TM, ®, Copyright © 2010 Piero Scaruffi All rights reserved.
- (december 2013)
The age of inequality.
Few governments have caused so much long-term damage to a country as the
Reagan administration did in the 1980s.
See The 13 most feared words in the English language for a partial list (Saddam Hussein, Osama bin Laden, illegal
immigration, budget deficit, etc).
There's one more legacy that is coming to the fore in the 21st century.
The income of the middle class (of the 90% bottom of the USA) has barely
grown since Reagan became president. On the other hand, the income of the
rich (the top 10%) has grown dramatically (more than 200%).
This has created a wealth gap with few precedents in history.
After the Cold War ended in 1991, most of the world has copied the system that
triumphed in the USA in those years, which was the system set in place by
Ronald Reagan. No surprise then that the same kind of wealth gap can be found
in Russia, China, India, and most of the emerging countries.
Income inequality has been one of the fastest spreading diseases of the 21st
century.
My guess is that nothing (no Iranian or North Korea nuclear bomb,
no Indian-Pakistani war and no terrorist attack) poses a bigger danger to
the world's stability than this growing inequality. We have created a world
in which a few people amass colossal fortunes and truly enjoy life while
the vast majority struggles to make ends meet.
Sooner or later, this has to lead to politial instability on a massive scale.
So far the symptoms have been relatively easy to contain: the Tea Party and
the Occupy Movement in the USA, a few demonstrations in southern Europe,
an anti-corruption movement in India, and little else. The bottom 90% is not
well organized (and, quite honestly, confused on whom to blame)
and is too busy anyway trying to find the money to pay the monthly bills.
However, all it takes is someone who can consolidate the anger (sometimes
desperation) of the bottom 90% and the situation could become explosive.
The situation is not all that different from the situations that led to the
French revolution and to the Russian revolution, except that this time it
is a worldwide phenomenon (tiny exceptions in places like Scandinavia and
Switzerland).
How the Reagan policies caused the decoupling of the wealth of the majority
from the
wealth of a small minority is a complex story, but the numbers are unambiguous: that's
when the decoupling began. There are certainly important pioneers in income
equality, starting with Franklin Roosevelt who (according to David Stockman)
fathered crony capitalism and continuing with Richard Nixon, who allowed
the Federal Reserve
to manipulate the dollar by terminating convertibility of the dollar to gold.
Then came Reagan and his rich-friendly policies that shifted growth towards
the 10% richest people and corporations. Reagan appointed Alan Greenspan to the
Federal Reserve, and Greenspan used that freedom to engineer bubble finance
and surrender the economy to speculators. Bush I and Clinton did nothing to
reverse the trend, and Bush II made it worse by mortgaging the nation to
fund two wars while cutting taxes for the rich.
It is hardly surprising that the financial system collapsed in 2008.
What is surprising is that even during the worst economic recession since
the Great Depression the top 10% continued to make money, lots of money.
In fact, the low interest rates of the Great Recession produced by the policies
of the Federal Reserve benefited mostly the very rich. For example, one of the
official justifications for maintaining low interest rates was to help the
housing market recover. In reality, the only people who could benefit from those
low rates during the recession were the very rich: ordinary people were
turned down by banks. All those foreclosed properties were very cheap, but
only the very rich were de facto allowed to borrow cheap money to purchase
those cheap homes. The middle class either lost those homes or was not allowed
to borrow the cheap money to buy them.
At best middle class families got no advantage from the Great Recession.
At worst, those are the families that lost their homes.
The rich are the ones who bought those homes at sale prices, homes that now,
a few years later, have already doubled in price. The rich speculators made
a fortune out of the very Great Recession that wiped out so much wealth from
the middle class.
The top 10% are in a win-win situation: they make huge amounts of money when
the economy is booming; and they make huge amounts of money when the economy
is collapsing. Little of that money will ever trickle down to the middle class
because the top 10% is able to invest worldwide: why would they invest in the
very economy that they caused to collapse? They take the money and invest it
somewhere else.
In other countries the causes of the wealth gap may be different, but at the end
of the day the principle is the same: create a system that constitutes a
win-win situation for the very rich and let the middle class pay the price
for it.
The same system is also very good at making it sound perfectly rational to
the new generations, so that the new people entering the workforce accept
the system and simply ignore the whining old people.
The new generations are largely indifferent to income inequality because the
modern society offers them a broader version of equality: equality of access
to culture, to the Internet, to the digital economy, to international travel.
