-led capitalist economy is a a rentier economy; an economy based on the accumulation of income received without actually working or providing intrinsic value. This is the essence of feudalism, where the noblemen extracted goods, labor, money and other benefits from those who lived on and farmed the land (peasants or serfs, if you will) claimed by nobility. This often left the peasantry with little to no food after he paid his fee/rent to the aristocrat that claimed the land. When capitalism began to create its won wealth for the early capitalists, some of the latter’s earliest actions were to create laws taxing this unearned income. This allowed them to build infrastructure and ultimately provide public services for those the capitalists hired. According to Hudson, the capitalists wished to tax the rentier economy—nobility, landlords, etc.–out of existence. Unfortunately for the working people of the world, this did not occur. Instead, as the biggest capitalists accumulated more and more wealth through their exploitation of labor and their influence in government, they became the new rentier class. Their agenda included first and foremost an end to taxes on their wealth.

This brings us to today, when governments of the democracies are nothing but tools of the wealthy and the fire sale on public infrastructure is still raging. Schools, health care, roadways, parks, even the military and law enforcement; everything is on the block and those with the highest bid have no shame in taking it for their own. To destroy or privatize and sell back to those who created it as they see fit. The role that government once played in preventing this dictatorship of wealth is gone for all practical purposes. Hudson explains why and how this occurred. In doing so, he uses the words of Adam Smith, John Stuart Mill and others associated with the theories of capitalism to prove his point (and theirs) that the current system we know as neoliberalism is not the same system those writers had in mind. It is, however, what socialists like Rosa Luxemburg predicted would occur as the process of financialization assumed its current dominant position in the world capitalist economy. We know from looking around us that it is an economy enforced by wars, but also through loans and other economic tools designed to impoverish whole nations; something Hudson calls financial conquest. As he writes, these tools are presented to the loan recipients as if their impoverishment will make them rich.

Part of Hudson’s intentions seems to be to warn the Chinese of the pitfalls untaxed and unearned income can bring. It is his contention that China would be smart to maintain control of certain parts of its economy—resources, infrastructure creation including education and health care, even housing—and to fight against those in its wealthy class who want to privatize these things. Hudson argues is this that gives China its economic power. Likewise, it is this which makes the US consider China its enemy. The billionaire class that now owns the White House and Congress has no interest in allowing the US government to tax their gross accumulation of wealth, not to rebuild highways or educate its citizens. Their motivation is greed and the current system feeds that greed beyond what us regular folk can even begin to comprehend.

The Destiny of Civilization is an important book that should not be ignored. Forward thinking faculty should introduce it into their courses—economics, history, wherever they can fit it. More importantly, the rest of us should also read it. The analysis it provides is concise, clearly written, and one of the most important one can find anywhere. This is how the US economy really works. At home and abroad. The fact that it doesn’t work for working people, middle class citizens, or the youth doesn’t mean it will change or go away because it doesn’t work. As Hudson makes clear, it works precisely for those who created it and that doesn’t include you or me. The future can be a continuation of the neoliberal nightmare we are in, a fascist nightmare of which we caught a glimpse of under Trump, or a socialist and democratic society that works towards sustaining the world and its people, not impoverishing the lot of them for the benefit of the very few.


Ron Jacobs is the author of Daydream Sunset: Sixties Counterculture in the Seventies published by CounterPunch Books. His latest offering is a pamphlet titled Capitalism: Is the Problem. He lives in Vermont. He can be reached at: ronj1955@gmail.com.

LIBERAL'S RENTIER STATE

Roughly one-third of Liberal cabinet ministers own rental, investment real estate: records

Amanda Connolly - Yesterday 
Global News

Roughly one-third of ministers sitting around the Liberal cabinet table own rental or investment real estate assets, according to their filings with the federal conflict of interest commissioner.

While fully legal, real estate experts say the holdings reflect the degree to which Canadians increasingly view real estate as a financial asset, rather than a place to live.

It also comes as recent data from Canadian financial institutions has demonstrated the growing role of investors in fuelling price growth — a trend Deputy Prime Minister and Finance Minister Chrystia Freeland billed this week as an issue of "intergenerational injustice."

Read more:
Sky-high home prices in Canada are ‘intergenerational injustice,’ Freeland says

“One of the things that I am most concerned about as someone who — it shocks me to say this — is 53 years old, is the intergenerational injustice,” Freeland told reporters on Monday.

“We had a better shot at buying a home and starting a family than young people today, and we cannot have a Canada where the rising generation is shut out of the dream of homeownership.”

