A Euro Tragedy [feedly]

A Euro Tragedy
http://mainlymacro.blogspot.com/2018/06/a-euro-tragedy.html

"Italy, I believe, is the eurozone's fault line." Not from an article on the recent crisis, but from a bookby Ashoka Mody, called "Euro Tragedy: A Drama in Nine Acts", just published in the US and due out in the UK in July.

As the title indicates, this is not a pros versus cons assessment. Instead the author treats the Euro as a clear mistake, a triumph of a political ideal of European unity over basic economics. The author provides a clear (and accessible for non-economists) account of how the idea of the Euro began to dominate the political discourse of particularly the French elite and how Germany leaders agreed on the condition that they determined the design, how warning signs during the pre-crisis period were ignored, how the risks from a Greek default were overblown so the wrong policies were adopted in 2009 and 2010, and how subsequent actions exposed the democratic deficit implicit in that German design, encouraging populist movements across Europe. (For UK readers I have to emphasise that this is about the Eurozone and not the EU.)

Many of these points will be familiar to regular readers of my blog, but here the story is told with the knowledge and authority of someone who, as deputy director of the IMF's European department, was close to the action. The sections on the Greek crisis especially should be read by all those who stick to the 'official' line that Greece turned a crisis (excessive deficits) into a disaster because it refused to take the medicine it needed. The reality, as the author describes, is that Syriza's call for debt relief should have been granted. He writes

"This demand had overwhelming support in both the scholarly economics literature and the practice of economic policy. Scholars for decades had emphasised that excessive debt - 'debt overhang' - reduces the ability and incentive to invest, slows economic growth, causes low inflation or even deflation to set in, and makes debts harder to pay."

And as he notes earlier, these debts should have led to default in 2009/10 rather than being mainly transferred into obligations of the Greek government to other Eurozone governments. Varoufakis may have been unconventional, but many of his proposals, including linking repayments to GDP growth, were "economically sound".

Indeed he goes further than I have done. He writes about the final days of the standoff between the Syriza government and the Eurogroup after the referendum. The IMF made increasingly strident public noises about the urgency of debt relief, but the Germans - fearing political comeback from their taxpayers - refused to budge. He writes

"The IMF could have forgiven the debt owed to it by the Greeks. This drastic gesture would have created international pressure on the Germans and other European creditors to do the right thing. The IMF had a moral obligation to take such a drastic step, if for no other reason than to make amends for its complicity in the tragedy. At the time of the original bailout in May 2010, IMF management had prevented the Greek government from defaulting on its private creditors, an action that several members of the IMF's Executive Board and the vast majority of external analysis then and later believed was essential to reduce Greece's debt burden"

This book is a comprehensive and impressive history of the creation and subsequent performance of the Eurozone, and one of the few books on the subject where I find myself nodding in agreement most of the time.  (Martin Sandbu's Europe's Orphan is another.) There is much more interesting detail and analysis that I cannot do justice to in one blog post. I can think of two areas where I might have told a slightly different story. The author in parts writes as if it was commonly understood by economists that the Euro would not work. I think there were, in Europe at least, two other significant groups among academic economists. The first thought that perhaps the Euro could work, but only if it allowed fiscal policy to replace monetary policy as the national stabilisation mechanism. I still remember how astonished I was reading the Stability and Growth pact when it was announced, which effectively ignored this critical role for fiscal policy. Another group gave more unconditional support to the Euro, although whether they did so because they really believed in its merits or because they saw it as politically inevitable is difficult to tell.

The second story which I do not think is given enough emphasis is the role of German wage undercutting in the early 2000s. As Peter Bofinger has argued,this was a deliberate attempt to devalue the German real exchange rate within the Eurozone. It was significant for two reasons. First, it helped Germany to emerge from the financial crisis in an economically stronger position than France and others, which in turn had a strong economic and political influence on subsequent events. Second, it indicated an unwillingness on the part of the strongest country in the union to play by the rules of the game.

But these are just differences in emphasis. I would absolutely agree with the author that to avoid a continuing tragedy the direction of travel has to change. He writes

"The evidence in this book points insistently to specific measures to improve the functioning of the eurozone. These include scrapping the fiscal rules, creating mechanisms for predictable and orderly default on public debt to instill greater discipline in debtor governments and their creditors, and changing the ECB's mandate to require that reducing unemployment be an objective of monetary policy on a par with maintaining price stability."

