Mr Brightside: Left Behind, Inequality, and Why it Matters part 2 

 

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inequality“I kept the faith and I kept voting 
Not for the iron fist but for the helping hand” 

 

In last weeks Left Behind, Inequality, and Why it Matters I considered the increase in wealth and income inequality (collectively, “Inequality”) since 1980, and the direct link between inequality  and poverty

 
 
This week we consider how people will ultimately react if inequality and, therefore, poverty are left unsolved.  

I have often written that we are turning to the politics of the 1930s and, as I look at the political situation in the UK, Europe and US I see distinct parallels. 

Going back to 1918, Germany had lost WW1 whereas Italy was on the winning side. But for both, the aftermath was devastating: Millions dead and wounded. The Spanish flu, and thousands more dead.  Hyperinflation, unemployment, widespread hunger. Grave polarization and political instability.  

The devastating effects of inflation in German left the public with a deep distrust of the democratic, liberal Weimar republic. By 1924 the madness seemed over, but the longing for order, stability and authority was still there. And then, in 1929 Wall St Crash led to the Great Depression. 

Slowly but surely, this made Germany yearn again for its former ‘glories’, and the policies of the Nazi with their ‘stab in the back’ myth, which wrongly blaming Jews and Communists for Germany’s defeat, fell on fertile ground. Nothing made Germans more ripe for Hitler than inflation. 
 

‘Nothing made Germans more ripe for Hitler than inflation’

 
Today, there are distinct similarities. Since 1980, western societies have championed the neoliberal values of competition, materialism and individualism, without offering an attractive, alternative narrative. The trigger for the collapse of this neoliberal worldview was the 2008 crash, the rollback of globalisation, rising inequality, the pandemic and the increasingly urgent call for climate action. The old narrative that hard work and self-improvement would eventually lead to wellbeing and prosperity has lost its power in a stagnant, unequal and polluting economy. 

Where all this led in the 1930s is being repeated today. Then they were referred to as Fascists, today they prefer Populist, ultimately both are from the hard-right of the political spectrum. 

In the 1930s fascist governments were typically totalitarian and authoritarian one-party states that glorified the state above the individual.. Today, there is a more democratic multi-party structure, but, typically, populists seek to circumvent parliamentary process citing the will of the people.  

In both the 1930s and today referendums are used by the ruling party to enable them to claim they have the will of the people to deliver their policies. 
 

‘Where all this led in the 1930s is being repeated today’

 
The situation today has underlying differences to the 1930’s 

Then fascism was born out of the trenches of WW1, based on a preference for, what they regarded as untrustworthy politicians,  with a hatred of communism and a desire to beat it on the streets, smashing working-class organisations in the process. Neo-liberalism has already done the job. 

With the exception of Putin’s’ Russia, today none of the populist right believe in military conquest, expanding territory in a thirst for glory and living space.  

In simple terms, populism is a social movement that seeks to turn back the clock, by extreme measures, if necessary. Nationalism is a natural extension, an effort to return the nation to its imagined former greatness. 

Today, a core belief is often opposition to Islam, and they make a harsh distinction between Islam and Western or European values. 
 

‘an effort to return the nation to its imagined former greatness’

 
Some groups are socially liberal on issues like homosexuality and feminism: indeed the Dutch Freedom party makes this a mainstay of its assault on Islam. Others, like the ruling Polish Law and Justice party and many Trump supporters, do echo more traditional concerns with “degeneracy”. 

What the new groups and the old ones have in common is an overriding concern with identity, and how it relates to blood and soil, a scorn for “politics as normal” and the failures of an elite. 

That is not to dismiss their concerns about immigration, globalisation or the EU, which task centre stage when there is a grim economic backdrop and, for very different reasons, an insecurity about the future direction of the world. 

The beginnings of today’s hard-right populists can be traced back to 1980 and the televised debate between President Carter and his Republican challenger, Ronald Reagan, who in his closing comments said: “Next Tuesday, all of you will go to the polls. You’ll stand there in the polling place and make a decision. When you make that decision … ask yourself: are you better off than you were four years ago?”  

For the few, the answer is clearly, yes. 
 

ask yourself: are you better off than you were four years ago?’

 
For the majority it should be the same. Most mainstream economists would say yes: Mark Zandi, the respected chief economist at Moodys, recently wrote “But … there is no denying it: this is among the best performing economies in my 35+ years as an economist.” Growth: up. Jobs: up. Wages: rising. The value of your home: up. Share prices: booming. Inflation: falling. Borrowing rates: dropping. 

In 2020, Donald Trump warned that his defeat would produce “a depression”. Today, even while Germany and Japan face recession, magazines toast the US economy’s “superstar status”. Yet ask Americans if they feel better off, and many answer: no. 

For teachers, clerical workers, sales reps and the great bulk of US employees, whether white or blue collar, wages have flatlined for most of the past half century. Strip out inflation and average hourly earnings for 70% of 10 US employees have barely risen since Richard Nixon was in the White House. 