She was speaking at an event touting measures in the federal budget that the government says will tackle the sky-high prices pushing young Canadians out of homes, by both increasing supply and also cracking down on the financialization of real estate.

Financialization is a term increasingly being used in reference to investors buying up real estate — typically residential real estate that could otherwise serve as starter homes or affordable rental units — and then treating those as financial assets to generate profit, either through resale or raising rents.

Budget 2022: Will feds be able to deliver on housing affordability?

According to a Bank of Canada analysis earlier this year, home purchases by investors have outpaced those of first-time homebuyers or even repeat homebuyers during the COVID-19 pandemic.

Investors account for one-fifth of home purchases in Canada, that analysis found, while the share of purchases by first-time homebuyers hit a new low last year.

According to the disclosures filed with the federal conflict of interest commissioner, 12 of the 39 cabinet ministers — 31 per cent — hold real estate assets described by them in those filings as being either for "rental" or "investment" purposes.

That number does not include ministers who hold mortgages unrelated to rental or investment purposes.

Based on conversations with multiple government officials, those declared rental and investment assets range from homes being rented out as well as vacant land, properties used for tourism and properties purchased with the intent to move into them later.

All of that is legal and all of the ministers have fulfilled their duties under Canadian conflict of interest laws to report those assets to the federal conflict of interest commissioner.

Housing Minister Ahmed Hussen, tasked with implementing the government's promised measures to tackle housing unaffordability, is among those who own a rental property.

His disclosure form states he is the sole owner of a rental property in Ottawa.

Read more:
Federal budget needs more targeted support on housing, advocates say

Freeland does not own domestic rental or investment property in Canada but does own two rental properties with her spouse in London, U.K. She also co-owns a residential property in Kyiv, Ukraine.

Innovation Minister Francois-Philippe Champagne owns two rental properties in the U.K. as well, while nine other cabinet ministers own properties domestically that are described by them in the conflict of interest disclosures as for rental or investment purposes.

Veterans Minister Lawrence MacAulay co-owns a farm rental property located in St-Peter's Cable Head, Prince Edward Island

Tourism Minister Randy Boissonnault holds what he described as a "nominal interest" in an investment property in Edmonton, Alta. A government official said the property is a condo that Boissonnault co-owns with a friend, and that he holds roughly one per cent of the ownership but doesn't receive an income from the property.

Indigenous Services Minister Patty Hajdu is the sole owner of a rental property in Thunder Bay, Ont.

The most recent disclosure form for Gudie Hutchings, minister for rural economic development, lists her as jointly owning a real estate holding company in Little Rapids, Nfld., which one official said was related to her past work in the tourism industry before becoming an MP.

Minister for Seniors Kamal Khera is listed as the sole owner of an investment property in Caledon, Ont., and Justice Minister David Lametti is listed as the sole owner of a triplex described as a rental property in Verdun, Que. His office said he lives in one of the units, and rents out the others.

Read more:
Around 40% of parents of young Ontario homeowners helped children with purchase: poll

Minister of National Revenue Diane Lebouthillier stated in her forms that she holds a "significant interest" in a Quebec general partnership that rents out cottages in Sainte-Thérèse-de-Gaspé.

Harjit Sajjan, international development minister, owned a rental property in Osoyoos, B.C., until last year but recently sold that. He now jointly owns one investment property in Whistler, B.C., that an official said is a personal tourist accommodation in a commercial, not residential, facility.

As well, Fisheries Minister Joyce Murray disclosed ownership of two properties in her forms: one rental property in Riondel, a village in B.C.'s Kootenay region, as well as a parcel of vacant land in the region described as being held for investment purposes.

‘Can’t afford a home? Have you tried finding richer parents?’: MPs debate affordable housing in Canada

Parliamentarians owning property isn't a factor unique to the federal cabinet — MPs from the Conservative Party, NDP and Bloc Quebecois all own real estate assets listed in their disclosure forms as for rental or investment purposes.

But as members of the cabinet, ministers are uniquely positioned in their ability to drive and implement policy change that could aim to lower prices.

"In an ideal world, one's financial interest doesn't bias their decisions, but people are human and obviously there is some bias there," said John Pasalis, president of Realosophy Realty, a Toronto brokerage.

"No one wants to see their financial assets or their retirement plan drop in value, and I think we saw that in the housing minister's argument several months ago about protecting the financial interests of mom and pop investors."

Hussen told The Globe and Mail in February that the government didn't want to take actions that would "negatively affect them because they are actually providing a rental service to a lot of people.”

He said in that interview those investors add to the housing stock by renting out their properties.

Video: Real estate market: A look at tactics meant give buyers competitive edge

Pasalis, though, suggested they actually contribute to the challenge.