Unfortunately that is not the path the eurozone is currently on. It retains a belief in 'falling forward' from each crisis to further integration. If the governing elite is the head and the people are the legs, the great danger is that the legs will not move and the eurozone will fall flat on its face.

 -- via my feedly newsfeed

May Jobs: Another solid month; Lowest black unemployment rate on record; Wage growth ticks up for mid-wage workers. [feedly]

May Jobs: Another solid month; Lowest black unemployment rate on record; Wage growth ticks up for mid-wage workers.
http://jaredbernsteinblog.com/jobs-report-for-may/

Payrolls rose 223,000 last month, beating expectations of 190,000, and the unemployment rate ticked down to 3.8 percent, its lowest level since April 2000, and before that, a level much more commonly seen in the 1960s. (At 3.75 percent, the jobless rate just missed falling two-tenths).

[Before the release, President Trump tweeted that he was looking forward to the jobs numbers. Since certain top officials, including the president, see the report on Thursday night, his tweet telegraphed the positive report, a highly unusual occurrence.]

The unemployment rate for African-Americans fell to 5.9 percent, an historical low point by a wide margin. Typically, the black unemployment rate is twice the white rate. But persistently tight labor markets are especially helpful for minority workers, as they make it more costly for employers to discriminate. In May, the black/white ratio was 1.7, still too high, but lower than average, underscoring the relative gains to less-advantaged workers.

Given the noisiness of these monthly data, our patented jobs smoother looks at average monthly employment gains over 3, 6, and 12-month intervals. As shown below, the trend in payroll growth is running at around 180K-200K per month, a solid trend that, if it persists, is strong enough to continue pushing down the unemployment rate.

Wage growth picked up slightly, up 2.7 percent overall and 2.8 percent for middle-wage workers. This too is a positive sign, as the tight labor market pushes up wage growth. The figures show yearly wage gains for all private sector workers and for the 82 percent that are blue-collar production workers and non-managers in services. The smooth trend in the first figure shows little by way of recent acceleration. Hourly wages were up 2.7 percent last month, a bit faster than the latest reading on consumer inflation of 2.4 percent.

The other figure, however, for middle-wage workers, shows a bit of a trend increase, as wage growth has accelerated in recent months and was 2.8 percent in May. This is once again consistent with the tight labor market disproportionately helping the least advantaged.

If it sticks, this "trend is our friend," as is the solid payroll jobs' trend. But is there anything out there that could whack it? The Fed could raise interest rates too quickly, but, barring a sharp acceleration in prices, which I judge to be unlikely, I believe they will be careful not to make this mistake. Trump's trade war could, and probably will, escalate. That's slightly worrisome, but remember, relative to other countries, the US is somewhat insulated to trade shocks as our imports as a share of GDP are only 15 percent, compared to at least twice that in Europe.

The biggest constraint to the jobs trend is labor supply. If the supply of available workers dries up, that will definitely constrain both job and overall economic growth. However, I've argued that this constraint may be less binding than many economists believe to be the case (yes, the May labor force barely budged, but these monthly numbers are especially noisy).

Employment rates of prime-age workers (25-54) were flat last month, but they've been climbing and have recovered 4.4 out of 5.5 percentage points, or 80%, of their losses since the recession. Historically, this indicator has flattened before recessions, but, May's result aside, it has been growing lately for both genders, suggesting more room to run. We also know that there is considerable geographical variation in labor market tightness, so while some cities may be close to tapped out, supply-wise, other places are clearly not. At least thus far, these dynamics, combined with low productivity growth and weak worker bargaining power, have constrained wage and price growth.

I recently pointed out the prime-age employment rate is a better predictor of recent wage growth (nominal, i.e., before inflation) than the unemployment rate. The figure below (which does not include this month's data) shows the results of a simple statistical model that predicts the annual wage growth of non-supervisory workers (the one that grew 2.8 percent over the past year). I run the model through 2014 and then predict wage growth based on a slack variable and lagged wage growth.

Source: BLS, my estimates.

What it shows is that variables that are more inclusive of slack do a better job of predicting wage growth. The unemployment rate says wages should be growing about 3.5 percent right now. The more slack-inclusive underemployment rate (U6) is a little more pessimistic/realistic but the men's prime-age employment rate, which shows the most slack, does the best.

