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My colleague Gabriel Camacho and I wrote this a year ago, timed to coincide with the twentieth anniversary of the North American Free Trade Agreement.  With President Obama in China touting a new “free trade” agreement, the Trans-Pacific Partnership, this seemed like a good time to re-post it here.  The original article was published in the NH Business Review.

In the twenty years since the North American Free Trade Agreement (NAFTA) went into effect, millions of Mexicans have been pushed by NAFTA to make the dangerous journey across the border into the United States, many without legal authorization. The U.S. government has responded by turning the border into a militarized zone, jailing hundreds of thousands of people, and deporting record numbers back across the border.

Militarization of the border began in 1994 with Operation Gatekeeper, which erected fencing, walls, and other barriers between San Diego, CA and Tijuana, Mexico, forcing migrants into dangerous desert terrain. stop corporate rule

This was not supposed to happen.

According to NAFTA’s backers, the agreement was supposed to promote prosperity in both countries and actually reduce the pressure to migrate.

President Bill Clinton asserted NAFTA would give Mexicans “more disposable income to buy more American products and there will be less illegal immigration because more Mexicans will be able to support their children by staying home.”

Mexico’s former President, Carlos Salinas, offered a similar opinion: NAFTA would enable Mexico to "export jobs, not people," he said in a 1991 White House news conference alongside President George H. W. Bush.

William A. Ormes wrote in Foreign Affairs that NAFTA would “narrow the gap between U.S. and Mexican wage rates, reducing the incentive to immigrate.”

So what happened? As a precondition for NAFTA, the U.S. demanded drops in Mexican price supports for small farmers. The agreement itself reduced Mexican tariffs on American products. These changes meant that millions of Mexico’s small farmers – many of them from indigenous communities – could not compete with the highly subsidized corn grown by U.S. agribusiness that flooded the local Mexican market.

Dislodged from the places where their families had lived for generations, many people did in fact seek employment in export-oriented factories and farms. But there were too few jobs to go around, and those jobs that were created did not generate the “disposable income” President Clinton had promised.

A 2008 report on “NAFTA’s Promise and Reality” from the Carnegie Endowment for International Peace concluded that while half a million manufacturing jobs were created in Mexico from 1994 to 2002, nearly three times as many farm jobs were destroyed.

As for Mexican wages, they went down, not up, during the same period. “Despite predictions to the contrary, Mexican wages have not converged with U.S. wages,” Carnegie observed.

Unable to earn a living at home or elsewhere in their own country, Mexicans did what people have done for ages; they packed their bags and headed for places where they thought they could find employment.

The experts shaping NAFTA knew that the deal would disrupt the Mexican agricultural sector. That’s why Operation Gatekeeper was implemented the same year as NAFTA. It’s impossible to integrate national economies without disrupting local ones – something that should give pause to those proposing new trade agreements today. The realities of NAFTA should not be replicated.

As the American Friends Service Committee outlines in “A New Path Toward Humane Immigration Policy,” the U.S. should advance economic policies that reduce forced migration and emphasize sustainable development. Instead of policies like NAFTA that elevate rights of transnational corporations above those of people, we need alternative forms of economic integration that are consistent with international human rights laws, cultural and labor rights, and environmental protections.

Modern-day free trade agreements are basically arrangements that take rights away from citizens and bestow expansive benefits to multi-national corporations.

Workers on both sides of the border have one thing in common: they need the ability to organize for higher wages and decent working conditions. Without the opportunity for workers to benefit from the rewards agreements like NAFTA generate for corporations, “free trade” becomes just another driver of the widening gap between the ultra-rich and everyone else.

With the Obama administration pushing hard to create a new arrangement linking the economies of eleven Pacific rim countries, and another that ties the U.S. economy to that of the European Union, it’s time for a new path.

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Most of the discussion I’ve seen of wealth and income inequality has focused on trends in the USA.  Now comes the annual report from Credit Suisse, one of the world’s largest financial institutions, on wealth and inequality worldwide.  The picture looks familiar:  a small number of individuals control most of the globe’s wealth. 