"If mom and pop investors were not rushing out and buying all of these pre-construction homes because they're wealthier and they have assets and they have the income, they'd probably be more affordable for households who want to raise their family there long term," he added.

Paul Kershaw, founder of Generation Squeeze, added that the cabinet minister's real estate holdings reflect one of the core challenges fuelling sky-high prices in Canadian real estate: the deeply ingrained cultural view among Canadians of real estate as an investment.

"I think it reflects a broader cultural blindness to how we are literally addicted to high and rising home values in a range of ways as we plan our financial savings strategies for down the road," said Kershaw, an associate professor studying generational equity at the University of British Columbia.

"I don't want anyone to think these politicians are anything but hardworking. But they also are encultured, which gives us blind spots to see that housing has become this strategy to become wealthy and not just a place to call home," he added.

"We're at a moment where we need to choose between those two things."

Data released by Statistics Canada on Tuesday showed that between 2019 and 2020, 31 per cent of Ontario's residential and recreational housing stock was held by people who owned multiple properties.

In Nova Scotia, that number rose to 41 per cent while in New Brunswick and B.C., it sat at 39 per cent and 29 per cent respectively. That data also showed that in all four provinces, the top 10 per cent of property owners earned more than the bottom 50 per cent put together.

Read more:
Upwards of 41% of housing in some provinces held by multiple-property owners

The data did not account for the white-hot surge in homebuying during the second year of the COVID-19 pandemic or the start of this year, which have both seen prices soar to record levels as frustration festers among a growing number of younger as well as middle-class Canadians who are priced out.

Fierce competition has sparked many to routinely waive home inspections or financing requirements, practices real estate experts have warned can put buyers at risk. In the budget, tabled last week, Freeland vowed to make good on a Liberal campaign promise to introduce a bill of rights for homebuyers.

That is expected to include a promised ban on waiving inspections.

Read more:
Budget 2022 — Tax-free savings account coming for first-time homebuyers

While the budget contained a number of new measures targeting housing unaffordability, there remain questions over whether their proposals, including a two-year ban on most foreign buyers and a one-year tightening of the tax rules around flipping residential properties, will make enough of a difference.

Countries like Singapore, for example, have over the last year changed their tax system to put a heavier burden on those who buy up multiple residential properties: a 25 per cent transfer tax on the purchase of secondary homes, and 30 per cent on third or subsequent homes.

For foreign buyers, the purchase tax on residential properties in that country went up from 20 per cent to 30.

Video: How interest rates impact the housing market

Some have suggested a longer ban on flipping homes, or tougher down payment requirements for either non-resident buyers or investors, which New Zealand has done recently, should be part of the range of measures needed to bring the unaffordability crisis under control.

"This is not a solution for all of our housing problems. Because at the end of the day, we still have this imbalance between supply and demand," Pasalis said.

"But what it does is it takes some of the demand out of the market, at least the investor demand, and potentially makes those homes a little bit more available and affordable for people who want to buy them and occupy them themselves. And I think that's a step forward that we should be moving towards."

Hussen said in a statement on Wednesday that the measures announced in the budget aim to curb "speculation" and boost supply.

"By putting Canada on the path to double our target to build more homes over the next decade, in partnership with provinces, municipalities, and the private sector, we’re addressing the housing supply shortage across the country," he said.

"These measures come in addition to crucial programs that will create more jobs, help house those most vulnerable in our communities, and help cool the market as we work to ensure that all Canadians have a safe and affordable place to call home."

A government official who spoke with Global News said the budget shouldn't be viewed as ruling out any measures that were not in the plan this year, and that a number of options remain on the table.

The government's goal, that person said, is to take a "progressive" approach that could yet see more measures layered on top of those in the budget, depending on how well they work.

Economists from BMO and RBC both warned about the brewing risk of letting the overheated market continue unabated in notes to investors last year.

In the separate notes, economists emphasized the need for action that "immediately breaks market psychology and the belief that prices will only rise further," noting the frenzy threatened to "destabilize the economy down the road if or when a correction occurs, with possible heavy costs for governments."

Inflation is currently running at 30-year highs, prompting the Bank of Canada to raise rates in a bid to tamp down on the cheap lending rates that helped spur consumer spending during the pandemic.

On Wednesday, citing the need to bring consumer expectations back under control, the Bank of Canada again raised rates in what economists called an "oversized" hike of half a percentage point.

How — and if — that will work to begin cooling the housing market fire remains to be seen.