There are many caveats to this simple exercise–the differences are all within a margin of error and a more complete model would include the slow productivity growth that is putting downward pressure on wage growth. But it does provide some useful information. The notion that labor supply is fully tapped in the U.S. is not well supported by these monthly jobs reports. First, the persistently strong monthly payroll numbers are inconsistent with seriously binding supply constraints. Second, the employment rate for prime-aged workers doesn't appear to have topped out. Third, while some price and wage pressures are building, these capacity indicators are not flashing red by a long shot.

Thus, especially from the Fed's perspective, the assumption that there's still room to run–that labor supply is not clearly exhausted–is the right one to make. The gains to African-Americans must be preserved and built upon. Same with that tick up in wage growth for mid-wage workers. Remember, in an economy with little union power, tremendous finance power, and thereby, far too much inequality, the best friend working people have is a persistently tight labor market.

 -- via my feedly newsfeed

Trump is enabling a predatory economy. Here’s how he’s doing it.

Trump is enabling a predatory economy. Here's how he's doing it.

Remember last year's viral outrage over a video of a doctor getting forcibly removed from a United Airlines flight when he refused to leave the plane after getting bumped because his flight was oversold?

That's so 2017.

Late last week Reuters broke the news that the Trump administration was opposing a provision in a Senate bill reauthorizing the Federal Aviation Administration funding that would upgrade consumer rights when it comes to airline flights, and ban bumping after passengers are checked in or seated on the plane. The idea behind the bill was that it's wrong to seat a customer only to tell them at the last minute they aren't going to their destination at that time because the airline sold tickets to more people than the plane could hold.

At the same time, the Trump administration also opposes a change that would permit government review of airline fees on everything from baggage to cancellations and ticket changes to see if the fees are "disproportionate to the costs incurred by the air carrier." That provision might make it harder for airlines to hit their customers with, say, ticket-change fees that equal or exceed the actual cost of the fare.

This is just the latest evidence that the Trump administration is enabling a turbo-charged predatory economy. Despite the fact that Donald Trump campaigned on a promise to drain the swamp, Trump appointees are distinguishing themselves by prioritizing big business over our personal finances at almost every opportunity:

• Over at the Consumer Financial Protection Bureau, temporary head Mick Mulvaney, who famously described the agency he now heads as a "sick, sad" joke, has presided over a neutering of the agency, closing down investigations of payday loan lenders, and supporting legislation signed by Trump that overturned regulations meant to protect African Americans and Latinos from paying higher rates for auto loans than white consumers.
• At the Education Department, Betsy DeVos has downsized a unit investigating fraud at for-profit colleges. As for an attempt to cut back on loan forgiveness to students who attended for-profit Corinthian Colleges, which closed down amidst a flood of controversy over lies about graduation and job-placement rates, a California court stepped in Friday night and stopped the department from doing it – at least for now.

According to Devin Fergus, the author of the soon-to-be-published book "Land of the Fee: Hidden Costs and the Decline of the American Middle Class," these sorts of fees ultimately exacerbate inequality. He calculated that charges related to subprime mortgages, payday and student loans and auto insurance premiums  — money disproportionately paid by lower-income communities, and by Africans Americans and Latinos — alone cost Americans almost $1.5 trillion annually. That money flows upward to the large corporations extracting the sums and away from most of us.

As for the airline fees, they add up, too. According to regulators, U.S. airlines earned $7.5 billion in revenue from baggage and reservation-change fees in 2017, an increase of more than 30 percent from 2010. As Sen. Bill Nelson (Fla.), the ranking Democrat on the Senate Transportation Committee, told Reuters, the Transportation Department's opinion on the Senate attempt to crack down on airline fees and other predatory practices "reads more like something written by the airlines instead of the government watchdog that's supposed to be protecting consumers."

This hands-off approach by government, in turn, seems to tell businesses that petty — and not so petty — pocket-picking is A-okay. Heath insurers such as Anthem claim the right to decide your medical emergency was such an immediate need that they need to pay it – after you've received the service, which is likely to cost thousands of dollars. Financial institutions like Bank of America decide to pay their Merrill Lynch brokers not just based on selling investments but also on how successful they are at cross-selling the bank's credit cards, mortgages and checking and savings accounts to their customers — seemingly without taking into account whether those services are needed. Go to seek advice on your retirement accounts, stay for the pitch for bank products!