Younger people tend to care more for that kind of equality than for income
equality. Hence there are rare demonstrations in the street, certainly not
comparable to those of the 1960s (when the "injustices" were about
military draft, civil rights, family values and the very meaning of life).
People are confused on how to battle the growing inequality, and sometimes don't even see it as inequality (they tend to see it as the effect of a dysfunctional government, which is, after all, correct).
People (even those who are angry at banks and don't trust corporations) don't have the knowledge and the tools to take on the very rich.
It is easier, as it has always been, to vent one's anger on simpler issues like corruption and immigration. Hence a boom of xenophobic and anticorruption movements throughout the West demanding discrimination against foreign workers and smaller, accountable government. These new populist movements have an ideological orientation that is often branded as "fascist" by the mainstream parties, but the honest truth is that they have little in common with Hitler and Mussolini; other than being populists. Italy, the country that pioneered the Mafia and fascism and many other sociopolitical phenomena, was at the vanguard with the Northern League (Lega Nord) which eventually became a mainstream party in Berlusconi's right-wing government.
Now Europe has France's
Front National (FN), led by Marine Le Pen,
Holland's Freedom Party (PVV), led by Geert Wilders,
Britain's Independence Party (UKIP), led by Nigel Farage,
Norway's Progress Party, Hungary's Jobbik, Austria's Freedom Party, etc.
Add the Tea Party in the USA, which is probably the one that has had the most visible effect on government.
These radical parties have one big asset on their side: they can speak the obvious truth without fear of being expelled from "civilized" discourse. For example, Wilders called Islam "a totalitarian religion", a statement that probably unites the majority of non-Muslims in the world (he forgot to mention that all monotheistic religions are "totalitarian" because, by definition, they don't admit any other god, although today's Islam is a bit more totalitarian because no other religion is allowed in Saudi Arabia whereas all religions are allowed in Italy and Israel). Their "provocative" statements are actually the kind of sentences that ordinary people utter in ordinary conversations with their relatives and friends. It is refreshing for the masses to hear a politician say exactly the same words in public.
Most people realize that these radical parties have little to offer in terms of real government, and prefer to vote for the mainstream parties, but the number of disillusioned voters who don't vote anymore (and would have voted for the traditional parties) has been growing, allowing the minority to become better represented in parliaments throughout Europe.
I doubt any of this would be happening if there wasn't such a huge gap before the 10% richer people and the 90% poorer people.
Since the problem is, ultimately, with modern capitalism, one would expect that these parties would attack banks and corporations instead of attacking immigrants. While a far cry from being a communist party,
Grillo's Five Star Movement in Italy may be spearheading precisely that
kind of transition. This is a protest movement that got its votes (a lot of them) from angry, intellectual, left-leaning voters, not from angry, racist, right-leaning voters.
Whether to the right or to the left, all of these movements are missing the bigger point: the mother of all problems is income inequality, and sure one cause is that governments are dysfunctional, but simply demanding change in the government may not help much.
I don't see anything that will reduce the wealth gap, or even reduce the rate
at which the wealth gap is expanding. Economic booms help the rich, economic
crises help the rich. Is it possibly to have a world in which the top 10%
owns royal palaces and the top 90% only has debts to pay? We may be reinventing
medieval Europe and its feudal organization in an age of peace, except that
the lords don't fight with armies but with financial tools.
Centuries ago "inequality" was about political rights and power. Revolutions
introduced equality in, for example, voting rights. The communist revolutions
are the only ones that tried to introduce economic equality too. The massive
failures of those revolutions might explain why economic inequality was not
defeated but, in fact, grew bigger. Maybe communism was the wrong answer to
the right question.
Note: According to the Oxfam report on income inequality of 2014, the world's wealthiest 1% own $110 trillion in assets, and the world's richest 85 people own as much wealth as the bottom 50%
Note: A 2013 study by Rick Heede showed that the 90 biggest carbon producers
account for the vast majority of carbon emissions in the world. Income
inequality is only one side of the coin: the other side is that the 1% that is
so much wealthier of the rest is also causing the vast majority of environmental
damage that will come to haunt the rest of us.
TM, ®, Copyright © 2013 Piero Scaruffi All rights reserved.
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- (march 2013)
Uniting the Balkans.
