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Occupy Wall Street
Friday, 14 October 2011 23:39

The "Occupy Wall Street Movement" has rapidly grown in strength over the past month -- building in size, spreading across the country, and inspiring movements in many other countries.  The US authorities seem to not know how to react. 

This is in sharp contrast to America's support for the democratic transition sweeping the Middle East and North Africa.  According to Hillary Clinton, "We know that the people of the region themselves must be the ones to chart their new course ... but there should be no doubt about the outcome we seek and support – strong and stable democracies that are able to give life to the aspirations of their people ..."

In a recent speech, Clinton argued that "generations of American leaders from all walks of life have invested in the middle class, expanded the circle of opportunity, rewarded responsibility and hard work, and focused on the common good. And that commitment made America strong, made us prosperous, and made us exceptional". 

In reality, all the evidence suggests that this American dream has been shattered.  Today, America struggles to give life to the aspirations of its people.   

Commentators and critics of the "Occupy Wall Street Movement" like to say that the movement does have a clear message or agenda.  But these growing numbers of people from all walks of life are saying is that there is something wrong with America -- high unemployment, housing foreclosures, falling incomes, and yet high profits and bonuses on Wall Street. 

It does not seem right that the general public is suffering from bailing out reckless bankers.  And as former IMF Chief Economist, Simon Johnson has argued convincingly, the US government has been captured financially and intellectually by Wall Street. 

The concerns of the Occupy Wall Street Movement are supported by a vast body of economic research which show that America's social fabric has been splintering.  A storm has been brewing for a long time.

In 2008, the OECD reported that the United States is the country with the highest inequality level and poverty rate across the OECD membership, Mexico and Turkey excepted.  Since 2000, income inequality has increased rapidly, continuing a long-term trend that goes back to the 1970s.

Rich households in America have been leaving both middle and poorer income groups behind.  This has happened in many countries, but nowhere has this trend been so stark as in the US.  The average income of the richest 10% is over $90,000, the highest in the OECD group.  However, the poorest 10% of US citizens have an annual income of less than $6,000 -- about 20% lower than the average for OECD countries.

In the US, wealth is distributed much more unequally than income.  The top 1% control some 25-33% of the nation's wealth, and the top 10% hold 71%.

Data from the US Congressional Budget Office confirm these alarming trends.  Between 1979 and 2006, incomes for the top 1% rose by 256%, while incomes for the middle and bottom fifths of households rose by 21% and 11% respectively.  There is now greater income concentration at the top than at any time since 1929!

Importantly, the CBO indicates that Bush Administration tax cuts increased the concentration of after-tax income at the top of the spectrum.

Nobel Prize-winning economist Michael Spence provides another perspective in his recent book, "The Next Convergence".  He examined US employment creation in the 18 year period through to 2008, just before the crisis. 

The tradable goods sector, meaning exporters and industries competing with imports, the most dynamic and efficient part of the economy, created virtually no net employment.  Employment increased for things like finance, consulting, computer design, that is, the higher skilled areas.  But this employment expansion was almost entirely offset by reductions in lower value added manufacturing employment, as these activities were outsourced to emerging economies.

Virtually all of US job creation was in the "non-tradable" goods sector, things like government, healthcare, contruction, legal services, retail, hotels, food services, restauarants, etc.  Looking ahead, the US cannot rely on the non-tradable goods sector to solve its unemployment problem -- domestic demand will likely be weak for some time as households cut back their consumption and rebuild their savings. 

The tradable goods sector needs to generate employment.  A weaker dollar helps, but this is not enough.  It also requires deep structural reforms like fixing the ineffective parts of the US education system, investing in infrastructure, reforming the tax system, and implementing a sensible energy policy.

The very people who are suffering from the crisis are most notably the middle class, and youth who cannot break into the jobs market now, and who will likely be passed over for new graduates a few years hence when the economy recovers.  

In a speech just yesterday on "economic statecraft", Hillary Clinton argued that "America’s economic strength and our global leadership are a package deal. A strong economy has been a pillar of American power in the world. It gives us the leverage we need to exert influence and advance our interests."

If she is really serious about a strong American economy, she should listen to the Occupy Wall Street Movement.  There is a very real risk that the Arab Spring could be followed by an American Fall.     

References:

Hillary Clinton at the Center for American Progress

http://www.state.gov/secretary/rm/2011/10/175340.htm

The Quiet Coup, Simon Johnson.  The Atlantic Magazine.  May 2009 

http://www.theatlantic.com/magazine/archive/2009/05/the-quiet-coup/7364/

Growing Unequal?  Income Distribution and Poverty in OECD Countries

www.oecd.org/els/social 

Income Gaps Hit Record Levels in 2006, New Data Show

http://www.cbpp.org/cms/index.cfm?fa=view&id=2789

Michael Spence, The Next Convergence

http://thenextconvergence.com

Hillary Clinton, Economic Statecraft

http://www.state.gov/secretary/rm/2011/10/175552.htm

 


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