Then there is the bait-and-switch tax reform, which the Trump administration and Republicans said would result in pay raises and job gains. As it turns out, American corporations missed the memo. Last week, Axios revealed at a conference sponsored by the Dallas Federal Reserve, high-ranking c-suite executives said they would do no such thing. Instead, the money is going to share buybacks and stock dividends. In other words, the rich are likely to get richer, not just from the disproportionately large tax cut they received but because the tax cut is also enriching the companies they are invested in, giving both their income and wealth a boost — and this was sold as a boon to middle-class Americans, even as it will fleece them, via deficits and tax hikes later over time.

The economy of the Trump era is leaning into degrading both the quality of American life and our pocketbooks. It's not just that the Trump administration misleads about the impact of its policies (such as those discussed above) on the bottom line of most voters. It's not just that the federal government is doing away with regulations and laws that benefit ordinary Americans. It's that the government is saying this sort of behavior is more than permissible — it is what we should expect. If you get ripped off, it's on you.

In Trump's United States, business prospers, not just by innovating but also by taking advantage of customers. Trump and senior members of his administration are more than fine with that. They think that's how it should be.

e
Harpers Ferry, WV

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Krugman: Oh, What a Stupid Trade War

Oh, What a Stupid Trade War

Paul Krugman:

So, the trade war is on. And what a stupid trade war it is.

My regular column for tomorrow is about health care, but I felt I needed to weigh in on this idiocy, and not just on Twitter.

The official – and legal – justification for the steel and aluminum tariffs is national security. That's an obviously fraudulent rationale, given that the main direct victims are democratic allies. But Trump and co. presumably don't care about telling lies with regard to economic policy, since that's what they do about everything. They would see it as all fair game if the policy delivered job gains Trump could trumpet. Will it?

OK, here's the point where being a card-carrying economist gets me into a bit of trouble. The proper answer about the job-creation or -destruction effect of a trade policy – any trade policy, no matter how well or badly conceived – is basically zero.

Why? The Fed is currently on a path of gradually raising interest rates, because it believes we're more or less at full employment. Even if tariffs were expansionary, that would just make the Fed raise rates faster, which would in turn crowd out jobs in other industries: construction would be hurt by rising rates, the dollar would get stronger making U.S. manufacturing less competitive, and so on. So all my professional training wants me to dismiss the jobs question as off-base.But I think this is a case where macroeconomics, even though I believe it's right, gets in the way of useful discussion. We do want to know whether the Trump trade war is going to be directly expansionary or contractionary – that is, whether it would add or subtract jobs holding monetary policy constant, even though we know monetary policy won't be constant.

And the answer, almost surely, is that this trade war will actually be a job-killer, not a job-creator, for two reasons.

First, Trump is putting tariffs on intermediate goods – goods that are used as inputs into the production of other things, some of which themselves have to compete on world markets. Most obviously, cars and other durable manufactured goods will become more expensive to produce, which means that we'll sell less of them; and whatever gains there are in primary metals employment will be offset by job losses in downstream industries.

Playing with the numbers, it seems highly likely that even this direct effect is a net negative for employment.

Second, other countries will retaliate against U.S. exports, costing jobs in everything from motorcycles to sausages.In some ways this situation reminds me of George W. Bush's steel tariffs, which were motivated in part by hubris: the Bush administration thought of America as the world's unchallengeable superpower, which we were in military terms; they failed to recognize that we were by no means equally dominant in economics and trade, and had a lot to lose from trade conflict. They quickly got schooled by an angry European Union, and backed down.

In Trump's case I think it's a different kind of illusion: he imagines that because we run trade deficits, importing more from other countries than they sell to us, we have little to lose, and the rest of the world will soon submit to his will. But he's wrong, for at least four reasons.

First, while we export less than we import, we still export a lot; tit-for-tat trade retaliation will hurt a lot of American workers (and especially farmers), quite a few of whom voted for Trump and will now find themselves feeling betrayed.

Second, modern trade is complicated – it's not just countries selling final goods to each other, it's a matter of complex value chains, which the Trump trade war will disrupt. This will produce a lot of American losers, even if they aren't directly employed producing exported goods.

