Robert Reich

President Obama continues his economic tour today (Wednesday) with stops in Des Moines, Iowa, and Richmond, Va. In Des Moines he hosts a backyard discussion on the challenges currently facing the middle class with approximately 70 neighbors from the area, according to the White House. Here’s an imagined version of that discussion:

OBAMA: Thanks so much for joining me. I know many of you are hurting and angry about the economy, and I don’t blame you. It’s the worst economy since the Great Depression. When consumers can’t buy and businesses won’t expand for lack of customers, government has to be the purchaser and employer of last resort. We learned that in the Great Depression, but Republicans obviously didn’t — and they’ve blocked every jobs program I’ve offered.

NEIGHBOR: Why don’t you have a showdown with them? Let them filibuster a jobs bill and show which side you’re on and which side they’re on?

OBAMA: That’s just Washington at its worst. More deadlock. I can’t even get Republicans to agree to extend the Bush tax cuts for 98 percent of Americans. They’re threatening to block it unless I agree to extend the tax cut for the top 2 percent. Can you believe it? The top 2 percent got the lion’s share of the Bush tax cuts in 2001 and 2003, and if we extended it just one more year for them they’d get a windfall of $36 billion they never had any right to expect. Millionaire families would get $31 billion next year. That’s money I’d rather use saving the jobs of teachers and fire fighters — people who protect our communities and who need the jobs and would spend the money rather than just putting it away.

NEIGHBOR: Why don’t you have a showdown with them? Let them try to block the middle-class tax cut for 98 percent because they want to give it to the top 2 percent, and show which side you’re on and they’re on?  

OBAMA: That’s would be just more of the same old Washington, and I promised to bring change to Washington. Let me tell you, the underlying reason for the economic mess we’re in has been building for years. It’s a fundamental imbalance in which the top 1 percent now gets almost a quarter of all national income. We haven’t seen income and wealth this concentrated since the late 1920s, and we all know what happened then — the Great Depression. We’ll never really get out of the gravitational pull of the Great Recession until we fix this basic problem. Health care reform was a small step forward, but the Republicans won’t let me do anything else. I’d like to help struggling homeowners who can’t pay their mortgages, I’d like to invest in our crumbling infrastructure, I’d like to reform the tax system so multimillionaires can’t pretend their earnings are capital gains and pay at the rate of 15 percent. I’d like to exempt the first $20,000 of income from the payroll tax and make it up by applying payroll taxes to incomes over $250,000. I’d like to make public higher education free, and pay for it with a small transfer tax on all financial transactions. I’d like to do much more — a new new deal for Americans. But Republicans are blocking me at every point.

NEIGHBOR: Why don’t you have a showdown with them? Make restoring the broad middle and working class of American into a national campaign. Let them try to block these reforms and show which side you’re on and which side they’re on?

OBAMA: That’s just Washington gridlock. I promised change. In any event, I’m afraid it’s too late. Congress is going home soon. All we have left is the midterm elections and then a lame duck session. Republicans may take over the House and take more seats in the Senate in November, and then I won’t be able to do much of anything.

NEIGHBOR: If they do make gains in the midterm, it will be more important than ever for you to show which side you’re on and which side they’re on. Then at least you have a fighting chance of mobilizing Americans behind you. Otherwise this aftershock of a recession will go on for years, demagogues will prey on the public’s anxiety to foment even more anger and resentment, you’ll lose in 2012, and we’ll have an even more hateful politics.

OBAMA (blinking, momentarily unsteady, stuttering): You … You’re …  right! You’re … absolutely right! I hadn’t understood until this very moment! Thank you! Thank you! (Everyone cheers.) We’re gonna fight! We’re going to really take them on! That’s the only way to make real change! I finally get it! (More cheers.)

NEIGHBOR: Any while you’re at it, read Robert Reich’s latest book, AFTERSHOCK. It explains it all. Here’s a copy.

John Boehner, the Republican House leader who will become Speaker if Democrats lose control of the House in the upcoming midterms, recently offered his solution to the current economic crisis: “Liquidate labor, liquidate stocks, liquidate the farmer, liquidate real estate. It will purge the rottenness out of the system. People will work harder, lead a more moral life.”

Actually, those weren’t Boehner’s words. They were uttered by Herbert Hoover’s treasury secretary, millionaire industrialist Andrew Mellon, after the Great Crash of 1929.

But they might as well have been Boehner’s because Hoover’s and Mellon’s means of purging the rottenness was by doing exactly what Boehner and his colleagues are now calling for: shrink government, cut the federal deficit, reduce the national debt, and balance the budget.

And we all know what happened after 1929, at least until FDR reversed course.

