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    Seshadri Kumar: The Divided States of America Archived Message

    Posted by Ken Waldron on September 12, 2023, 1:56 am

    The Divided States of America
    Seshadri Kumar

    Aug 27

    America has a huge problem.
    It’s spelled T R U M P.
    The country is split right down the middle.

    Biden and the Democrats are hoping that convicting Trump for the events of January 6, 2020, will discredit him in the eyes of Americans. It doesn’t look like this is working.

    Trump is being very smart. His political instincts are very sure. He isn’t fazed in the least.
    US law doesn’t prevent him from running for President even if convicted, or even from serving as President from jail.
    Trump is doing one thing very cleverly. He is consistently claiming that there is no merit in all the cases against him, that he didn’t do anything wrong, that this is a witch hunt.

    Trust in the government and government institutions has broken down so much that most Republican supporters agree with him. They believe that Biden is abusing all the power in his control to try to unfairly jail Trump. And this is going to be the case even if the prosecution has an airtight case against Trump, and even if every law of justice has been followed to a T.

    This is evident from the fact that even now, with so many criminal cases against him, Trump is the overwhelming favorite to be the Republican nominee for President. The other candidates are running to be his running mate. Trump knows this, and so believes taking part in a primary debate is beneath him.
    And, on the other side, all Democratic supporters firmly believe that Trump is a criminal who should go to jail. And Biden has to satisfy them.
    There is no middle ground.

    America is the most polarized it has ever been in its history. The 2024 election will be fought completely along party lines.
    Welcome to the Divided States of America.

    And this will not stop with the election. Neither side will accept the election result if the other side wins.
    We have seen what Republican supporters can do when Trump loses. January 6, 2020 was only a preview. Trump has so completely convinced his base that the 2020 election was stolen that they will not “let another election be stolen.”

    And Democrats will not remain quiet if Trump wins. They have seen what he was able to achieve in one term with his appointments on the Supreme Court. Abortion and Affirmative Action are now history, and many more laws that Democrats have fought for and instituted are at grave risk if he comes back to power.
    If Trump gets another term, everything that Democrats hold dear will be destroyed.
    This is a no-win situation for the USA.
    America is staring at Civil War.

    But this did not start today, or in 2020, or even in 2016. It started much longer ago.
    I was in the US from 1990–2005, and I had a ringside view of the transformation of America. I am old enough to remember how Republicans in rural America and even a city like Salt Lake City, where I lived, were inspired by the right wing AM radio talk show host Rush Limbaugh. Rush was incredibly popular among people in Utah, Indiana, Oklahoma, and many other Red States.

    Then we had Newt Gingrich with his “Contract with America” that tamed Bill Clinton and transformed him into what some people called “the best Republican President America ever had.” Clinton single-handedly destroyed welfare by introducing the “welfare-to-work” rules, under which if you had been on welfare for two years, you were no longer eligible because the government considered you a lazy bum. It also imposed a lifetime maximum on welfare of five years.

    Amazingly, the media propaganda was so complete that Clinton remained popular despite destroying the lives of parts of his core constituency — the poor Blacks.

    But that wasn’t enough for Conservatives. They wanted to completely end the welfare state that FDR had brought in to combat the Great Depression, and now many Americans are destitute after decades of welfare cuts.

    What has exacerbated these problems is globalization and the loss of American competitiveness. There simply aren’t many jobs for those out of work, because factories in the US have closed down and moved to China, Vietnam, India, Mexico, and other places. This has been enthusiastically encouraged by every American President since Clinton to help American businesses. The US regularly goes to war to force other countries to host American factories in their countries, so that they can use their cheap labour. In fact, this has been a major factor in the election of Donald Trump in 2016, as I predicted then, two months before the election.

    The reason for this is that US businesses pay for the election of every Representative of Congress, Senator, and State legislator. Elections are very expensive, and nobody can come to any position of power without the patronage of wealthy businesses. Because of this, all American lawmakers work not for the public who elect them, but for the big industrialists who fund their campaigns.