The Balkans have always been the delicate border of three civilizations:
the West, Russia and Islam. Now that the Islamic world of the Mediterranean is
beginning to exit its "dark age" and enter an age of democracy and progress,
the Balkans risk being left behind. The economic crisis in Greece, the partition
of Cyprus, and the ethnic problems in the former Yugoslavia are all children of
the same problem: a crisis of identity that lasts since the Ottomans, the
Russians and the Western powers started fighting for control of that border
region several centuries ago (even before the fall of Constantinople).
Western Europe has been expanding there at the expense mainly of Russia: the
new European Union members of Slovenia, Croatia, Hungary, Bulgaria and Romania
were part of the Russian sphere of influence before the Soviet Union imploded.
Russia managed to retain influence in the region by supporting Serbia during
the Kosovo war but even Serbia is now turning towards the European Union.
Turkey's new assertive policies work wonders in the Arab world but have little
influence on the Balkans. No matter how fast the economy of Turkey grows,
its weaker neighbors to the north (notably Greece and Bulgaria) maintain
a millenary distrust of the Turks. The ultimate twist to the position of
Turkey comes from the fact that Turkey itself has applied for membership in
the European Union, i.e. for its own final westernization. (Turkey is already
a member of NATO with a tradition of standing up to Russia).
The rivalry in the Balkans is basically extending to Syria. Russia defends
Assad's regime the same way it defended the nationalist Milosevich in Serbia.
Turkey supports the same rebels (mostly Sunni Muslims like the Turks) that
the European Union and the USA support.
The issue of the Balkans might get a new facial makeup if negotiations
for Turkey's membership in the EU finally accelerate. They were started many
years ago but stalled because of opposition from either France or Germany or
both. In theory, the European powers were afraid of a large and poor
Muslim population joining the union, but now Turkey is the 17th largest economy
in the world, growing more rapidly than any European country, and Islam
would still be a small minority religion now that so many Eastern European
countries joined.
The stumbling block with Greece (Turkey's archenemy) has been Cyprus, half of
which was invaded by Turkey four decades ago and remains split. It was the
Greeks of Cyprus who rejected a United Nations plan in
2004 to reunify the island (the Turkish-Cypriots had accepted it), but now it
looks increasingly likely that Greek-Cypriots will give in.
Turkey, of course, is also the country that bombs Kurdish "terrorists" inside
other countries and then lambasts Israel for bombing similar terrorists in Gaza.
Turkey is also the country that bans more than a million websites (including
this one). And the current government has jailed more journalists than any
other country in the world according to the Committee to Protect Journalists.
And Turkey is the country that still denies the Armenian genocide that is
mentioned in every history book of the world (published outside Turkey).
So there would be very valid arguments to reject Turkey simply on democratic
grounds.
Croatia will become a member of the EU before the end of 2013.
In december 2009 Serbia also applied for European Union membership, and that
process is expected to be completed within two years. The tiny Balkan
countries of Macedonia, Montenegro and Albania have also applied.
When all of them are accepted, something truly momentous will have happened:
for the first time since Roman times, the whole Balkan region will be united.
And, for the first time in history, it will have happened peacefully.
TM, ®, Copyright © 2013 Piero Scaruffi All rights reserved.
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- (march 2013)
The empires of the future
There is consensus that the world is entering a stage of transition. The
previous stage lasted very little: only about 20 years of absolute
USA dominance from the fall of the Soviet Union (1991) till the Great Recession
of 2008-11. The age before that was just a bit longer: the Cold War between
the two superpowers USA and Soviet Union lasted from 1945 till 1991.
(By comparison the age in which the European empires ruled the world
lasted more than four centuries). During the current age of transition the USA
is supposed to be challenged by at least China and possibly India, both of
which will post a higher GDP than the USA in a few decades if their growth
rate remains what it is today. Of course that is a big "if": no country in
history has ever experienced growth rates of that magnitude for several
decades.
More importantly, this is a purely economic viewpoint, that assumes political
stability both outside and inside these countries.
However, both
China and India have a tendency to disintegrate. Chinese history, in particular,
tends to alternate large empires and long periods of warring states.
The Chinese and the Indians can be very nationalistic about their subcontinent
as a whole, but are internally divided by countless
linguistic, religious and economic prejudices. Economic disparities among
regions and/or border pressures from foreign invaders have cyclically caused
the empires of China and India to collapse.
Of course, the optimistic viewpoint is that it will never happen again.
The pessimistic viewpoint, however, is that those pressures never went away.
Japan and the USA, on the other hand, are relatively young countries whose
history so far has been linear: from a fragmented medieval society to a
strong united nation. There has been no reversal for this process yet in
either country.