Boehner and other Republicans would even like to roll back the New Deal and get rid of Barack Obama’s smaller deal health-care law.

The issue isn’t just economic. We’re back to tough love. The basic idea is force people to live with the consequences of whatever happens to them.

In the late 19th century it was called Social Darwinism. Only the fittest should survive, and any effort to save the less fit will undermine the moral fiber of society.

Republicans have wanted to destroy Social Security since it was invented in 1935 by my predecessor as labor secretary, the great Frances Perkins. Remember George W. Bush’s proposal to privatize it? Had America agreed with him, millions of retirees would have been impoverished in 2008 when the stock market imploded.

Of course Republicans don’t talk openly about destroying Social Security, because it’s so popular. The new Republican “pledge” promises only to put it on a “fiscally responsible footing.” Translated: we’ll privatize it.  

Look, I used to be a trustee of the Social Security trust fund. Believe me when I tell you Social Security is basically okay. It may need a little fine tuning but I guarantee you’ll receive your Social Security check by the time you retire even if that’s forty years from now.

Medicare, on the other hand, is a huge problem and its projected deficits are truly scary. But that’s partly because George W. Bush created a new drug benefit that’s hugely profitable for Big Pharma (something the Republican pledge conspicuously fails to address). The underlying problem, though, is health-care costs are soaring.

Repealing the new health-care legislation would cause health-care costs to rise even faster. In extending coverage, it allows 30 million Americans to get preventive care. Take it away and they’ll end up in far more expensive emergency rooms.

The new law could help control rising health costs. It calls for medical “exchange” that will give people valuable information about health costs and benefits. The public should know certain expensive procedures only pad the paychecks of specialists while driving up the costs of insurance policies that offer them.

Republicans also hate unemployment insurance. They’ve voted against every extension because, they say, it coddles the unemployed and keeps them from taking available jobs.

That’s absurd. There are still 5 job seekers for every job opening, and unemployment insurance in most states pays only a small fraction of the full-time wage.

Social insurance is fundamental to a civil society. It’s also good economics because it puts money in peoples’ pockets who then turn around and buy the things that others produce, thereby keeping those others in jobs.

We’ve fallen into the bad habit of calling these programs “entitlements,” which sounds morally suspect – as if a more responsible public wouldn’t depend on them. If the Great Recession has taught us anything, it should be that.anyone can take a fall through no fault of their own.

Finally, like Hoover and Mellon, Republicans want to cut the deficit and balance the budget at a time when a large portion of the workforce is idle.

This defies economic logic. When consumers aren’t spending, businesses aren’t investing and exports can’t possibly fill the gap, and when state governments are slashing their budgets, the federal government has to spend more. Otherwise, the Great Recession will turn into exactly what Hoover and Mellon ushered in – a seemingly endless Great Depression.

It’s also cruel. Cutting the deficit and balancing the budget any time soon will subject tens of millions of American families to unnecessary hardship and throw even more into poverty.

Herbert Hoover and Andrew Mellon thought their economic policies would purge the rottenness out of the system and lead to a more moral life. Instead, it purged morality out of the system and lead to a more rotten life for millions of Americans.

And that’s exactly what Republicans are offering yet again.

The super-rich got even wealthier this year, and yet most of them are paying even fewer taxes to support the education, job training, and job creation of the rest of us. According to Forbes magazine’s annual survey, just released, the combined net worth of the 400 richest Americans climbed 8% this year, to $1.37 trillion. Wealth rose for 217 members of the list, while 85 saw a decline.

For example, Charles and David Koch, the energy magnates who are pouring vast sums of money into Republican coffers and sponsoring tea partiers all over America, each gained $5.5 billion of wealth over the past year. Each is now worth $21.5 billion.

Wall Street continued to dominate the list; 109 of the richest 400 are in finance or investments.

From another survey we learn that the 25 top hedge-fund managers got an average of $1 billion each, but paid an average of 17 percent in taxes (because so much of their income is considered capital gains, taxed at 15 percent thanks to the Bush tax cuts).

The rest of America got poorer, of course. The number in poverty rose to a post-war high. The median wage continues to deteriorate. And some 20 million Americans don’t have work. 

Only twice before in American history has so much been held by so few, and the gap between them and the great majority been a chasm — the late 1920s, and the era of the robber barons in the 1880s. 

And yet the Bush tax cuts of 2001 and 2003, which conferred almost all their benefits on the rich, continue.

Democrats have decided to delay voting on whether to extend them for the top 2 percent of Americans or for the bottom 98 percent until after the mid-term elections. 

Democrats have thereby given up a defining issue that could have enabled them to show the big story of the last three decades — the accumulation of almost all the gain from economic growth at the top — and to make a start at reversing it. 