    This has caused the hollowing out of the American worker class, with the large-scale export of jobs. Real wages in America have remained relatively flat over the last 50 years (see graph below), while real wages in China have gone up dramatically. While real wages in the US have remained flat, the GDP per capita has increased at annual growth rate of around 13% during the same time, which tells us that the results of increased prosperity in the US has been going disproportionately to the wealthy.

    Many other metrics illustrate this. The US used to be a manufacturing power, but over the last two decades, China has overtaken the US as the premier manufacturing power in the world. The US has lost 5 million manufacturing jobs since 2000. Incidentally, China joined the WTO in 2001.

    Manufacturing is the real strength of a country. But, over the last two decades, manufacturing in the US has been on a steady decline, from around 13% of GDP to around 10% of GDP. In China, on the other hand, the share of manufacturing is around 30%. (Data from the World Bank databank.) Instead of manufacturing, the US has moved towards an asset-light financialized economy, as can be seen from the increasing share of services in the country’s GDP.

    Of course, one can say that the high percentage of manufacturing in China’s economy is to be expected because it is a developing country and so much needed infrastructure needs to be built, whereas the US is a mature developed country and so does not require so much manufacturing. While this is undeniably true, much of the infrastructure in the US was built about 60 years ago, immediately following the Second World War, and is in serious disrepair. For example, 42% of all the 617,000 bridges in the US are more than 50 years old, and about 8% of them are considered structurally deficient. So the idea that the US does not need a lot of heavy manufacturing capacity because it is a “developed” country is a myth. This is, of course, the reason behind Biden’s big push on infrastructure, but it probably comes at least a decade late. This can be seen from the numbers on Gross Fixed Capital Formation (GFCF), which is the percentage of a country’s GDP that is spent on building up capital assets, be those power plants, highways, car factories, housing, and repairing existing assets such as metros, highways, railroads, and airports. Over the last 20 years, the US’ GFCF has hovered over 20%, whereas China’s GFCF has been between 40–45%.

    The US’ problems are made worse because economic growth over the last two decades has been anaemic. While China has been growing at anywhere between 6% and 15%, the US’ GDP growth rate has been hovering around a low 2% (Data from the World Bank.)

    The result of all this is that the US simply does not have the wealth it needs to finance its rejuvenation. Fixing broken bridges, highways, airports, office buildings, railways, and neighborhoods costs trillions of dollars. The US has been frittering away its wealth for decades in a wide variety of ways, including wars, which is leading to increasing indebtedness. The debt-to-GDP ratio of the US was at a stunning 130% a few months ago, which led to a government shutdown before negotiations allowed President Biden to increase it without limit in the near future. Any debt-to-GDP ratio above 77% is a huge drag for a country, and a value of 130% leads to an annual impact on the GDP growth rate of nearly 1% — which means that if the nominal GDP growth rate is 2%, the effective rate is only 1%.

    In this context, the blank cheque that the US is writing for the Ukraine war is only going to cause more serious problems for the US in the long run. George Santayana famously said that those who do not remember the past are condemned to repeat it. The US seems to set to repeat in the Ukraine conflict the same mistakes that it made in the post-9/11 “Wars on Terror.” As Brown University’s well-known “Costs of War Project” informs us, the US has spent, as of 2021, more than $8 trillion due to the wars started by the War on Terror.

    It looks like the US is on course to spend another $2 trillion on the Ukraine war over the next decade. And this at a time when the national debt is at $31.4 trillion and set to perhaps cross $40 trillion in a few years.

    It is not enough to map the GDP growth of a country. What matters is also how that growth is distributed among different sections of society. A recent paper, from 2017, analyses inequality in three different countries: the US, China, and France, and concludes that the problem is most extreme in the US.

    Some graphs from this paper illustrate the problem. The first is a chart of the income share of the top 1% of the population in these three countries, and shows that while the share of the top 1% is rising in all countries, including China, the number was at around 13% for China in 2017 as against 20% for the USA.

    The next is the income share of the top 10% of the population. The number is 40% for China vs 47% for the USA. So China is not dramatically less unequal than the USA, but it is certainly less so.

    Another graph is the total wealth in each country that is owned by the public, as opposed to being owned by private owners. The Chinese public share of wealth is around 30%, which is a significant decline, but it is much better than America, where public ownership of wealth is negative — i.e., the public is in debt to private owners even for what it nominally owns.