Europe is actually undergoing the opposite process: for the first time since
the Roman Empire the nations of Western Europe are uniting in one political
entity, and for the first time ever they are even uniting with northern and
eastern European countries.
Therefore politics and history introduce more factors than mere economic growth.
Japan and to some extent China have a stable population. This fact allows the
government to invest in futuristic infrastructure.
India and the USA have fast growing populations. Their governments are
constantly trying to catch up with the growing needs of this growing population,
i.e. they have to invest everything into expanding the existing infrastructure.
Hence the futuristic cities of Japan and China that have no equals in the USA
and India. Thus one would expect Japan and China to be more stable in the long
term than the USA and India.
Europe too has mostly a stable population, but its countries are plagued by
colossal public debts.
China and Japan also benefit from a favorable trade balance that de facto
uses foreign money to fund their infrastructure development.
Another country that benefits from international trade is Germany, that in 2009
became the world's top exporter.
Another factor to consider is the resources: countries that cannot produce
their own food, materials and energy are bound to be conquered unless they
conquer lands with food, materials and energy.
The USA became a superpower at a time when it was the main supplier of just
about every natural resource, starting with oil and gold. It has now joined
India, China and Japan as a country that desperately needs to import
resources. The big exporters of resources are Russia, Australia and Canada.
Nonetheless the analysts keep debating whether the future belongs to the USA,
China or India. How weird that nobody bets on the ones that own the resources.
Then there is technology. The dominant power has almost always been the one
with the best technology. The technological gap between the USA and
the emerging powers of China and India is still colossal, and will be for
the foreseeable future.
(See The value of technology: The USA will not decline any time soon).
There is nothing today that can lead to predict that
Chinese universities will some day outpace USA universities in scientific
research, and that Chinese companies will outpace USA companies in research
and development. Japan (more than Europe) is the only country that has produced
notable inventions in the last few decades to match the avalanche of inventions
coming from the USA.
Depending on the factors that one considers more relevant, predictions about
the future can vary dramatically.
TM, ®, Copyright © 2013 Piero Scaruffi All rights reserved.
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- (march 2013)
Al Qaeda is still thriving.
When a NATO soldier does something wrong, the whole Islamic world (with
very few exceptions) wishes the worst on all NATO soldiers, and in fact on
all NATO countries and all of their citizens.
If a pastor in Florida (one person out of 300 million citizens of the USA)
burns a copy of the Quran (one of the silliest, least important, insults i can
think of), millions of Muslims feel that revenge should be taken on all
citizens of the USA, and maybe on all Christians of the world.
That pastor runs a small church and does not even reflect the
beliefs of its small community, let alone of the 300 million inhabitants of
the whole nation, let alone of the 6 billion non-Muslims of the world.
It is just a small episode blown out of proportion by the media.
On the contrary, in Saudi Arabia it is MANDATORY to destroy any Christian, Hindu,
Buddhist, etc holy book and, alas, the Islamic world seems to approve of this
law (or, at least, it never protested against it). In fact, technically
speaking,
displaying a non-Muslim religious book carries the death penalty in Saudi
Arabia.
When an unknown independent
filmmaker makes a video that insults Islam, the whole Islamic world (with
very few exceptions) wishes the worst on all citizens of the USA,
and in fact on all Christian countries, etc.
The Islamic world has always
excelled at enacting collective responsibility: if you do something wrong,
they may take revenge on your brother (even if he has nothing to do with it),
on your neighbor, on anybody who shares your religious beliefs, on anybody
who lives in the same country where you live, etc.
There is one notable exception to this widespread mindset: when the offense
is committed by a Muslim. In that case a completely different set of rules
come into play. First of all, doubt: the media and the cafe become the
carriers of conspiracy theories according to which the offense never happened
and it was in fact fabricated by Israel and the CIA. Secondly, the Muslim
is not a good Muslim, in fact not a Muslim at all. Thirdly, the action in
question may or may not be as described. The most notable case of this kind
was the terrorist attack of september 2001: to this day most Muslims in
the world are convinced that it was not carried out by Muslims (Israel and
the CIA are the main suspects), and, if it was, then those Muslims were not
real Muslims.