When will they ever learn? 

General Motors has given $90,500 to candidates in the current election cycle, according to the Federal Election Commission.

Hmmm? Last time I looked, you and I and every other U.S. taxpayer owned a majority of GM. That means some of the money we’re earning as GM owners is being used to influence how we vote in the upcoming mid-term election.

To put it another way, we taxpayers are paying some people (GM executives) to tell us how we should vote for another group of people (House and Senate candidates) who will decide how our taxes will be used in the future.  

GM spokesman Greg Martin justifies the expenditure as a competitive necessity. “We’re not going to sit on the sidelines as our competitors and other industries who have PACS are participating in the political process,” he told the Wall Street Journal.

In other words, now that we taxpayers own GM, it’s in our interest that GM use our money to affect how we vote, lest we mistakenly decide to support candidates who, once in office, enact legislation that helps GM’s competitors and not GM.

Wait a moment. I smell hypocrisy. Didn’t we help GM (and Chrysler) with a big bailout, and not help competitors Ford, Nissan, Honda, or Toyota or any other automaker that builds cars in the U.S.? 

Moreover, the circularity of GM’s logic leads to some strange places. It would presumably allow any big corporation to get tax deductions (in effect, tax subsidies from the rest of us) for outlays for lobbyists, political ads, and political donations to members of congress – so long as these expenditures help the company relative to its competitors.

Problem is, the tax laws don’t allow this.

Nor does the law allow taxpayer-supported entities to use taxpayer dollars to influence elections. And yet this is exactly what GM is doing. 

Since TARP, suspicions about big government in cahoots with big business have fueled angry tea partiers on the right and despairing cynics on the left. GM’s crass disregard for the spirit if not the letter of the law continues to fuel them.   

Fiscal policy is deadlocked. So, apparently, is monetary policy. 

The Fed’s decision today (Tuesday) to keep short-term interest rates near zero is no surprise. What’s odd is its apparent decision not to boost the economy by buying hundreds of billions of bonds — despite its acknowledgment that ”the pace of recovery in output and employment has slowed in recent months,” and that prices are rising too slowly for comfort (i.e., we might be facing deflation). 

Every indicator suggests third-quarter growth will be as slow if not slower than in the second quarter. Consumer confidence is down. Retail sales are down. Housing sales are down. Commercial real estate is in trouble.

A growth rate of 1.6 percent means even higher unemployment ahead. Maybe we’re not in a double-dip but we might as well be in one. Growth this slow is the equivalent of heading downward, relative to the growth needed to get us out of the hole we’re in. 

The Fed is deadlocked because it harbors hawks who worry near-zero interest rates will lead to another round of speculation, ending in an even bigger bust. Kansas City Fed President Thomas Hoenig, for example, is openly dissenting from the Fed’s near-zero policy and I’m sure he resists doing anything more to stimulate borrowing. 

I don’t generally side with the hawks but they have a point.

Even though economy is heading downward, flooding it with more money may not help. 

The problem isn’t the cost of capital. Most businesses can get all the money they need. Big ones are still sitting on $1.8 trillion in cash.

The problem is consumers, who are 70 percent of the economy. They can’t and won’t buy enough to turn the economy around. Most don’t qualify for more credit given how much they already owe (or have already defaulted on).

Without consumers, businesses have no reason to borrow more. Except to speculate by buying back their own stock and doing mergers and acquisitions, which is exactly what they’re doing. 

Ultimately, even if fiscal and monetary policy weren’t deadlocked, we’d still face the same conundrum. Say the White House and Ben Bernanke got everything they wanted to boost the economy. At some point these boosts would have to end. The economy would have to be able to run on its own. 

But it can’t run on its own because consumers have reached the end of their ropes.

After three decades of flat wages during which almost all the gains of growth have gone to the very top, the middle class no longer has the buying power to keep the economy going. It can’t send more spouses into paid work, can’t work more hours, can’t borrow any more. All the coping mechanisms are exhausted. 

Anyone who thinks China will get us out of this fix and make up for the shortfall in demand is blind to reality. 

So what’s the answer? Reorganizing the economy to make sure the vast middle class has a larger share of its benefits. Remaking the basic bargain linking pay to per-capita productivity. 

Let me end with a brief commercial. My new book, “Aftershock: The Next Economy and America’s Future” is out today. In it, I explain this in detail. 

Why is there an enthusiasm gap? Let me illustrate. 

Today (Monday) at a “town hall” sponsored by CNBC in Washington, the President took questions about the economy. When a hedge-fund manager complained that Wall Street executives “feel like we’ve been whacked with a stick” by the administration, Obama said most of his critics think he’s been too soft on the Street.