Among their findings released October 14:

  • The number of millionaires worldwide is likely to increase from 35 million to 53 million in the next five years;
  • The USA is “the undisputed leader in terms of aggregate wealth;”
  • The USA, Switzerland, and Hong Kong are the most unequal “developed countries;”
  • Countries labeled as “emerging markets,” especially China, can be expected to grow their shares of global wealth in the next five years.  But there, too, inequality is rising.

Credit Suisse, which no doubt wants to handle those millionaires’ accounts, also finds that the USA leads the world with 14.2 million millionaires, 41% of the members of the worldwide millionaire club.  Credit Suisse  refers to them as ‘high net worth” or “HNW” individuals.

http://www.hangthebankers.com/wp-content/uploads/2014/10/Credit-Suisse-report-wealth.jpg

Above the HNWs on the ladder are the UHNWs, the “ultra high net worth individuals,” those with with more than $50 million in net assets. The Global Wealth Report says this group has 128,200 members, 49% of whom live in the USA.  

http://www.slate.com/content/dam/slate/blogs/moneybox/2014/10/21/global_millionaires_credit_suisse_wealth_report_finds_they_re_growing_faster/screen_shot_20141021_at_12.33.50_pm.png.CROP.promovar-mediumlarge.33.50_pm.png

“The number of HNW and UHNW individuals has grown rapidly in recent years, reinforcing the perception that the very wealthy have benefitted most in the favorable economic climate,” the report says.  Indeed.

“HNW and UHNW individuals are heavily concentrated in particular regions and countries, and tend to share more similar lifestyles, participating in the same global markets for luxury goods, even when they reside in different continents,” the authors observed.

Here’s more numbers:

  • The poorest 50% of the global population owns less than 1% of the world’s wealth.
  • The wealthiest 10% (those with more than $77,000 of net worth) owns 87% of the world’s wealth. 
  • The top 1% (more than $798,000 of wealth) owns 48.2% of the world’s wealth.
  • The world now has 35 million millionaires, less than 1% of the population.  Together they own 44% of the wealth.

Figures such as these demonstrate that the world’s wealth is in the hands of a very small group of individuals. The figures don’t, by themselves, tell us anything about trends in wealth distribution.  But this topic has finally gotten the attention of policy makers and bankers, even those whose clientele is ultra-rich.

“The changing distribution of wealth is now one of the most widely discussed and controversial of topics, not least owing to Thomas Piketty’s recent account of long-term trends around inequality. We are confident that the depth of our data will make a valuable contribution to the inequality debate,”  the report’s introduction says.  

Credit-Suisse also says, “During much of the last century, wealth differences contracted in high income countries, but this trend may have gone into reverse.” 

It may be significant that the Global Wealth researchers find that while the top 10% has seen its share of the global pie rise from 67% in 1989 to 72% in 2007 and topped 75% in 2013, the share in the pockets of the top 1% has “shown little upward movement for the past two decades.” 

For the USA, however, they find that shares held by the top 10% and the top 1% have held steady, at about 75% and 38% respectively.  This finding contrasts with that of Emmanuel Saez and Gabriel Zucman, who recently wrote

“Wealth inequality [in the USA] has considerably increased at the top over the last three decades.  By our estimates almost all of the increase is due to the rise of the share of wealth owned by the 0.1% richest families, from 7% in 1978 to 22% in 2012.

The conflict may result from differences in methodology or from Saez and Zucman’s attention to the top 0.1%, a smaller sliver than Credit Suisse studied. Nevertheless, both reports add to a body of evidence that the economy is doing just fine for a tiny class of people while just about everyone else is getting left behind. 

It wasn’t long ago that economists generally avoided discussion of the distribution of wealth.  Even if they now differ on some fine points, it probably represents progress when economists working for an institution like Credit Suisse are adding their weight to a call for a change of direction.

“In mature economies,” they conclude, “policies to address wealth inequality are receiving increased attention and can hopefully be designed to avoid unwanted effects on growth or economic security. Among emerging markets, policy makers would be advised to study countries, such as Singapore, which have tried to ensure that wealth gains are broadly shared, and which have succeeded in keeping wealth inequality in check.”

[Note: There’s a link to the Global Wealth Report pn the Credit Suisse publications page, but the link did not work for me.  Instead, I contacted the bank’s New York press office, where I found someone to send me a copy.]