Third, if it spirals further, a trade war will raise consumer prices. At a time when Trump is desperately trying to convince ordinary families that they got something from his tax cut, it wouldn't take much to swamp whatever tiny gains they received.

Finally – and I think this is really important – we're dealing with real countries here, mainly democracies. Real countries have real politics; they have pride; and their electorates really, really don't like Trump. This means that even if their leaders might want to make concessions, their voters probably won't allow it.Consider the case of Canada, a small, mild-mannered neighbor that could be badly hurt by a trade war with its giant neighbor. You might think this would make the Canadians much more easily intimidated than the EU, which is just as much an economic superpower as we are. But even if the Trudeau government were inclined to give in (so far, top officials like Chrystia Freeland sound angrier than I've ever heard them), they'd face a huge backlash from Canadian voters for anything that looked like a surrender to the vile bully next door.So this is a remarkably stupid economic conflict to get into. And the situation in this trade war is likely to develop not necessarily to Trump's advantage. 

John Case

Harpers Ferry, WV

The Winners and Losers Radio Show

7-9 AM Weekdays, The Enlighten Radio Player Stream, 

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Tax Planner: Drive Wealthy Clients Through "Gaping Hole” in Tax Code [feedly]

Tax Planner: Drive Wealthy Clients Through "Gaping Hole" in Tax Code
https://www.cbpp.org/blog/tax-planner-drive-wealthy-clients-through-gaping-hole-in-tax-code

Tax planning experts working for wealthy clients are already developing strategies to take advantage of the 2017 tax law's new 20 percent deduction for certain pass-through income — or income that owners of businesses such as partnerships, S corporations, and sole proprietorships claim on their individual tax returns instead of paying the corporate tax. As one expert recently advised a conference for personal financial advisers:

 -- via my feedly newsfeed

Seven facts about tipped workers and the tipped minimum wage [feedly]

Seven facts about tipped workers and the tipped minimum wage
https://www.epi.org/blog/seven-facts-about-tipped-workers-and-the-tipped-minimum-wage/

As debate continues on a referendum to raise the tipped minimum wage in Washington, D.C., to the minimum wage for nearly all other workers, we wanted to take a few minutes to set the record straight on the facts about tipped worker wages and incomes. Currently, eight states do not have differential treatments of the tipped workforce in terms of the minimum wage.1 Throughout this post, these will be referred to as "equal treatment" states. To be clear, tipped workers in these equal treatment states receive the full, regular state minimum wage plus tips.

Over the last several years, there has been a great deal of research about the minimum wage and tipped restaurant workers, in particular, and we are going to draw on some of that research to make several key points: 1. In the District of Columbia, women, African American, and Hispanic workers are disproportionately minimum wage workers, including tipped minimum wage workers; 2. Maintaining a separate, lower minimum wage for tipped workers perpetuates racial and gender inequities; 3. In states that have a lower tipped minimum wage, tipped workers have worse economic outcomes and higher poverty rates than their counterparts in equal treatment states; 4. Tipped work is overwhelmingly low-wage work, even in D.C.; 5. Wage theft is particularly acute in food and drink service, and restaurants across the country have been found to be in violation of wage and hour laws; 6. Waitstaff have higher take-home pay in equal treatment states than in D.C.; and 7. The restaurant industry thrives in equal treatment states.

Here, we take a closer look at each point:

1. Women, African Americans, and Hispanic workers have disproportionately benefited from minimum wage increases in Washington, D.C. Furthermore, contrary to popular opinion, the vast majority of minimum-wage earners are not teenagers or college students working part-time jobs.

2. Research indicates that having a separate, lower minimum wage for tipped workers perpetuates racial and gender inequities, and results in worse economic outcomes for tipped workers. Forcing service workers to rely on tips for their wages creates tremendous instability in income flows, making it more difficult to budget or absorb financial shocks. Furthermore, research has also shown that the practice of tipping is often discriminatory, with white service workers receiving larger tips than black service workers for the same quality of service.