He noted he still hasn’t been able to end the practice of taxing some hedge fund and private-equity earnings at the capital-gains rates rather than the higher income-tax rates. “The notion that somehow me saying maybe you should be taxed more like your secretary when you’re pulling home a billion dollars…a year I don’t think is me being extremist or anti-business.”

Good as far as he went. But that’s as far as he was willing to go. It was a golden opportunity for Obama to connect the dots — to make the case that

(1) super-rich financiers on Wall Street and top corporate executives have grown even richer than they were before the Great Recession, even though most Americans are getting poorer or losing their jobs and homes and savings, and more Americans are in poverty.

(2) Yet the lobbyists for the financiers and top corporate executives, and their Republican allies have blocked or tried to block every effort of the Administration to widen the circle of prosperity, including enacting a major jobs program, providing major relief for mortgage holders who are under water, helping working families afford college for their kids, making sure states and cities have enough money to pay our classroom teachers, and cutting taxes on average working people.

(3) They almost scuttled the effort to make sure health care would be affordable to average Americans.

(4) The super-rich say the nation can’t afford any of this because of budget deficits. Yet at the same time their platoons of lobbyists are fighting off efforts to treat their income as taxable earnings rather than capital gains. So last year the 400 richest families in America, with an average income of $300 million each, were taxed at an average rate of only 17 percent. That’s the same tax rate paid by a family earning $30,000. 

(5) And they’re fighting off efforts to end the temporary Bush tax cuts. If they’re successful, the richest 1 percent of Americans will get a windfall of $36 billion next year. Millionaire families will avoid paying $31 billion in taxes. Over ten years, they’d avoid paying $700 billion.  

(6) And they’re fighting off efforts to restore the estate tax, which only applies to the top 2 percent of Americans, and which has been in effect since Abraham Lincoln introduced it to help finance the Civil War. How do we afford national defense if the richest and most privileged Americans won’t pay their fair share?

(7) Wealth and power in this country are so distorted that the top 25 hedge-fund managers each earned an average of $1 billion last year. $1 billion would support 20,000 classroom teachers. Yet who contributes more to this country — a hedge-fund manager or a teacher? 

But he didn’t.

Instead, he challenged tea-party activists to come up with specific spending cuts. “It’s not enough just to say, ‘Get control of spending.’ I think it’s important for you to say, you know, I’m willing to cut veterans’ benefits, or I’m willing to cut Medicare or Social Security benefits, or I’m willing to see taxes go up.”

Who deserves a tax cut more: the top 2 percent — whose wages and benefits are higher than ever, and among whose ranks are the CEOs and Wall Street mavens whose antics have sliced jobs and wages and nearly destroyed the American economy — or the rest of us?

Not a bad issue for Democrats to run on this fall, or in 2012.

Republicans are hell bent on demanding an extension of the Bush tax cut for their patrons at the top, or else they’ll pull the plug on tax cuts for the middle class. This is a gift for the Democrats.

But before this can be a defining election issue in the midterms, Democrats have to bring it to a vote. And they’ve got to do it in the next few weeks, not wait until a lame-duck session after Election Day.

Plus, they have to stick together (Ben Nelson, are you hearing me? House blue-dogs, do you read me? Peter Orszag, will you get some sense?)

Not only is this smart politics. It’s smart economics.

The rich spend a far smaller portion of their money than anyone else because, hey, they’re rich. That means continuing the Bush tax cut for them wouldn’t stimulate much demand or create many jobs.

But it would blow a giant hole in the budget — $36 billion next year, $700 billion over ten years. Millionaire households would get a windfall of $31 billion next year alone.

And the Republican charge that restoring the Clinton tax rates for the rich would hurt the economy — because it would reduce the “incentives” of the rich (including the richest small business owners) to create jobs — is ludicrous.

Under Bill Clinton and his tax rates, the economy roared. It created 22 million jobs.

By contrast, during George Bush’s 8 years, commencing with his big 2001 tax cut, the economy created only 8 million jobs. And as the new Census data show, nothing trickled down. In fact, the middle class families did far worse after the Bush tax cut. Between 2001 and 2007 — even before we were plunged into the Great Recession — the median wage dropped.

It’s an issue that could also be used to expose the giant chasm that’s opened between the rich and everyone else — aided and abetted by Republican policies. As I’ve noted before, in the late 1970s, the top 1 percent got 9 percent of total national income. By 2007, the top 1 percent got almost a quarter of total national income.