Canadian home prices soar to new heights, averaging $800K

1. Rentier state - Wikipedia

   https://en.wikipedia.org/wiki/Rentier_stateIn current political-science and international-relations theory, a rentier state is a state which derives all or a substantial portion of its national revenues from the rent paid by foreign individuals, concerns or governments.

What is Property? Proudhon 1840 (marxists.org)

If I were asked to answer the following question: What is slavery? and I should answer in one word, It is murder, my meaning would be understood at once. No extended argument would be required to show that the power to take from a man his thought, his will, his personality, is a power of life and death; and that to enslave a man is to kill him. Why, then, to this other question: What is property! may I not likewise answer, It is robbery, without the certainty of being misunderstood; the second proposition being no other than a transformation of the first.

LA REVUE GAUCHE - Left Comment: Search results for RENTIER 

PAKISTAN
Economic powder keg

Abbas Nasir 

Published January 8, 2023 

The writer is a former editor of Dawn.

VULGAR is the word that pops into mind when witnessing the kind of politicking that seems to have become the norm in Pakistan, especially against the backdrop of a faltering economy, back-breaking inflation, mass joblessness and terrorism raising its cobra-like head again.

Pursuit of power is an integral part of politics as politicians and their parties can only fulfil their pledges and start implementing their manifesto once in office. But this pursuit must conform to democratic norms of conduct. It can’t be divorced from the ground reality.

Respected academic Faisal Bari, writing in the Friday issue of this newspaper, has illustrated with great lucidity what sort of economic hardship is being faced by the people and that even members of the socioeconomic groups that earlier seemed immune from the vagaries of the downturn are now feeling the pinch, and many desperately so.

When those with high five- and even low six-figure monthly incomes are visibly suffering, it would be pointless to mention the miseries of the shirtless, those on low incomes or the unemployed, given that inflation is at 30 per cent.

It is time our leaders acknowledge that radical restructuring is the only 

way forward and the days of the elite profiting from a rentier economy are over.

For the love of God, I can’t imagine how a family of four gets by even on Rs50,000 a month, double the minimum wage (you and I both know not too many make even that legal threshold), while having to pay rent, utility bills, school fees and, of course, putting food on the table. Must take some kind of magic, highly skilled jugglery to keep one’s head above water.

I have had journalist friends telling me they have had to shift to lower rent homes and move their children to relatively cheaper schools. And even then they can’t make ends meet. As a parent I can say the ‘downgrading’ of your children’s school must be the most heartbreaking thing to have to do.

Given the inflation, it is safe to say that the direct cash subsidies being made under schemes such as BISP to those at the bottom of the pyramid may help. But, hand on heart, tell me how many days the meagre cash transfers will enable a poverty-steeped recipient to put no more than just bread on the table?

Against this backdrop, political leaders — among them those dubbed corrupt as well as those officially certified ‘sadiq’ and ‘ameen’ — with their invective-laden diatribe against each other, mock the shirtless even as they enjoy their Gucci shoes/accessories, Yeezy trainers and Birkin handbags with hefty $$$ tags, their mansions and 40-acre estates.

Even the most ‘frugal’ among them travel in SUVs that cost so much I can’t even dream of buying one. That is, despite having worked for nearly 40 years and pretty much having been fortunate enough to get some of the best jobs in the media. Yes, they mock the poor. There isn’t another way to describe what they do. Who really cares for the have-nots, beyond using them in campaign slogans?

Let’s admit it. The system is designed and perpetuated by the country’s civil-military elite to serve their own narrow interests, while the teeming millions lurch from one hardship to another and celebrate as an achievement being able to survive from one day to another. Literally.

Not sure if they can see it from their cosy perches but the situation is fast becoming or possibly has become untenable. From outright narcissism to material greed to visions of grandeur, whatever makes our leaders tick, it is time they acknowledge that radical restructuring is the only way forward and the days of the elite profiting from a rentier economy are over.

There can be no escaping the need now for political leaders of different hues, in and out of government, to sit around a table and agree on a set of measures to revive the economy, a sustainable plan that spurs growth and job creation, boosts exports and cuts the eternally yawning current account deficit which is at the root of so many of our troubles.

The first and foremost aim of any economic policy has to be to target and eliminate poverty. Both sides of the political divide can blame each other for the mess but to an outsider both are culpable as they were short of imagination and ideas when there was space to make decisions of far-reaching import.

Pointless to talk about a defence expenditure cut as that is somehow seen as non-negotiable. But for how long. Many, many billions are given away in subsidies to the elite by the elite each year. These need to stop as they not only amount to plunder of national wealth but also distort the economy and make even the capitalist model we so lovingly embrace unworkable.