3. The clearest indicator of the damage caused by this separate wage floor for tipped workers is the differences in poverty rates for tipped workers depending on their state's tipped minimum wage policy. As shown in Figure A, in the states where tipped workers are paid the federal tipped minimum wage of $2.13 per hour (just slightly less than the district's $2.77 at that time), 18.5 percent of waiters, waitresses, and bartenders are in poverty. Yet in the states where they are paid the regular minimum wage before tips (equal treatment states), the poverty rate for waitstaff and bartenders is only 11.1 percent. Importantly, the poverty rates for non-tipped workers are very similar regardless of states' tipped minimum wage level. This strongly indicates that the lower tipped minimum wage is driving these differences in outcomes for tipped workers.

Figure A

4. Tipped work is overwhelmingly low-wage work, even in Washington, D.C. Some tipped workers at high-end restaurants do well, but they are the exception, not the norm. The median hourly wage of waitstaff in the district in May 2017 was only $11.86, including tips. At that time, D.C.'s minimum wage was $11.50 per hour. In other words, the typical D.C. server made a mere 36 cents above the minimum wage. Proponents of maintaining a lower tipped minimum wage may note that the average hourly wage of waitstaff in D.C. at that same time was $17.48, but this average is skewed by the subset of servers in high-end restaurants that do exceptionally well. The fact that the average is so far from the median wage is indicative of significant wage inequality among district waitstaff.

5. Wage theft is particularly acute in food and drink service, and restaurants across the country have been found to be in violation of wage and hour laws. It is true that the law requires restaurants to ensure that tipped workers receive at least the regular minimum wage when their tips are included, but the reality is that huge numbers of restaurants—helped by too-weak enforcement efforts—ignore these requirements. In investigations of over 9,000 restaurants, the U.S. Department of Labor (DOL) found that 84 percent of investigated restaurants were in violation of wage and hour laws, including nearly 1,200 violations of the requirement to bring tipped workers' wages up to the minimum wage. Among the restaurants that were investigated, tipped workers were cheated out of nearly $5.5 million. Workers in the food and drink service industries are more likely to suffer minimum wage violations than workers in other industries.

6. The data show that tipped workers' median hourly pay (counting both base wages and tips) is significantly higher in equal treatment states. Waiters, waitresses, and bartenders in these states earn 17 percent more per hour (including both tips and base pay) than their counterparts in states where tipped workers receive the federal tipped minimum wage of $2.13 per hour. There is no evidence that net hourly earnings go down, such as from customers tipping less, when tipped workers are paid the regular minimum wage.

Looking at data specific to the District of Columbia shows a clear advantage to waitstaff in equal treatment states. In California, when the minimum wage was $10.50—8.7 percent less than D.C.'s $11.50—waitstaff there still earned 2 percent more per hour than waitstaff in D.C. In San Francisco, when the minimum wage was $13.00—13 percent higher than D.C.'s $11.50—waitstaff in San Francisco earned 21 percent more than waitstaff in D.C. In Washington state, when the minimum wage was $11.00—4.3 percent less than the minimum wage in D.C.—waitstaff there still earned 5.1 percent more than their counterparts in D.C. Fears of lower wages from equal treatment are unfounded for the large majority of waitstaff.

7. The restaurant industry thrives in equal treatment states. In one of the most comprehensive studies on the minimum wage, researchers aggregated the results of over four decades of studies on the employment effects of the minimum wage. They concluded that there is "little or no significant impact of minimum wage increases on employment."Affected businesses are typically able to absorb additional labor costs through increases in productivity, reductions in turnover costs, compressing internal wage ladders, and modest price increases. Furthermore, research specific to the tipped minimum wage also found no significant effect on employment.

According to the Quarterly Census of Employment and Wages, full-service restaurants in equal treatment states saw stronger growth both in terms of number of establishments and number of jobs compared to states with a separate, lower minimum wage for tipped workers (Figure B). Between 2011 and 2014, equal treatment states saw 6.0 percent growth in the number of establishments compared to 4.1 percent growth in states with separate, lower tipped minimum wages. Likewise, employment grew 13.2 percent in equal treatment states compared to 9.1 percent in other states.

Furthermore, higher minimum wages mean better working and living conditions for numerous workers in the region, and it will put more money in the hands of consumers likely to spend in area businesses.

Figure B

1. Tipped workers in Hawaii may be paid $0.75 less than the regular minimum wage, but only if they earn a combined hourly wage (tips + base wage) of at least $7.00 more than the regular minimum wage.