These figures don’t even count in taxes. The $1.3 trillion Bush tax cut of 2001 was a huge windfall for people earning over $500,000 a year. They got about 40 percent of its benefits. The Bush tax cut of 2003 was even better for high rollers. Those with net incomes of about $1 million got an average tax cut of $90,000 a year. Yet taxes on the typical middle-income family dropped just $217. Many lower-income families, who still paid payroll taxes, got nothing back at all.

And, again, nothing trickled down.

As I’ve emphasized, the U.S. economy has suffered mightily from the middle class’s lack of purchasing power, while most of the economic gains have gone to the top. (The crisis was masked for years by women moving into paid work, everyone working longer hours, and, more recently, the middle class going into deep debt — but all those coping mechanisms are now exhausted.) The great challenge ahead is to widen the circle of prosperity so the middle class once again has the capacity to keep the economy going.

In other words, this is the right issue. It’s the right time. It allows Democrats to explain what the Bush tax cuts really did, why supply-side economics is bogus, and the economic challenge ahead.

Even if Democrats feel they have to respond to the Republican charge that taxes shouldn’t be raised on anyone when the employment rate is 9.6 percent, they have a powerful fallback: Extend the Bush tax cuts for everyone through 2011, then end them for the rich while making them permanent for the middle class.

Get it, Democrats? Please don’t blow it this time.

Three economic reports today (Friday) that should sound warning bells about deflation.

1. The Labor Department reports that consumer prices are essentially flat. Compared to August 2009, prices are up 1.1%. That’s only slightly lower than the 1.2% year-on-year rise in July. Excluding volatile food and energy, however, consumer prices in August were 0.9% higher than a year earlier. That’s below the Fed’s informal inflation target of between 1.5% and 2.0%.

2. In a separate report, the Labor Department said real average weekly earnings were unchanged in August from July, as both the average work week and hourly earnings were flat.

3. The Thomson Reuters/University of Michigan September reading of consumer confidence shows consumers more pessimistic in September than in August. In fact, consumer sentiment is the lowest since August 2009.

Put the three together and you have what could be a recipe for deflation: Flat consumer prices, weekly earnings, and hours, coupled with increased pessimism about where the economy is heading.

Consumers aren’t buying. They’re acting rationally. Their debt load is still huge, they’re worried about keeping their jobs, they know they have to tighten belts, and they’re justifiably worried about the future.

But for the nation as a whole, it spells even more trouble. If consumers hold back even more, prices will start dropping. When and if they do, consumers will hold back even more in anticipation of still lower prices. That means more layoffs and less hiring.

It’s a vicious cycle. And once deflation sets in, it’s hard to reverse. Just ask Japan.

After the victories of many of the insurgent primary candidates she’s sponsored, Sarah Palin is off to Iowa today (Friday) for a high-profile series of political events. Is it possible she’s looking to make a run in 2012? Do birds fly?

Republicans are being fueled by a so-called “enthusiasm gap” but their biggest worry leading up to the midterms should be the “crackpot gap.”

In Delaware, Palin-endorsed tea partier Christine O’Donnell is so far right she’s called “delusional” by Delaware’s GOP leader. In Kentucky, Palin-favored Rand Paul says the Civil Rights Act of 1964 shouldn’t apply to businesses. In Colorado, tea partier Ken Buck talks of getting rid of the 17th amendment, which provides for the direct election of senators. In Nevada, Palin-favored Sharon Angle has called for “2nd Amendment remedies” if Congress doesn’t change hands.

Many Americans these days don’t like Congress and are cynical about government. The lousy economy has made almost all incumbents targets of the public’s anger and anxiety. 

But if there’s one thing Americans like even less it’s people pretending to be legitimate politicians whose views are so far removed from those of ordinary Americans that they pose a danger to our system of governance.

In the latest Wall Street Journal/NBC News poll, a third of undecided voters had a negative view of the tea party movement. 13 percent of those who said they prefer Republicans to win control of Congress this fall also reported a negative view of the tea-partiers.

The latest CBS poll shows that 40 percent of voters viewed Sarah Palin negatively in August; today, 46 percent do.

When Newt Gingrich, who has all but declared his candidacy for president in 2012, says President Obama exhibits “Kenyan anti-colonial” behavior, and that allowing an Islamic center near New York’s Ground Zero is tantamount to permitting Nazi’s near the Holocost Museum, he doesn’t sound like an ordinary American. He sounds like a hate-mongering crackpot.

We’re not dealing with “extremism in defense of liberty,” as Barry Goldwater put it in 1964 (and even then, a large majority of Americans decided against him). We’re dealing with extremism that defies the principles undergirding our Constitution.

Some Democrats think all this is wonderful because it boosts the odds of Democratic wins, not only in the midterms but also in 2012 when the Republicans put up Palin, Gingrich, or someone equally bizarre. Even voters who are are unenthusiastic about Democrats will be motivated to turn out if they fear that crackpots will otherwise take over our government.