The next census will show whether Pakistan’s population is 205 million or 220m or an even higher number. What we know already is that over 65 per cent of the country’s population is under 30. The proportion of the younger citizens is increasing every day in the country’s population.

This huge young segment presumably in good health has 30 to 40 good, solid years of a working life ahead of it. It is often called the youth bulge. Any country with such a large number of young people, decades away from retirement and pensions, would be seen as an asset. They are.

But in a failing economy with rampant poverty and unemployment, this very asset can become a powder keg, a ticking bomb. Millions of jobless youth can get restive very quickly and unleash chaos. Can our leaders see this danger?

TTP terrorism is on the rise again. That challenge needs to be addressed in line with the concerns of thousands who have demonstrated for peace in Waziristan and Swat. Equally, steps to halt the economy’s downward spiral can’t wait. All we need is jobless-driven chaos in the rest of the country.


abbas.nasir@hotmail.com
Published in Dawn, January 8th, 2023

Renters In America Are Running Out Of Options

VICE NEWS

The need for affordable housing continues to grow in urban centers. The traditional form of affordable housing for suburban and rural areas, mobile homes, have become overrun with speculation, pricing people out through a new type of landlord - private equity.

RENTIER CAPITALISM

The Fed’s Austerity Program to Reduce Wages

BY MICHAEL HUDSONFacebooTwitter

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Photograph Source: wandererwandering – CC BY 2.0

The Federal Reserve Board’s ostensible policy aim is to manage the money supply and bank credit in a way that maintains price stability. That usually means fighting inflation, which is blamed entirely on “too much employment,” euphemized as “too much money.”[1] In Congress’s more progressive days, the Fed was charged with a second objective: to promote full employment. The problem is that full employment is supposed to be inflationary – and the way to fight inflation is to reduce employment, which is viewed simplistically as being determined by the supply of credit.

So in practice, one of the Fed’s two directives has to give. And hardly by surprise, the “full employment” aim is thrown overboard – if indeed it ever was taken seriously by the Fed’s managers. In the Carter Administration (1977-80) leading up to the great price inflation of 1980, Fed Chairman Paul Volcker expressed his economic philosophy in a note card that he kept in his pocket, to whip out and demonstrate where his priority lay. The card charted the weekly wage of the average U.S. construction worker.

Chairman Volcker wanted wages to go down, blaming the inflation on too much employment – meaning too full. He pushed the U.S. bank rate to an unprecedented 20 percent – the highest normal rate since Babylonian times back in the first millennium BC. This did indeed crash the economy, and with it employment and prosperity. Volcker called this “harsh monetary medicine,” as if the crash of financial markets and economic growth showed that his “cure” for inflation was working.

Apart from employment and wage levels, another victim of Volcker’s interest-rate hike was the Democratic Party’s fortunes in the 1980 presidential election. They lost the White House for twelve years. The party thus is taking great courage – or simply being ignorant – by entering on this autumn’s midterm election by emulating Mr. Volcker’s attempt to drive down wage levels by financial tightening, which already has crashed the stock market by 20 percent.

President Biden has thoroughly backed up Republican-appointed Federal Reserve Chairman Jerome Powell in endorsing a financial crash in hope that it will roll back U.S. wage levels. That is the policy of the Democratic Party’s donor class and hence political constituency.

To Wall Street and its backers, the solution to any price inflation is to reduce wages and public social spending. The orthodox way to do this is to push the economy into recession in order to reduce hiring. Rising unemployment will oblige labor to compete for jobs that pay less and less as the economy slows.

This class-war doctrine is the prime directive of neoliberal economics. It is a feature of the tunnel vision of corporate managers and the One Percent, the Federal Reserve and IMF are its most prestigious lobbyists. Along with Janet Yellen at the Treasury, public discussion of today’s U.S. inflation is framed in a way that avoids blaming the 8.2 percent rise in consumer prices on the Biden Administration’s New Cold War sanctions on Russian oil, gas and agriculture, or on oil companies and other sectors using these sanctions as an excuse to charge monopoly prices as if America has not continued to buy Russian diesel oil, as if fracking has not picked up and as if corn is not being turned into biofuel. There has been no disruption in supply. We are simply dealing with monopoly rent by the oil companies using the anti-Russian sanctions as an excuse that an oil shortage will soon develop for the United States and indeed for the entire world economy.

Covid’s shutdown of the U.S. and foreign economies and foreign trade also is not acknowledged as disrupting supply lines and raising shipping costs and hence import prices. The entire blame for inflation is placed on wage earners, and the response is to make them the victims of the coming austerity, as if their wages are responsible for bidding up oil prices, food prices and other prices resulting from the crisis. The reality is that they are too debt-strapped to be spendthrifts.

