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Populism and Economic Cycles

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WASHINGTON, DC – February 27, 2019

Various proposals for the redistribution of income have been heard in recent years in the US. The idea of ​​a sharp increase in taxes on wealthy Americans, the separation of large financial companies into smaller structures, the restriction of share repurchases with the conditions for providing social guarantees to employees, and other similar proposals have been repeatedly voiced.

Populism usually fosters social mobilization, political propaganda, and the use of symbols and marketing practices designed to appeal to voters’ sentiments. Populism is especially aimed at those with low income, even if the ruling party cannot explain the source of its leaders’ high income. Populist rulers find it easy to use scapegoats and conspiracy theories to explain why the country is going through a hard time while at the same time presenting themselves as the saviors of the nation. 

These trends are increasingly noted by many American experts. Most of the proposals put forward currently look like outright populism and have no real chance of acceptance because relatively conservative-minded Democratic and Republican politicians still constitute the majority in both houses of Congress.

Populism may seem like it has come out of nowhere, but it has been on the rise for a while. It’s an objective sign of the coming comprehensive crisis, evidence that the artificial economic cycle we’ve been living in for about a decade is on its last leg. In order to understand how significant this is, it’s important to recap what the last ten years actually represented.

As Michael Krieger said in his article on economic cycles, it didn’t represent a healthy economic growth cycle, but rather an insanely irresponsible, and arguably criminal, manufactured bubble boom where central banks printed enormous amounts of money to inflate asset prices like stocks, bonds and real estate. In this deranged mission they succeeded, but at a great cost to social stability.

While many still attempt to deny it, any honest assessment of the post-crisis response will conclude that government and central bank policy helped further enrich the people who needed help the least. As such, we’re now sitting on wealth concentration in America at the highest levels since just before the Great Depression.

“In 1929 — before Wall Street’s crash unleashed the Great Depression — the top 0.1% richest adults’ share of total household wealth was close to 25%, according to Zucman’s paper, which was distributed by the National Bureau of Economic Research.

Those rates plunged in the early 1930s and continued dropping to below 10% in the late 1970s, findings show. Rates have been on the rebound since the early 1980s, and are currently close to 20%.

Other researchers have also drawn parallels between the present and the past. The Economic Policy Institute, a left-leaning Washington D.C. think tank, estimates that America’s top-earning 1% took in 22% of all national income. The organization said in 1928, 23.9% of the country’s income went to the top 1%.”

The average person may not be able to describe in detail how the financial system works, but it hasn’t been lost on the masses that the bailouts and subsequent bubble driven recovery benefitted a particular segment of the population far more than others. This understanding has led to a surge in populism throughout the developed world.

While those with their heads in the sand try to blame Russia or racism for Trump’s election, what created the fertile political ground for that to happen was the corrupt and deceitful response to the financial crisis. As such, we’re now several years into a populist political cycle that shows no signs of dissipating, and the economic cycle should be joining it shortly.

Equally significant is the generational cycle. Birth rates are at a 30-year low in part because millennials are too broke and in debt to buy homes and start a family. This is now the largest voting bloc in American politics, and I highly doubt they’ll just sit around and continue to get systemically fleeced well into their 30s. This is why socialism is becoming popular.

The main point Michael Krieger tried to convey is we have a whole bunch of major cycles all at key inflection points simultaneously colliding with each other, yet the consensus view seems to be that the status quo’s just gonna continue along as it has in the past.

It won’t. The next few years will change everything. And he is 100 % correct.

Author: USA Really