I’m not as sanguine about what’s happening. Political discourse in America is important. What candidates say can legitimize hateful or divisive views that would otherwise never see the light of day.

We’re in the midst of an ongoing economic emergency that requires clear thinking, intense work, and practical ideas. It also requires that we join together rather than be pushed apart. The loonies who are taking over the GOP pose a real and present danger.

With unemployment in the stratosphere and the midterm elections weeks away, politicians naturally want to show voters they’re committed to getting jobs back.

So now they’re getting tough on China.

But it’s a dangerous ploy based on wishful thinking.

Treasury Secretary Tim Geithner told the Senate Banking Committee Thursday the Administration is “examining the important question of what mix of tools, those available to the United States and multilateral approaches, might help encourage the Chinese authorities to move more quickly.” Translated: We’re on the verge of threatening them with trade sanctions.

Even this didn’t satisfy the Senators. Charles Schumer (D-New York) charged that trade with China “diminishes America, our standard of living here in America, and America as a world power.” Richard Shelby (R-Ala) demanded to know why “the administration protecting China by refusing to designate it as a currency manipulator” – a designation that could lead to trade sanctions.

On Wednesday the U.S. filed a pair of complaints against China with the World Trade Organization, alleging China was unfairly denying American companies access to its market. Meanwhile, several Democrats facing elections in November are introducing measures that would allow companies to pursue sanctions against China for manipulating its currency.

It’s true China has kept the value of its currency artificially low relative to the dollar. If China allowed its currency to rise, Chinese exports would become more expensive to us and our exports would be relatively cheaper to them. This would help shrink the trade imbalance.

It’s also true China has dragged its feet. In June, the U.S. stopped short of branding China a currency manipulator after China promised to reform its ways. But since then China’s currency has risen just 1 percent relative to the dollar.

America’s trade imbalance with China is growing. In the first half of this year, China exported $119 billion more goods and services to us than we did to them – putting the two nations on course to exceed last year’s $227 billion trade gap.

But it’s naive to assume all we have to do to get Chinese to do what we want is to threaten them with tariffs.

First, they might retaliate. Remember, China is the biggest foreign investor in U.S. Treasury securities, with holdings of more than $843 billion. If China were to start selling off large amounts, America’s borrowing costs would soar – and we’d end up worse off.

Second, it’s already costly to China to keep its currency artificially low – requiring that China buy loads of dollars. So why would anyone suppose that making it more expensive for them would bring China around?

China has been willing to bear this huge cost because its export policy doubles as a social policy, designed to maintain order.

Each year, tens of millions of poor Chinese stream into China’s large cities from the countryside in pursuit of better-paying work. If they don’t find it, China risks riots and other upheaval. Massive disorder is one of the greatest risks facing China’s governing elite. That elite would much rather create jobs than allow its currency to rise substantially and thereby risk job shortages at home.

Third, even if China did allow its currency to rise against the dollar, there’s no reason to think this would automatically generate lots more American jobs.

American exports would become cheaper to Chinese consumers. But Japan, Germany, and other major exporters would also demand a piece of the action. Unemployment is high in all developed nations, and every government is under pressure to create more jobs.

Meanwhile, Chinese manufacturers – whose goods would suddenly become more expensive to American consumers – could simply shift their production to other nations with lower currencies. Indeed, as Chinese wages have begun to rise, Chinese manufacturers have already started to shift production to Vietnam, Indonesia, and other low-wage outposts of Southeast Asia.

What worries me most about all this tough talk about China is it diverts attention from the real problem. American isn’t suffering high unemployment because we’re buying too much from China and not selling them enough. Trade with China is a small portion of the U.S. economy.

Twenty million Americans lack jobs because American consumers – especially America’s vast middle class – can no longer spend what’s necessary to keep nearly everyone employed.

After three decades of stagnant middle-class wages, during which almost all the economic gains have gone to the top, we’ve finally reached a day of reckoning. The middle class can no longer borrow vast sums by using their homes as ATMs. They can’t squeeze more working hours out of two wage earners. And they have to start saving for retirement.

The central challenge we face isn’t to rebalance trade with China. It’s to rebalance the American economy so its benefits are more widely shared.

To the extent you’d like to hear me flog my new book “Aftershock: The Next Economy and America’s Future” or even go so far as to buy a copy and have me sign it, here’s where I’ll be and where. (The road trip is a work in progress.)

September 21, NEW YORK, 7 pm: Barnes & Noble, Upper East Side, 150 East 86^th Street (between Lexington and Third Avenues).