 -- via my feedly newsfeed

John Bactell: Marxism: More relevant than ever [feedly]

Marxism: More relevant than ever
http://www.peoplesworld.org/article/marxism-more-relevant-than-ever/

Communist Party USA leader John Bachtell will address the international conference "Marxism of the 21st Century and the Future of World Socialism," sponsored by the Communist Party of China on May 28 in Shenzhen. This is the text of his remarks, as prepared for presentation.

We enthusiastically join in celebrating Karl Marx on the occasion of the 200th anniversary of his birth and express deep appreciation to the International Department of the Communist Party of China for hosting this event.

Marxism is the world's most influential body of thought and has changed the course of human history. It is more relevant than ever for addressing humanity's urgent challenges despite the desperate efforts by the capitalist class to bury it.

Among their many discoveries, Marx and his lifelong comrade Frederick Engels showed how capitalism comprised one transitory stage of social development and would be surpassed by higher stages. This couldn't occur without the agency of people, though, and Marx and Engels proclaimed the historic mission of the working class was to lead a revolutionary change to a self-governing society without exploitation.

Marx also revealed exactly how exploitation of labor and capital accumulation occur under capitalism.

Marxism rejects all dogma and its development as a living and creative methodology didn't end with Marx, Engels, and Lenin. It cannot exist without a constant connection to and critique of new experience and phenomena with their many shades, complexities, and contradictions.

Nor can Marxism exist and develop without constant interaction between theory and practice. In the hands of the working class, Marxism is a powerful tool for its self-emancipation – especially through developing revolutionary political strategy and tactics tailored to the specific circumstances of the class struggle of each country.

Communist Party chairman John Bachtell speaks at the party's 28th National Convention in Chicago in 2014. | Gokhan Cukurova / PW File Photo

The world today is a far different place than it was in Marx's time. Even then, however, Marx saw contradictions emerging that would eventually develop into the crises of contemporary capitalism. Capitalist economic globalization, production on an unfathomable scale and the resulting concentration and centralization of wealth, and the mass communications, social media, and technological revolutions have created a fundamental contradiction: the economic ability to address all human material needs paired with a "crisis of extremes."

Just eight rich men have the same wealth as half the world's population. The richest 1 percent appropriated 82 percent of new wealth in 2017. In the U.S., the top 1 percent own more wealth than the bottom 90 percent combined.

This "crisis of extremes" has special impacts based on race, gender, and nationality and between advanced capitalist economies and developing ones.

The drive for maximum profits and wealth accumulation lead to ever more extensive and destructive crises like the 2008 global financial crisis, mass economic migration, poverty, hunger, disease, and the growing displacement of workers through technological revolution.

Capitalism is incapable of solving these crises. Their resolution demands intervention through the organized might of the working class and people, global working class solidarity, and the radical reorganization of society.

Capitalist development has generated two existential threats to humanity and nature: the climate crisis and the danger of nuclear war.

The current climate crisis is the most fundamental of multiple ecological crises that reflect the sharpening imbalance between humanity and nature caused by capitalism. It is directly due to the inherent destructiveness of capitalism's productive process and drive for profit, particularly on the part of the fossil fuel industry. Capitalism's need for infinite expansion is colliding with the Earth's finite resources and capacity to absorb environmental damage.

Marx understood humans were part of nature and interacted with external nature through the labor process. Capitalism, he argued, causes a "metabolic rift" between nature and human society; alienating humans from both their own labor and nature itself.

The anarchy of capitalist production, exploitation, and inequality undermine any effort for dealing with this crisis and all other issues of a modern interconnected economy.

To avert a climate catastrophe, all of humanity—irrespective of class, economic system, and country—faces the enormous and urgent challenge of organizing a rapid transition to sustainable energy production.

Only socialism can ultimately restore a harmonious relationship between society and nature and between humans and their labor. And the remarkable experience in China shows a socialist-oriented system makes the transition to sustainability on a massive scale possible.

But no matter how quickly this occurs, the climate crisis and its consequences of sea level rise, drought, desertification, extreme weather events, acidification of the oceans, and mass species extinction will worsen and continue to plague humanity for generations to come.