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Janet Yellin is not the only one with a new analysis of the growing chasm between the ultra-rich and everyone else  If you can handle some dense economics (or like me willing to skip past the fancy equations), take a look at a new paper by Emmanuel Saez and Gabriel Zucman on “Wealth Inequality in the United States since 1913.”

It seems that reliable data on wealth is not easy to come by.  So Saez and Zucman had to do some fancy calculation to figure out who owns how much and how the proportions have changed over time.   They find

wealth inequality has considerably increased at the top over the last three decades.  By our estimates almost all of the increase is due to the rise of the share of wealth owned by the 0.1% richest families, from 7% in 1978 to 22% in 2012.

That’s a level of inequality comparable to the early 1900s, before the Progressive Era.

Occupy movement, if you’re still out there, take notice. 

“Wealth concentration has followed a U-shaped evolution over the last 100 years,” they write  “It was high in the beginning of the twentieth century, fell from 1929 to 1978, and has continuously increased since then.”

(You can see the U-shaped curve and other charts at:  http://gabriel-zucman.eu/files/SaezZucman2014Slides.pdf.)

The top 0.1% is just 160,000 families whose wealth rose at 5.3% per year from 1986 to 2012. In the same period the bottom 90% saw its wealth stagnate. 

The key factors driving the wealth gap, Saez and Zucman conclude, is a surge in labor income among those at the tippy top and a decline in savings for those in the middle class.  That leads the authors to a set of recommendations.

First and perhaps most obvious, they recommend progressive income taxes and estate taxes.  

“Yet tax policy is not the only channel,” they say.

Other policies can directly support middle class incomes—such as access to quality and affordable education, health benefits, cost controls, minimum wage policies, or more generally policies shifting bargaining power away from shareholders and management toward workers.  [emphasis added]

It’s good to see a solution that deals with the cause of the problem.  Janet Yellin take notice.

 

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Fed Head Takes on Inequality

Diagnosis unmatched by prescription

Janet Yellin, who chairs the Board of Governors of the Federal Reserve System, delivered an unusual and important speech two days ago about the growing gap between the richest Americans and everyone else.   

Speaking at a conference at the Federal Reserve Bank of Boston, Yellin  offered “Perspectives on Inequality and Opportunity from the Survey of Consumer Finances.”  She said,

It is no secret that the past few decades of widening inequality can be summed up as significant income and wealth gains for those at the very top and stagnant living standards for the majority. I think it is appropriate to ask whether this trend is compatible with values rooted in our nation’s history, among them the high value Americans have traditionally placed on equality of opportunity.

It’s fair to assume that was a rhetorical question and the answer is, no, the widening gap between the ultra-rich and the rest of the population is a threat to democracy and the economic futures of most people.

While the trend of wage stagnation for working Americans goes back to the 1970s, Yellin focused on the most recent period of economic history, 1989 to 2013.  This is useful because it includes the recent economic meltdown as well as the so-called “recovery.”  

Yellin illustrated her talk with an obligatory set of graphs (she’s an economist after all), including this one depicting changes in net worth (i.e. wealth) for the wealthiest 5% of Americans, the next 45%, and the bottom half of the population.   

As the chart makes obvious, the wealthiest 5% of Americans saw their share of the nation’s wealth climb from about 55% to about 65%, while the next 45% saw its share go from from 45% to 35% and the share held by bottom 50% approaching zero percent.   

It’s good to know the nation’s top economist is alarmed. 

The second half of Yellin’s speech concerned what she called “four building blocks of opportunity,” access to early education, access to higher education, ownership of private businesses, and inheritance.  The first three could be useful ways for individuals and families to do better in a time of widening inequality, but do not affect tax policy, deindustrialization, political and business attacks on organized labor, and the growth of the finance sector’s share of the economy, i.e. the factors driving the equality gap to historic highs. 

For a more incisive analysis of what went wrong, I recommend the latest issue of Dollars and Sense, especially an article by Gerald Friedman on “What Happened to Wages?”  He writes,

From the dawn of American industrialization in the 19th century until the 1970s, wages rose with labor productivity, allowing working people to share in the gains produced by capitalist society.  Since then, the United States has entered a new era, in which stagnant wages have allowed capitalists to capture a growing share of the fruits of rising productivity.