During his term as president, Biden has spent trillions on boosting the economy and adapting to the climate crisis, and has supported unions and intervened in strikes. To date, this has produced little impact, Americans are better off than they were four years ago, it’s just that many were in distress in 2020. 

Looking back to the 1980s, Reagan destroyed the unions (just as Thatcher did), Bill Clinton threw open their trade barriers, George Bush Jr dispatched their kids to fight and die abroad, Barack Obama bailed out Wall Street and Trump ran a glorified protection racket. Only in 2020 did real wages for “production and non-supervisory employees” rise above where they were in 1973. This was not because they were unproductive: the US economy continues to do more with less almost every year. It’s just that most of the gains from that have gone to the top.” 

Private equity is a classic example of how free markets have created an environment that benefits the few at the expense of the majority. 
 

‘Only in 2020 did real wages for “production and non-supervisory employees” rise above where they were in 1973’

 
Private equity exists to replicate and enlarge itself, not to build anything in particular. “Attention is not directed towards the common wealth, but enriching the management, buyout partners and their institutional backers,” Luke Johnson, the cofounder of British private equity firm Risk Capital Partners, wrote in 2012. “That is the nature of the game. To argue otherwise is bogus.” 

The last 40-yrs have produced a distorted set of values and benchmarks. 

In 2012, Marc Rowan, a cofounder and now the CEO of Apollo, wrote: “Traditionally, we are taught to judge the success of a society by how it deals with the least able, most vulnerable members of that society. Shouldn’t we judge a society by how they treat the most successful? Do we vilify, tax, expropriate and condemn those who have succeeded, or do we celebrate economic success as the engine that propels our society toward greater collective well-being?” 

Whilst he may well be more learned than me, he misses the fundamental point that favouring the most successful hasn’t created a greater collective well-being, it has only created greater inequality. 
 

‘favouring the most successful hasn’t created a greater collective well-being, it has only created greater inequality’

 
The victims, those left behind economically are giving-up on the establishment. In the UK, this manifested  itself in 2016 with Brexit and in the 2019 election. In the US there was the presidency of Trump. 

Today, in the current presidential election campaign Trump is playing the race card, giving the electorate someone to blame.  

In a recent speech he said: “I’m announcing today that, upon taking office, we will have an ‘Operation Aurora’ at the federal level to expedite the removals of these savage gangs.” He pledged to invoke the Alien Enemies Act, a 1798 law that allows the president to deport any non-citizen from a country that the US is at war with. 

“We will send elite squads of Ice [Immigration and Customs Enforcement], border patrol and federal law enforcement officers to hunt down, arrest and deport every last illegal alien gang member until there is not a single one left in this country,” he continued as the crowd roared approval. 

If they return to the US, Trump said, they will serve an automatic 10 years in prison without parole. “I’m hereby calling for the death penalty for any migrant that kills an American citizen or a law enforcement officer. With your vote, we will achieve complete and total victory over these sadistic monsters. It’s going to go very quickly”.  
 

‘Trump claimed undocumented immigrants were “poisoning the blood of our country”’

 
Authorities say that the local crime rate is actually declining. Aurora’s Republican mayor, Mike Coffman, called Trump’s claims “grossly exaggerated” and insisted: “The narrative is not accurate by any stretch of the imagination.” 

This dehumanising language is nothing new, previously which Trump claimed undocumented immigrants were “poisoning the blood of our country” and, earlier this week, suggested that those suspected in homicide cases “have bad genes”. 

Trump and his running mate, JD Vance, also have spread falsehoods about a community in Springfield, Ohio, where they said Haitian immigrants had been stealing and eating pets. The disinformation campaign led to bomb threats, school closures and forced evacuations. 

In the UK, far-right activists, Patriotic Alternative (“PA”),  are trying to raise funds for people jailed over their roles in the summer riots, describing them as “political prisoners”, in an attempt to generate support by giving money to their families. 

PA has been focusing much of its energies on a campaign around one of its leaders, Sam Melia, who was jailed for two years in March after he was found guilty of inciting racial hatred after a series of “stickering” incidents between 2019 and 2021. A judge described him as an antisemite with “Nazi sympathies”. 

Then there is Tommy Robinson, whose real name is Stephen Yaxley-Lennon, who is one of Britain’s most prominent far-right activists and was a co-founder of the now defunct English defense League, whose latest book, “Manifesto – Tommy Robinson’s NEW Book”, topped Amazons’ bestseller charts. 
 

‘“Manifesto – Tommy Robinson’s NEW Book”, topped Amazons’ bestseller charts’

 
The Tory party, in selecting their new leader, have shown that they are firmly part of the hard-right. In doing so, it has made my prediction that the party would splinter, which I made in 2016 in “Brexit: the never ending story”, look that much more accurate. 