The Fed’s Junk Economics of What Bank Credit Is Spent On

The pretense behind the Fed’s recent increase in its discount rate by 0.75 percent on June 15 (to a paltry range of 1.50% to 1.75%) is that raising interest rates will cure inflation by deterring borrowing to spend on the basic needs that make up the Consumer Price Index and its related GDP deflator. But banks do not finance much consumption, except for credit card debt, which in the United States is now less than student loans and automobile loans.

Banks lend almost entirely to buy real estate, stocks and bonds, not goods and services. Some 80 percent of bank loans are real estate mortgages, and most of the remainder are loans collateralized by stocks and bonds. So raising interest rates will not lead wage-earners to borrow less to buy consumer goods. The main price effect of less bank credit and higher interest rates is on asset prices – deterring borrowing to buy homes, as well as for arbitragers and corporate raiders to buy stocks and bonds.

Rolling Back Middle-Class Home Ownership

The most immediate effect of the Federal Reserve’s credit tightening will be to reduce America’s home-ownership rate. This rate has been falling since 2008, from nearly 68 percent to just 61 percent today. The decline got underway with President Obama’s eviction of nearly ten million victims of junk mortgages, mainly black and Hispanic debtors. That was the Democratic Party’s alternative to writing down fraudulent mortgage loans to realistic market prices, and reducing their carrying charges to bring them in line with market rental values. The indebted victims of this massive bank fraud were made to suffer, so that Obama’s Wall Street sponsors could keep their predatory gains and indeed, receive massive bailouts. The costs of their fraud fell on bank customers, not on the banks and hence on their stockholders and bondholders.

The effect of discouraging new home buyers by raising interest rates lowers home ownership – the badge of being middle-class. Despite this, the United States is turning into a landlord economy. The Fed’s policy of raising interest rates will greatly increase the interest charges that prospective new home buyers will have to pay, pricing the carrying charge out of reach for many families.

As the United States has become more debt-ridden, more than 50 percent of the value of U.S. real estate already is held by mortgage bankers. Homeowners’ equity – what they own net of their mortgage debt – has fallen even faster than home ownership rates have declined.

Real estate is being transferred from “poor” hands to those of wealthy landlord corporations. Private capital companies – the funds of the One Percent – are going to pick up the pieces from the coming wave of foreclosures to turn homes into rental properties. Higher interest rates will not affect their cost of buying this housing, because they buy for all cash to make profits (actually, real estate rents) as landlords. Within another decade the nation’s home ownership rate may fall toward 50 percent (and homeowners’ equity even lower), turning the United States into a landlord economy instead of the promised middle-class home ownership economy.

The Coming Economic Austerity (Indeed, Debt-Burdened Depression) 

While home ownership rates have plunged for the population at large, the Fed’s “Quantitative Easing” has increased its subsidy of Wall Street’s financial securities from $1 trillion to $8.2 trillion – of which the largest gain has been in packaged home mortgages. This has kept housing prices from falling and becoming more affordable for home buyers. But the Fed’s support of asset prices ha saved many insolvent banks – the very largest ones – from going under. Sheila Bair of the FDIC singled out Citigroup, along with Countrywide, Bank of America and the other usual suspects. The working population is not considered to be too big to fail. Its political weight is small by comparison to that of Wall Street banks and other FIRE-sector donors.

Lowering the discount rate to only about 0.1 percent enabled the banking system to make a bonanza of gains by making mortgage loans at around 3.50 percent. And despite the stock market’s plunge of over 20 percent from nearly 36,000 to under 30,000 on June 17, America’s wealthiest One Percent, and indeed the top 10 Percent, have vastly increased their wealth in stocks, while the bond market has had the largest boom in history. But most Americans have not benefitted from this runup in asset prices, because most stocks and bonds are owned by only the wealthiest layer of the population. The Fed is all in favor of asset-price inflation. But For most American families, corporations and government at all levels, the financial boom since 2008 has entailed a growing debt burden. Many families face insolvency as Federal Reserve policy aims to create unemployment. Now that the Covid moratorium on the evictions of renters behind in their payments is expiring, the ranks of the homeless are rising.

The Biden Administration is trying to blame today’s inflation and related distortions on Putin, even using the term “Putin inflation.” The mainstream media follow suit in not explaining to their audience that Western sanctions blocking Russian energy and food exports will cause a food and energy crisis for many countries this summer and autumn. And indeed, beyond: Biden’s military and State Department officers warn that the fight against Russia is just the first step in their war against China’s non-neoliberal economy, and may last twenty years.