September 22, WASHINGTON, 7 pm: Politics & Prose, 5015 Connecticut Avenue.

September 23, NEW YORK, 7 pm: The Strand, 828 Broadway (at 12^th Street).

September 24, CAMBRIDGE, MA, 6 pm: Brattle Theater, 40 Brattle Street.

September 27, PORTLAND, Ore., 7 pm, First Congregational Church, 1126 Southwest Park Avenue.

September 28, SAN FRANCISCO, 6 pm: Commonwealth Club, Fairmont Hotel, 950 Mason Street.

September 29, LOS ANGELES, 8 pm: LiveTalks LA. Zipper Concert Hall,Colburn School, 200 South Grand Avenue.

September 30, PASADENA, CA, 7:45 AM: Drucker Business Forum, at KPCC-FM, 474 South Raymond Avenue, Pasadena.

October 1, SAN RAFAEL, CA, 7 pm: Dominican University’s Angelico Hall, 50 Acacia Avenue, San Rafael.

October 4, BERKELEY, CA, 7:30 pm: First Congressional Church of Berkeley, 2345 Channing Way.

October 5, SEATTLE, 7:30 pm: Seattle Town Hall, in the Great Hall, 119 Eighth Avenue (at Seneca Street).

October 7, CHICAGO 6 pm: Chicago Council on Global Affairs, 332 S. Michigan Ave.

October 12, HOUSTON, 5 pm: Baker Institute, Rice University, 6100 Main Street.

Newt Gingrich is saying if Republicans win back control of Congress and reach a budget impasse with the President, they should shut down the government again. GOP pollster Dick Morris is echoing those sentiments, as is Rep. Lynn Westmoreland (R. Ga), and Alaska GOP Senate candidate Joe Miller.

I am continuously amazed at the GOP’s ability to snatch defeat out of the jaws of potential victory. It is the gift that keeps giving.

I was there November 14, 1995 when Newt Gingrich pulled the plug on the federal government the first time. It proved to be the stupidest political move in recent history. Not only did it help Bill Clinton win reelection but it was a boon to almost all other Democrats in 1996 (Gingrich’s photo was widely used in negative ads), and the move damaged Republicans for years.

Gingrich hurt his cause by complaining that Bill Clinton had put him in the back of Air Force One on a trip that occurred about the same time. Republican lore has it that it was this babyish behavior rather than the shutdown itself that caused the public to side with Clinton in the game of chicken Gingrich launched over the budget. Undoubtedly Gingrich’s whining didn’t help, but it was his cavalier attitude toward government itself that was the defining issue. Gingrich was the one who first bragged he’d shut down the government if Clinton didn’t agree to what the Republicans wanted.

Now, remarkably, Gingrich is back at it.

Dick Armey says it’s “premature” to talk about doing any such thing. What Armey means is if the public sees Republicans already plotting a shutdown, they’ll react even more angrily than they did fifteen years ago.

Americans may be cynical about government but we’re proud of our system of governance. And we don’t want it to be used as a political pawn in partisan power games. That’s what Republicans forget time and again. They dislike government so much they don’t see the difference between government as a bureaucracy and democratic governance as a cherished system.

The framers of the Constitution developed checks and balances to assure one branch didn’t accumulate too much power. But they never contemplated that one party could shut down the entire governmental system if it didn’t get what it wanted.

Some giant American corporations depend on a buoyant American economy and a world-class industrial base in the United States. Others are far less dependent. What comes out of Washington in the next few years will reflect which group has most political clout — especially if Republicans take over the House and capture more of the Senate this November.

The first group includes national telecoms like Verizon and AT&T that need a prosperous America because most of their sales are here. Same with finance companies like Bank of America and Travelers Insurance whose business strategy has been built around U.S. consumers. Ditto certain giant chains like Home Depot. Naturally, all these companies were especially hard hit by the Great Depression and its devastating impact on American consumers.

The second group includes companies like Coca Cola, Exxon-Mobil, Hewlett-Packard, Intel, and McDonalds, that get substantial revenues from their overseas operations. Increasingly this means China, India, and Brazil. Ford and GM are still largely dependent on US sales but becoming less so. GM sold more cars in China last year than in the US. Not surprisingly, American companies that are less dependent on American consumers have been showing the biggest profits. 

Wall Street gets this. Viewing the 30 giants that make up the Dow Jones Industrial Average, analysts are predicting that the 10 with the largest portion of sales inside the U.S. will show average revenue gains of just 1.6 percent over the next year, while the 10 with the largest portion of their sales abroad will grow by an average of 8.3 percent. 