I recommend examining Friedman’s charts alongside Yellin’s.  And try to follow Yellin’s fourth piece of advice:  inherit a fortune.  

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A Visitor in the Garden

October 19, 2014

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When Phil McLaughlin and Greg Smith held the office of Attorney General for the State of New Hampshire, each of them supported the death penalty.  No more.

PA100094 

                          Phil McLaughlin

McLaughlin says it’s not primarily a moral issue for him.  He says what changed his mind was the reaction of juries in two cases tried simultaneously in 2008.  In one, John Brooks, a white millionaire businessman, was found guilty of capital murder of Jack Reid but spared the death penalty because jurors found in him something redeeming.

Twenty-eight days later another jury “decided to kill the black kid from Dorchester,” Michael Addison, who was found guilty of the murder of Michael Briggs and sentenced to be put to death by the State on behalf of its citizens.  “I will not be part of that,” McLaughlin said.

That sounds like a moral argument to me, but I have no need to argue the point.

Greg Smith, who was not able to be present, also sent a statement citing racial bias in the way the death penalty is applied as a reason for his change of heart.

For their role as advocates for death penalty repeal, the two former AGs were honored Friday with the NH Coalition to Abolish the Death Penalty’s annual Governor Badger Award, named for an 18th century governor who pushed for an end to capital punishment.  The Badger awards, and others given to outstanding volunteers, were presented at the Coalition’s annual dinner in Concord.   

Lincoln Caplan, a lecturer at Yale Law School who used to pen editorials on the death penalty for the New York Times, also spoke at the Coalition event Friday. PA100075 

                                  Lincoln Caplan

Caplan began by describing how the legal process was “subverted” decades ago to bolster the constitutionality of capital punishment through the acceptance of dubious scholarship by the US Supreme Court.  

Since then, legal and legislative support for executions has gradually faded.  Since 2007 New York, New Jersey, Maryland, Connecticut, New Mexico, and Illinois  have repealed their death penalty statutes.  It’s “a striking retreat” from the death penalty, Caplan says, if not an outright moratorium.  A federal court ruling earlier this year in California, which declared that state’s death penalty to be unconstitutional, could prove to be another important step toward abolition, he suggested.

“In the end this is a moral issue,” Caplan said.  It always has been.  What is different now, he said, is “there is so much evidence about what a waste this is.”

New Hampshire’s legislature approved a repeal bill in 2000 only to have it vetoed.  This year the NH House approved repeal by a two to one margin, but the measure died in the State Senate, which deadlocked 12 to 12.  

Barbara Keshen, the Coalition’s chairperson, said repeal supporters have their attention on the upcoming election, in which all 400 House and 24 Senate seats are up for grabs.  

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“War is good business for those in the business of war,” write William Hartung and Stephen Miles in a recent Huffington Post article.  Noting estimates of $12 million a day in outright waste, fraud, and abuse during the recent (or ongoing?) wars in Iraq and Afghanistan, they suggest the new (renewed?) war in Iraq and Syria will be a “prime opportunity for outright corruption and malfeasance.”

What’s more, more war means higher profits for arms manufacturers like Raytheon, which makes “Tomahawk” cruise missiles.  “The stock prices of the Pentagon’s top contractors have hit all-time highs since the recent wars in Iraq and Syria started two months ago,” Hartung and Miles report.

This is not some kind of coincidence.  It’s Governing Under the Influence. #GUI

Take the example of Stephen Hadley, former National Security Advisor to President George W. Bush.  He chairs the board of the US Institute of Peace (this is a true fact!).  

Hadley sits on Raytheon’s Board of Directors and chairs its public affairs committee.  For his service he was paid $253,482 last year.stephen hadley

Hadley also writes pro-war op-eds for the Washington Post, reports littlesis.org, and has backed Israel’s aggression in Gaza, where Raytheon profits from sales to the Israeli military.  

Hadley’s connection to Raytheon is not disclosed in his bio at the Institute of Peace, nor was it revealed in various columns and interviews cited by Littlesis.org.

Littlesis.org calls this a “conflict of interest” for Hadley.  It sounds to me that his interest is pretty straightforward.  

(Disclosure:  the author of this piece is a salaried employee of an anti-war organization.)

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