That portends a long depression. But as Madeline Albright would say, they think that the price is “worth it.” Biden’s cabinet depicts this New Cold War as a fight of the “democratic” United States – “democracy” being a euphemism for privatizing economic planning in the hands of the largest banks “too big to fail” and other members of the neo-rentier class – in opposition to “autocratic” China and even Russia – being “autocratic” for treating banking and money creation as a public utility to finance tangible economic growth, not financialization, and otherwise resisting Western neoliberal takeover.

There is no evidence that America’s neoliberal-neoconservative New Cold War can restore the nation’s former industrial and related economic power. The economy cannot recover as long as today’s debt overhead is left in place. Debt service, housing costs, privatized medical care, student debt and a decaying infrastructure have made the U.S. economy uncompetitive. There is no way to restore its economic viability without reversing these neoliberal policies. But there is little “reality economics” at hand to provide an alternative to the class war inherent in neoliberalism’s belief that the economy and living standards can prosper by purely financial means, by debt leveraging and corporate monopoly rent extraction while the United States has made its manufacturing uncompetitive – seemingly irreversibly.

The Rentier Class Has Sought to Make America’s Neoliberal Privatization and Financialization Irreversible

It has succeeded to such a degree that there is no party or economic constituency promoting the policies needed for an industrial recovery. Yet the Democratic Party leadership, subjecting the economy to an IMF-style austerity plan, will make this November’s midterm elections unique. For the past half century, the Fed’s role has been to provide easy money for the economy, to give the ruling party at least the illusion of trickle-down prosperity to deter voters from electing the opposition party. But this time the Biden Administration is running on a program of financial austerity.

The Party’s identity politics address almost every identity except that of wage-earners and debtors. That does not look like a platform that can succeed. But as the ghost of Margaret Thatcher no doubt is telling them: “There Is No Alternative.”

Michael Hudson’s new book, The Destiny of Civilization, will be published by CounterPunch Books next month.

RENTIER CAPITALI$M

How stock market inefficiencies can affect the real economy

by University of Luxembourg

How the dynamic flow-based investment strategy outperforms the market portfolio. 

Credit: The author

Mutual fund investors are known to be vulnerable to fluctuating market conditions. What is less well understood is how corporate managers are affected by waves of investor optimism. A researcher has published a study in the journal Financial Innovation, where he argues that corporate managers and investors are jointly caught up in market euphoria. Using a long time series of aggregate flows in and out of bond and equity mutual funds as a proxy for investor sentiment, the study's author, Thorsten Lehnert, professor at the University of Luxembourg's Department of Finance shows that the joint "moodiness" of managers and investors can predict the performance of an investment strategy that relies on differences in corporate managers' investment behavior.

Prof. Lehnert focused on the so-called investment factor, an investment strategies that is long in a conservative investment portfolio and short in an aggressive investment portfolio. He explains that "stock prices of high- and low-investment firms are differentially affected by market-level euphoria. For example, the observed mispricing during periods of euphoria and the subsequent correction is particularly pronounced for a high investment portfolio compared to a low investment portfolio. As a result, the performance of an investment factor can be predicted using information about retail investors' optimism and pessimism."

Interestingly, the relationship between past flows and the investment factor is not only statistically significant, but also economically significant. The study shows that, overall, a related trading strategy consistently and significantly outperforms static strategies and generates significant annual alphas of 7% after accounting for well-known risk factors. Interestingly, the flow measure, which serves as a proxy for market-level euphoria, dominates other well-known indicators of investor sentiment.

"So far, the common view is that retail investors are 'moody' and exhibit irrational trading behavior. My explanation that corporate managers and investors are jointly caught up in market euphoria offers a novel perspective on how financial markets can affect the real economy," Prof. Lehnert explains. "It appears that stock market inefficiencies matter even for real decisions of firms," he concludes.Price noise proves the key to high performing 'bets against beta' investment strategies

More information: Thorsten Lehnert, Corporate managers, price noise and the investment factor, Financial Innovation (2022). DOI: 10.1186/s40854-022-00365-2

Provided by University of Luxembourg 

Is “radical tinkering” enough?

Mike Phipps reviews When nothing works: From cost of living to foundational liveability, by Luca Calafati, Julie Froud, Colin Haslam, Sukhdev Johal and Karel Williams, published by Manchester University Press

AUGUST 31, 2023LABOUR HUB 

In a recent poll, 57% of the British electorate – including half of all Conservative voters – agreed with the statement ‘”nothing in Britain works anymore”. Only 19% disagreed. The verdict of course is vague: it covers NHS waiting lists, transport infrastructure, our education system, the state of our parks, the energy sector and much else. Right wing tabloid journalists compile a different list, from the criminal justice system to immigration controls.

