Trump is driving America into a new dark age
Jeremy Warner
Donald Trump’s America needs to take a long look at the speck in its own eye before mocking Europe, Britain and much of the rest of the world for their collective inability to get anything done.
US triumphalism was on full and terrifying display at this year’s gathering of wealth and power in the mountains for the annual meeting of the World Economic Forum in Davos.
The “spirit of dialogue” intended by the organizers was completely drowned out by Trump’s roadshow. traitorsHe kept everyone guessing about the US president’s threats to Greenland until the last moment before he went back from the brink.
It doesn’t really matter whether this is a defeat or a victory for Trump; It sucked the oxygen out of almost everything.
But this was by no means the only story. You don’t have to dig deep for others bubbling beneath the main event. The increasingly vulnerable US economy is just one of them.
Despite all the glitz and glamour, things are not as they should be in this seemingly indisputable giant. But don’t take it from me; This is not just wishful thinking of the old and dying liberal order.
We also heard this from the billionaire class itself. In fact, it is none other than Larry Fink, managing director of BlackRock, one of the world’s largest money managers, and co-chairman of the WEF this year.
In his opening speech, he said more wealth had been created since the fall of the Berlin Wall than at any time in human history. But this did not translate into shared prosperity.
“In advanced economies, this wealth has accrued to a much narrower share of people than any healthy society can ultimately sustain,” he said.
Nowhere is this more evident than in the United States, where there have been dramatic increases in wealth and income inequalities since the 1980s.
There is nothing wrong with inequality in this sense; it has always been part of the human condition and is a key driver of economic progress, creating incentives for improvement.
But you can always have too much of a good thing, and that’s definitely where the US is now. The top 1 percent of Americans now account for 31 percent of household wealth, while the bottom 50 percent accounts for just 2.5 percent, according to data compiled by the Federal Reserve.
Also concerning is the increasing reliance on high-income earners for domestic consumption, by far the largest component of U.S. GDP. Here the numbers are in some ways even more alarming: The top 10 percent of earners account for nearly half of U.S. consumption; this rate was 35 percent in the mid-1990s.
Similarly, the bottom 80 percent increased consumption from almost half to just over 35 percent.
In sum, the great powerhouse of the U.S. economy has become dependent on a relatively small group of people spending dangerously high amounts to make ends meet.
This makes it extremely vulnerable not only to social and political discord, but also to any significant disruption in the US stock markets. The resulting destruction of wealth would act as a lightning rod on consumption, the collapse of which would throw the economy into a tailspin.
Early signs are that the AI revolution is further widening wealth inequalities. The profits overwhelmingly go to his supporters and financial backers rather than the common man.
“The obvious question is, what happens to everyone else?” said Fink. “If AI is doing to white-collar workers what globalization did to blue-collar workers, we need to confront it head-on today.”
Not everyone has this view. True believers like Tesla’s Elon Musk think AI combined with robotics will put the U.S. and world economies on the path to “abundance for all.”
He told Davos attendees that new technologies promise “explosive” growth in the economy, an “expansion beyond all precedents.”
The history of economically transformative technology makes a strong case that he was generally right, but only in the long run.
There is almost always a long socially destabilizing transition period, often involving a series of economic collapses, before arriving at the sunny plateaus of broader-based progress for all.
And it’s not just the US economy’s increasing dependence on a super-elite of high spenders and investors that makes it so vulnerable to disruption. The state of public finances is also close to disaster.
Let’s face it, this isn’t just an American problem. Britain and most of the rest of Europe are in much the same boat. All over the Western world, nations are in financial ruin.
But the situation is perhaps worse in the USA; This is not only because the nominal size of the debt is much larger, but also because the president appears completely unaware of the problem.
He wants lower interest rates and is apparently willing to undermine the Fed’s cherished independence to get them. But there is no sign in the White House of addressing the growing structural mismatch between federal revenues and spending, which was still at 6 percent of GDP at last count.
Deficits of this magnitude while the economy is growing at an annual rate of 4.4 percent would nearly lead to a financial crisis, but there appears to be no plan to reduce the deficit beyond relying on the Fed to reduce debt servicing costs by lowering interest rates.
The great powerhouse of the U.S. economy has become dependent on a relatively small group of people spending dangerously high amounts to make ends meet.
The nonpartisan Congressional Budget Office estimates that if nothing is done, the size of the national debt will rise from nearly 100 percent of GDP today to 156 percent in 30 years.
Americans cannot forever rely on the good will of foreign investors to finance these deficits; especially if Trump engages in the kind of fiscal repression (artificially lowering interest rates) that financial markets predict.
Trump and his circle have convinced themselves that the productivity-boosting powers of artificial intelligence will eliminate all these problems. If Musk is right that an age of “abundance” will come, then of course many of today’s concerns will eventually be deemed unfounded.
But this is a pretty big bet on the wheel of luck, and in any case, the journey to the promised land is unlikely to be smooth or quick.
Fact-checkers were milling about for Trump’s hour-plus stream of consciousness in Davos last week, but you didn’t need to know much economics to know that most of the “achievements” he listed for his first year in office were overblown nonsense.
The US economy, fueled primarily by financial deregulation and excessive investment in artificial intelligence, is indeed “firing,” but many Americans are not feeling the resulting boom in their own pockets.
Call it an economic rebirth if you like; For others, it looks more like a new dark age of carpetbaggers and hoodlums.
Telegraph, London
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