    But the most stunning finding of the study is the distribution of the total income growth since 1978 in these three countries, which is shown in the table below. The table shows that because China started with a low base, its overall income growth is 811%, compared to 59% for the USA. However, what is interesting is how this is distributed. In China, even the bottom 50% had their cumulative income grow by 401%, whereas in the US, the cumulative income of the bottom 50% shrank by 1%.

    It is important to understand that these data are from 2017, and since then China has decided to address inequality in a major way with Xi Jinping’s Common Prosperity program, which aims to reduce widening inequality, in part by curbing the previously-unchecked growth of individuals and corporations in China, including an explicit pledge to “reasonably regulate excessively high incomes, and encourage high-income people and enterprises to return more to society.” This would be unthinkable in a Western democracy. So there is reason to hope that the inequality that existed in 2017 will decrease over time.

    Why is this important? It is important because when an economic crisis occurs, those at the bottom have no protection in America, whereas in China there is some protection for them, albeit not at the high levels in decades past. This is exactly what we are seeing in the US. The lower middle class and poor have now become utterly destitute.

    Poverty and inequality cause resentment, and Trump is a brilliant politician who knows how to exploit social unrest to his advantage. Instead of blaming the wealthy industrialists, who have lobbied US governments to help them move abroad, politicians like Trump have skillfully transferred the blame to policies that they dislike. So, the Right in America has been taught to believe that the root causes of their problems are large-scale immigration from Mexico, drugs made by China flowing through American borders from Colombia and Mexico, deteriorating Christian values (e.g., abortion), unequal treatment of Whites (affirmative action), Gender Identity fights, fights about Evolution and Creationism, and the like.

    America is very close to another economic collapse, almost 100 years after the Great Depression, except that this one is of a very different nature.

    The Great Depression was rather sudden, and it was only economic. The crisis that the US is experiencing is far more than economic — it has social, cultural, and political aspects as well. The economic and social declines that the US is experiencing today have been very gradual and have occurred over decades. Being so gradual, they are also much harder to reverse. The deep structural inequalities in the US are manifesting their effects in the social domain through things such as a rise in drug abuse and mass shootings.

    There are other social effects, too. The huge inequality in the US, in addition to the overall macroeconomic decline, has led to education becoming a luxury commodity. Most students spend a lifetime repaying college loans. Student loans in America were a cumulative $1.73 trillion in 2021, and the number is only rising. This is resulting in people putting off marriage because they cannot afford to get married on top of an existing student loan. This seriously threatens social stability and population dynamics.

    In fact, indebtedness of all kinds has risen exponentially of late in the US, as the following chart shows.

    Housing has also become unaffordable for most Americans, and total housing indebtedness in America was in excess of $12 trillion in 2022.

    Racial tensions in America are also increasing, as exemplified in the police murder of George Floyd and the riots that followed. They may have even reached a point of no return.

    Any one of these factors would singly be a very serious problem for any country to face. For example, the Western press is full of news regarding China’s housing sector crisis. It is true that China is facing a serious problem. But what we must remember is that America, too, has faced a series of such problems over the years — such as the Wall Street “Black Monday” crisis of 1987; the S&L crisis; the early 1990s recession; the Dot-com bubble of the early 2000s; the Global Financial Crisis of 2007–08, or the subprime housing lending scam; and the Covid crash, to name just a few. Yet these did not completely destroy the US economy, because it still had some inherent strength left in it. The Evergrande crisis is only the first major crisis to hit China. It will take a hit, but it will survive, because it does have a lot of intrinsic strength. Most of China’s infrastructure, for example, is almost brand new, whereas most infrastructure in America as well as most other Western countries is decades, if not centuries, old.

    The number of things that are going wrong with America might just be enough to create the perfect economic storm that will completely destroy the country.

    And, in a collapsing economy with huge political, cultural, social, and racial divides, it is unclear whether the Union will survive.

    With images and extensive graphs here:

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    • Seshadri Kumar: The Divided States of America - Ken Waldron September 12, 2023, 1:56 am