Al Qaeda is still practicing terrorism (mostly in Iraq and Yemen, but also in
Afghanistan, Mali, Somalia and now also Syria)
except that its victims are mostly Muslims (typically Shiites, hated by
their Sunni cousins more than any other religious group). Every time there
is a major terrorist attack by Al Qaeda the most shocking aspect is not the
number of casualties but how little the families and friends of the victims
scream against Islam. If the same act had been committed by a soldier of
the occupation forces, the whole town would scream "Death to the USA": the
whole of the USA, not just that one soldier. However, if the same crime
is committed by a Muslim, it is only that specific bomber to be blamed.
The families of the victims rarely express anger towards Al Qaeda as a whole.
They never think of
blaming the religion in which name that bomber carried out the horrific murders
(Islam).
Not a single major cleric in the entire Islamic world has openly and clearly
and consistently condemned suicide bombings as a method to promote
one's ideals, not even when the victims are exclusively Muslims like in Iraq
and Afghanistan.
Muslims blame it all on Israel and USA. No matter who carried out an attack
and what their motivations were, Muslims tend to find a way to blame it on
Israel and the USA. If a suicide bomber shouts "Allah is great" and then blows
up 100 children, you are more likely to hear "May Israel be destroyed" than
"May the prophet of Islam rot in hell".
If you mention that Muslims are killing Muslims in Syria, the obvious answer
is that it is all engineered by the West. And you can't propose that Syria
breaks up along ethnic/religious lines because it is immediately perceived
at an Israeli plot to weaken the Muslim world.
If millions of Muslims took to the streets and burned the Quran every
time Al Qaeda carries out a terrorist attack, the number of people dreaming
of becoming martyrs in the name of Islam would shrink dramatically, and
the emphasis would shift from the contingency (do we blow up people at the
market or at the bus station) towards the method (do we fight by blowing up
random people or in some other way?)
Collective punishment applied to non-Muslim entities works wonders.
Collective punishment not applied to
Muslims also works wonders... but in the other direction.
You would be surprised to find out how many ordinary Muslims (not suicide
bombers but ordinary granpas and housewives) feel good that a
citizen of the USA was killed because of something that happened in the USA
that they dislike. That's still the idea of "peace" that prevails among the
vast majority of Muslims in the world, the idea that you should be killed if
you imply that Islam kills (insert smiles here).
The inevitable consequence is that the USA has withdrawn from Iraq and NATO will
withdraw from Afghanistan, whereas Al Qaeda is still thriving. You get what
you want. Enjoy your copy of the Quran, and watch out when you walk into
a market or a cafe: there might be someone inspired by that very book that
you want to protect at all costs who might be loaded with explosives and ready
to blow you up. If not you, then your neighbor, or your cousin, or some other
fellow Muslim somewhere else.
TM, ®, Copyright © 2013 Piero Scaruffi All rights reserved.
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- (february 2013)
The double-edged sword of science
Science has created the tools and the world that makes it possible for business
to make billions of dollars worlwide. Science has created more wealth than
anything else in fields ranging from medicine to transportation, from
mass media to information processing.
However, its relationship with business is more complicated than ever.
Science and business have become odd bedfellows. In the old days any scientific
news would immediately be seized by adventurous businessmen to devise a new
product line, a new kind of service, a new source of revenue. But science
is as good at creating new technologies as it is as analyzing their dangers.
The latter task has become more and more important because science itself
has begun to realize that technology can many of the people than it serves.
While this has always been obvious (the ordinary gun, used to kill more than
100 million people worldwide, being a powerful demonstration of this principle),
the turning point was probably Hiroshima: science that most people couldn't
even comprehend killed 200 thousand people in a few seconds. After that episode
science have increasingly shifted from "inventing" to "debunking".
Some scientists invent something that companies turn into a profitable business,
and then some other scientists find out that the way it is implemented in that
business is actually harmful to people. This trend has peaked with the current
debate on human-caused climate change. Corporations then defend their line of
business by spending millions to, basically, twist the scientific data
(often including defaming the scientists themselves,
see A new kind of smearing campaign). This trend started with the tobacco industry's
campaign to obliterate the dangers of nicotine.
The divide has been getting bigger, and probably represents a growing factor
in polarizing the electorate of democratic countries, where the impulse to
promote economic growth and the impulse to protect public health pull in
different directions. In the USA,
Republican politicians, who tend to care about economic growth, try to minimize
the damage that a business can cause to public health, while
Democratic politicians, who tend to care about public health, try to minimize
the damage that environmental regulations can cause to the economy.
TM, ®, Copyright © 2013 Piero Scaruffi All rights reserved.
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