TPP and the Great Peril of Inattention

President Obama recently returned from a trip to Asia. The primary goal of his trip was promoting the Trans Pacific Partnership – a massive “trade” agreement with vast social and environmental consequences. You will be excused for not knowing much about the TPP since it has been negotiated in secret. It turns out, the more you know about it and the less you will like it – hence the necessity for secrecy. It transfers power from sovereign governments to multinational corporations damaging democracy and frustrating attempts at bringing about a more sustainable and just society.

The goal of Essential Knowledge for Transition is to make visible the operating system of our society – to reveal the design of the monetary and banking system, the economic system and the financial system and to show ways to redesign them for the benefit of our communities and the natural systems on which we depend.

The TPP represents a massive redesign of the operating system of our society that further entrenches the very problems we are trying to solve: erosion of democracy, the power of unaccountable multinational corporations, environmental destruction, climate instability, and wealth and income inequality.

Climate Change and Inequality

I was struck by the tenacious misconception that economic growth is needed in order to address inequality as expressed for example in the recent blog on the Capital Institute website titled Transcending the Tension between Climate Change and Inequality by founder John Fullerton.

We know climate change is linked to our global economic activity and its voracious appetite for energy, mostly in the form of fossil fuels which increase concentration of CO2 in the atmosphere. Some argue that the problem of inequality cannot be addressed without economic growth and hence the tension referred to in John Fullerton’s blog.

Let’s get this one point straight – economic growth in the US has not reduced but actually increased inequality in the US since the 80s as I discussed in my blog post Economic Growth and Inequality.

For the benefit of all

How do we bring about the more just and compassionate society we long for in the New Year?
How do we remain centered, effective and positive in the presence of the many challenges we face?
How do we move towards a closer alignment with our values in all aspects of our lives?
How do we cultivate our personal resilience, kindness, compassion, joy and equanimity?

These are the questions I am pondering at the beginning of this year as I contemplate the best way to be an effective participant in the Great Turning – the shift in society and all its institutions necessary to bring about a socially just, environmentally sounds and spiritually fulfilling human presence on planet Earth.

I recognize that some might question the need for such a broad context for Essential Knowledge for Transition – a series of talks and resources on the money and banking system, the economic system and the financial system and healthier alternatives thereof. Yet, after presenting this material on 35 occasions to communities of engaged citizens in 2013 I realized that acquiring an understanding of those systems can be emotionally challenging and that such knowledge can only be transformed into social change if at the same time we engage in a personal transformation.

Local Investing – a Powerful Tool for Effective Economic Development

With the economic slump well into its sixth year and unemployment still significantly higher than at its inception in 2007, it is understandable that the priority of elected officials is job creation. States, counties and municipalities, while dealing with budget deficits, have been competing with each other to attract jobs in their region with tax abatements and other financial incentives mostly targeted at large corporations.

Attracting jobs through tax incentives has been at times extravagantly costly, like the recent $55M tax abatement Apple received from the state of Nevada to create 35 jobs in a new data storage center in Reno, or the jobs created in the State of New Jersey in the last decade – as the NYT reported on April 12th, 2012 “… the Christie administration has granted more than $900 million in state tax credits over 10 years to 15 companies, including Panasonic, Goya, Prudential and Campbell’s Soup. The companies have promised to add 2,364 jobs, or $387,537 in tax credits per job, over the next decade”.

Economic Growth and Inequality

There is an unexamined assumption in our culture and political discourse – that economic growth is desirable since it improves the well being of everybody in society. This assumption is incorrect since it neglects the reality that the gains from economic growth have over time been captured by a progressively smaller percentage of the US population – the wealthiest among us.

Leaving aside considerations over the soundness of pursuing economic growth in a resource constrained planet, one would need to recognize that during certain periods in our country’s history economic growth has indeed delivered increasing standard of living to every segment of society.

Source: Analysis of U.S. Census Bureau data in Economic Policy Institute, The State of Working America 1994-95 (M.E. Sharpe: 1994) p. 37

The chart above shows that real family income, in other words family standard of living, roughly doubled during the period from 1947 to 1979 for families at every income level. The strong economic growth during that period benefited every segment of the population regardless of their income level. Prosperity was shared.

From 1979 to 2007 the economy also experienced strong growth but the benefits were enjoyed primarily by the richest families in the US while the standard of living of most US families barely improved.

Source: Congressional Budget Office, Average Federal Taxes by Income Group, “Average After-Tax Household Income,” June, 2010

The bottom half of US families in terms of income saw they standard of living improve by less than 25% over those 38 years while the families in the top 1% of the income bracket saw their standard of living more than triple.

This trend in the allocation of the benefits of economic growth towards the very rich has accelerated in the last couple of decades. A recently updated study by Prof. Thomas Piketty and Prof. Emmanuel Saez published in the February 2013 Quarterly Journal of Economics shows the extent to which more and more of the benefits of economic growth have been captured by the richest 1% of the population (see table below).

“Income Inequality in the United States, 1913-1998” with Thomas Piketty, Quarterly Journal of Economics, 118(1), 2003, 1-39 (Longer updated version published in A.B. Atkinson and T. Piketty eds., Oxford University Press, 2007) (Tables and Figures Updated to 2012 in Excel format, September 2013)

The most mind-boggling data point relates to the allocation of the benefits of economic growth since the end of the last recession in the middle of 2009. The richest 1% of the population captured 95% of the benefits of economic growth we experienced from the middle of 2009 and to the end of 2012 while the rest – 99% of the population, got a paltry 5% of those benefits.

As Professor Gar Alperovitz remarked, we do not have an economic problem in this country. The US GDP in 2012 was just shy of $200,000 per family of four. We have a distribution problem allocating the economic benefits we collectively generate. Until we address the mechanism that distributes just about all of the benefits of economic growth to the richest 1% of the population, it is futile to pursue growth as a desirable societal goal.