MPs decision to select Kemi Badenoch or Robert Jenrick, led one Conservative centrist to describe the party’s position as “bleak”. The Tory Reform Group (“TRG”), which represents many one nation Conservatives, has said it will not endorse either Badenoch or Jenrick. 

A TRG spokesman said: “Both have used rhetoric and focused on issues which are far and away from the party at its best,” adding that the group had also been “consistently disappointed by the lack of engagement from the two candidates chosen by MPs”.  

To stop hard-right politicians, mainstream parties need to take back the narrative by stemming the growth of inequality. Within this economic policy needs to change its growth orientated focus and start to consider the wider picture, I.E., is the average person better off. 

Since 1980 the rich have been allowed to project ideas that support their interests, notably by reframing political language to praise “wealth creators”.  
 

‘To stop hard-right politicians, mainstream parties need to take back the narrative by stemming the growth of inequality’

 
In Britain, the grossly unfair distribution of power allows the 3,000 individuals in private equity to lobby against labor’s plan to make them pay their fair share in tax.  

On paper, Britain’s tax system seems relatively progressive, with a headline rate of 47% for those earning over £3m. In reality, nearly a quarter of this ultra-wealthy group pays less than 12% in taxes. 

The true scale of income inequality in the UK has been obscured by the methods the wealthy use to generate income. Current measurements exclude the capital gains from selling or shutting down businesses – one of the primary ways the rich earn money and benefit from lower tax rates. A 2020 study found that the top 1%’s share of total income had stayed steady at 14% since 1997. However, when capital gains were included, that figure rose to 17%, with the bulk of the increase concentrated among the ultra-wealthy. 

The Institute for Fiscal Studies highlighted how the current tax system discourages investment, undermines productivity, and ultimately makes the country poorer. The Centre for Analysis of Taxation has proposed aligning capital gains tax rates with income tax rates, introducing allowances to incentivise productive investment, taxing the increase in an asset’s value when it is inherited, and implementing an exit tax (common in major economies) to prevent individuals from dodging British taxes on gains made while residing in the UK. In total the package would raise £14bn. 
 

‘If we are to build a fairer and more productive economy, taxing the rich is essential to achieving that goal’

 
Capital gains tax has become the personification of inequality. The top 5,000 taxpayers account for over half of the taxable gains, receiving an average of nearly £7m each. In fact, the benefits per capita are four times higher in London compared with poorer UK regions.  

If we are to build a fairer and more productive economy, taxing the rich is essential to achieving that goal. If we achieve that we will silence the hard-right. 
 

“Shelter line stretching around the corner 
Welcome to the new world order 
Families sleeping in the cars in the southwest 
No home, no job, no peace, no rest 

 
An excellent follow up to last week’s column, and a very clear message that we need to learn the lessons of history; inequality leads to poverty, poverty heralds in fascism/populism – you pays your money and takes your choice, but to mangle my Shakespeare, a rose by any other name would smell as fetid.

Inequality and the return to 1930’s politics have been pillars of this column in all its guises, and here Philip does an excellent job in highlighting the threats, and reminds us that this is a gong he’s been banging for a large number of years:

‘In the promised follow-up to “Left Behind, Inequality, and Why it Matters”, I have looked back to the rise of fascism after WW1 and tried to draw parallels with today.

The causes have similarities, post-WW1 it was the hyper-inflation of the mid-1920s, which was followed in 1929 by the Wall St Crash and the Great Depression.

Today, the lightning rod was the GFC of 2008, the economic stagnation, and finally the pandemic that followed. Whilst, they are obvious causes, with the exception of the pandemic, they were merely proof that things weren’t right. The real culprit has been the neoliberal experiment that began in 1980. This was the catalyst that caused inequality to increase.

In both instances, the electorate lost their belief in mainstream politicians and parties, and turned to radical right-wing politics. Then it was called fascism, today they prefer populist, but, if it walks like a duck, quacks like a duck then it probably is….

What propelled fascists to power post-WW1 is being echoed today. Blaming migrants, championing the nation state, selling people the myth of a return to former glories.

None of this was people’s real gripe post-WW1, just as it isn’t today. The real issue was that people were worse off economically. If people feel prosperous and able to live well, they are happy.

To achieve this, inequality has to become a thing of the past. As part of this, governments will need to turn away from neoliberalism and return to Keynesianism; a bigger state, increased government spending. To do this requires money, the obvious answer is to tax those who can pay but have decided not to.

Lyrically, we look to the modern godfather of political songs with “Between the Wars” by Billy Bragg. We finish with the boss; “The Ghost of Tom Joad” by Bruce Springsteen.

Enjoy!

Philip.’

 
@coldwarsteve
 


 

Philip Gilbert 2Philip Gilbert is a city-based corporate financier, and former investment banker.

Philip is a great believer in meritocracy, and in the belief that if you want something enough you can make it happen. These beliefs were formed in his formative years, of the late 1970s and 80s

 

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