The authors of this book trace the origin of the problem to the UK’s  pursuit of “a fantasy of market citizenship” which resulted in low wages and the rise of in-work benefits for an increasing proportion of economically active households who now receive more in benefits than they pay in taxes. At the same time, “state underfunding has slowly undermined and distorted essential service provision.”

In a case study, the authors examine the NHS, where underfunding and wage cuts exacerbate a recruitment and retention crisis – as in many other parts of the public sector – but where additionally privatisation and reorganisations have “reconfigured key parts of the NHS so that they are unfit for health system purposes.”

A root cause of these failings is the shift in the balance of power between labour and capital in favour of the latter over the last fifty years, caused by the cumulative impact of weakened trade unions, growing privatisation and outsourcing and deregulated finance – “a rentier machine for rationing investment and extracting cash”.

“Britain needs a pay rise,” says the Trade Union Congress. But for low income households, this is only part of the solution, suggests this book: “Each extra one pound of wages turns into about 30 pence of disposable income for those who not only pay tax on their wage increase but also lose Universal Credit.” A reform of the “predatory” tax and benefit system is also required, plus big improvements in Britain’s social infrastructure. An immediate priority is reversing the austerity cuts of the 2010s in central government grants to local authorities.

“Quagmire politics”

This book proposes a new economic diagnosis and political approach to the UK’s problems: a break from the consensus “quagmire politics” and its objectives of faster growth and higher wages. In fact, faster growth is unattainable, argue the authors, “because the UK’s growth rate is declining and there is no evidence that technocratic centrist or free market supply side economic policies can shift the country onto a higher growth trajectory.”

But the aim of faster growth is not just unattainable, without a fundamental break from mainstream policies; it is also misconceived, insofar as faster growth aggravates the climate emergency. This is true even of ‘green growth’, claim the authors: the evidence suggests it’s simply not possible to decouple economic growth from environmental damage. The conclusion is inescapable: to achieve the necessary reductions in emissions, we will need to scale down aggregate economic activity. Fearing the electoral unpopularity of this message, few mainstream politicians are willing to articulate it.

On the face of it, the empirical evidence for this is insurmountable. Research suggests that every percent of growth raises emissions by a percent, because of the energy required to generate economic activity. But understanding this also indicates a potential solution: not all economic activity is equally energy-guzzling, and not all energy sources contribute the same amount of carbon emissions. In short, as one study puts it, “Clean up first, and then invest in development.”

A new framework

To address all these problems, the authors propose a new “foundational liveability framework”. This would end the focus on gross domestic product as the key measurement and would use instead household living standards as the basic unit of analysis. Liveability, argue the authors, “has been undermined by the crumbling of each of its three supporting pillars: essential services, social infrastructure and residual income. This is the result of the failed market citizenship project which has attempted to boost individual consumption at the expense of collective provision.”

This re-framing puts centre-stage a debate about universal basic services, universal basic income and even universal basic infrastructure which have been separately canvassed in the last few years.

The authors rightly bemoan the existing political consensus, but then suggest that several  constraints on an incoming Labour Government are likely to prevent a radical policy departure. “The room for fiscal expansionism will be limited by trade deficit and the debt to GDP ratio, while an independent Bank of England with a narrow remit will control monetary policy,” they argue. Some privatisation could be reversed, but the state has lost the capacity to run large-scale infrastructure projects and anyway regulation would be cheaper. An incremental approach would apparently work best, especially as voters are supposedly slow to grasp big economic ideas.

Thus the authors focus on “adaptive reuse which delivers slow, steady progress” and “starter and stealth policies.” These, they admit, “could be disparaged as tinkering, but sustained, purposive, broad front, radical tinkering is what adaptive reuse is all about.”

I’m not so sure. Of course, there is a sound logic to, for example, taking the best from local and regional government and rolling it out nationally. But the pragmatism and innovation that produced some excellent local initiatives were born of necessity amid severe financial constraints: a national government with a strong mandate should not be hamstrung in the same way. The caution advocated here could well backfire at a subsequent election, when a Starmer government, like New Labour before it, starts to lose the goodwill of voters increasingly impatient for change.

“Paradigm change is beyond this team of authors,” they declare in the Introduction. But if nothing really does work in contemporary Britain, isn’t that precisely what is needed?

Mike Phipps’ book Don’t Stop Thinking About Tomorrow: The Labour Party after Jeremy Corbyn (OR Books, 2022) can be ordered here.