Curbing the climate crisis requires global working class solidarity and cooperation of nations regardless of their economic and social system. Countries must learn to share natural resources, redistribute wealth, and re-order their budget priorities to facilitate a transition to sustainability and adaptation.

Secondly, humanity is threatened by militarism and the growing danger of nuclear war. U.S. society is militarized at every level. Wasteful war spending comprises over half the federal budget. The collapse of the Soviet Union removed the main justification for funding over 800 military bases in 70 countries. It's real reason all along was to ensure U.S. imperialist domination.

A new global nuclear arms race has begun amid heightened capitalist and regional rivalries and between capitalist and socialist-oriented states. The U.S. will spend over $2 trillion on nuclear modernization to produce a new class of more dangerous nuclear weapons easier to deploy and use. The risk of nuclear catastrophe is greater now than during the Cold War.

The world's people, beginning with Americans, must intervene to end the threat of war, demilitarize society, and rid the world of nuclear weapons. As Rev. Martin Luther King, Jr. said over 50 years ago, "We still have a choice today: nonviolent co-existence or violent co-annihilation."

Every dollar spent on military production contributes to our nation's spiritual and moral death and robs it of funds that could address the climate crisis and our antiquated infrastructure, as well as the crises in health care, education, transit, and housing.

The danger of authoritarianism and fascism has grown in the U.S. and Europe. Trump and the so-called "alt-right," or fascists, linked to him pose an unprecedented threat to democracy, peace, and the environment.

Trump's presidency is unlike any in our history and is increasingly under a cloud of illegitimacy with an ongoing federal investigation amassing evidence of collusion with foreign entities in the 2016 elections and crimes of financial corruption by Trump, his family, and associates.

The Trump presidency is also a byproduct of extreme wealth concentration and the domination of the government by the fossil fuel industry, military corporations, and right-wing social movements. At the same time, there is now a relentless assault on the truth and an erosion of democracy.

Trump is governing as he campaigned—by exploiting fear, economic insecurities, racism, misogyny, anti-immigrant hysteria, Islamophobia, anti-Semitism, and economic nationalism. He deploys anti-China trade rhetoric to divide the working class domestically and pit U.S. workers against those of other countries.

Trump has assembled a war cabinet whose members have the fantasy of restoring U.S. imperialism as the world's sole superpower. Leading advisors openly advocate regime change in Iran and North Korea and prefer military might over diplomacy. The danger is growing of a Middle East regional war as well, which could conceivably see the use of nuclear weapons.

Building a united front to defeat the extreme right's domination of the U.S. government is an overarching strategic objective. The mass resistance to Trump is unprecedented, including thousands of electoral candidates arising from grassroots movements. But without victories in the 2018 and 2020 elections, it is impossible to envision more advanced stages of struggle, including a future transition to socialism.

Marx foresaw that with the attainment of a bourgeois democratic republic and the universal right to vote, a peaceful path to socialism could be opened for the working class. Under these circumstances, armed insurrection as a form of struggle becomes outmoded. In any case, violence has always been initiated by the capitalist class.

The Communist Party USA, which celebrates its 100th anniversary in 2019, firmly believes the struggle for socialism in the United States must follow a democratic, peaceful path, committed to defending, expanding, and radically reforming democratic institutions. It must utilize all possible arenas: protest, strikes, boycotts, legislative, electoral, and the "battle of ideas."

The Resistance to Trump is turning its eyes toward the 2018 and 2020 elections. Here, Women's March 2018 participants at the National Mall in Washington. | AP

The fight for racial and gender equity and for a sustainable, demilitarized path of development with a vast redistribution of wealth are central necessities for any transition to socialism in the U.S.

The victory of socialist revolutions in the 20th century and efforts to build socialism under extraordinarily difficult circumstances—their achievements, mistakes, errors, and even crimes, and subsequent defeats—provided a wealth of valuable if not bitter experience and lessons.

Those lessons have also been critical to correcting mistakes, reforming old models, and forging new paths to build modern, 21st century socialism.

We continue to hold to our belief that there are no universal models for the winning of political power by the working class and its strategic allies, the transition to socialism, or the specific features of that future system. Every country will find its own path to socialism based on its history, traditions, and the realities of its people.

We are convinced that a democratic, peaceful, sustainable socialism is humanity's future. And the ideas of Karl Marx are essential for getting us there.

 -- via my feedly newsfeed