So what does this mean for politics? Big companies hedge their bets and support both Republicans and Democrats. But in my experience, companies in the first group are more responsive to tax, spending, and monetary policies that cause unemployment to drop and wages to grow, and less obsessed by inflation and deficits, than are companies in the second group. The former are also more supportive of new investments in infrastructure and education, which improve U.S. productivity over the longer term. 

The problem is, more and more big companies are moving into the second category because that’s where the markets and the money are. Years ago groups like the Business Roundtable consisted mostly of large American corporations that were indubitably American, and took largely progressive positions on U.S. jobs and wages. I remember working with the National Association of Manufacturers on measures to improve U.S. education and job training. The American Electronics Association pushed the Reagan Administration for an industrial policy to preserve the nascent industrial base of U.S. computing. 

No longer. Large American corporations are going global as fast as they can. That’s good for their shareholders. But in a Washington ever more susceptible to their money and influence, that’s not necessarily good for most Americans.  

Word from the twelve Federal Reserve Banks, summarized in the Fed’s so-called ”Beige Book,” shows the economy slowing in July and August.

Duh.

But the Fed is quick to point out the economy overall is still growing — even though it’s growing more slowly than in the spring.

Can we have a moment of realism here, please?

In 2008 and 2009 the economy fell into the deepest hole it’s been in since the Great Depression. Since then we’ve been struggling to get out. We’re failing big time. 

After a typical recession, growth surges until the economy reemerges from whatever hole it fell into and returns to its normal growth path. Usually that surge isn’t difficult to accomplish once the upswing begins because all the assets the economy needs to get back to its old path are readily available — lots of people who have been laid off or have come into the job market and been unable to find work, unused office and retail space, factories and equipment that had been idled. After the economy returns to normal and almost all these people and physical assets are back to work, growth slows to its normal pace.  

But this time it’s not happening that way. More than two and a half years after the Great Recession began, many months after we hit bottom and when in a normal “recovery” we’d expect growth to surge, the opposite is happening. Growth is slowing. 

We may or may not fall into another hole, but a so-called “double dip” isn’t really the worry. The worry is we’re not getting out of the giant hole we fell into. Growth is slowing when it should be surging. Think of a tortoise trying to get out of a deep ravine, who’s just begun to scale the wall when he gets tired and goes to sleep.

As I keep saying, this isn’t your ordinary business cycle. But we’re debating fiscal policy as if it were. 

Democrats and Republicans are battling over whether the Bush tax cuts should be extended to the richest 2.7 percent of Americans next year. They shouldn’t be, of course. The rich don’t spend nearly as much of their incomes as everyone else, and the $36 billion windfall they’d otherwise get could be better spent saving the jobs of teachers, fire fighters, and police officers who do spend almost all their incomes. 

Yet even if Democrats win this one, the tortoise might wake up and move several inches up the wall before falling asleep again. Even if Congress were to go further and enact Obama’s $50 billion infrastructure bank — another proposal in the right direction — the tortoise might move another few inches. 

The underlying problem is structural, not cyclical. There will be no return to normal because normal got us into the hole in the first place. And the normal kind of prescriptions can’t possibly get us out. Until the economy is restructured so more Americans share in its gains, the economy won’t make many gains. We’ll be forever trying to scale a wall that can’t be, because the vast majority of Americans lack the purchasing power to move upward. 

If you’ll permit me a commercial, I explain all this in detail — as well as what must be done — in AFTERSHOCK: The Next Economy and America’s Future, which will be out in two weeks from Knopf. 

President Obama reportedly will propose two big corporate tax cuts this week.

One would expand and make permanent the research and experimentation tax credit, at a cost of about $100 billion over the next ten years. The other would allow companies to write off 100 percent of their new investments in plant and equipment between now and the end of 2011 at a cost next year of substantially more than $100 billion (but a ten-year cost of about $30 billion since those write-offs wouldn’t be taken over the longer-term).

The economy needs two whopping corporate tax cuts right now as much as someone with a serious heart condition needs Botox. 

The reason businesses aren’t investing in new plant and equipment has nothing to do with the cost of capital. It’s because they don’t need the additional capacity. There isn’t enough demand for their goods and services to justify it. Consumers aren’t buying because they’re trying to come out from under a huge debt load, including mortgage debt; they have to start saving because their nest eggs are worth substantially less; and they’ve lost or are worried about losing jobs and pay.

In any event, small businesses don’t have enough profits against which to use these tax credits and deductions, and large corporations are sitting on over a trillion dollars of profits and don’t need them.

Republicans and corporate lobbyists have been demanding tax cuts on corporate investments for one reason: Big corporations are investing in automated equipment, robotics, numerically-controlled machine tools, and software. These investments are designed to boost profits by permanently replacing workers and cutting payrolls. The tax breaks Obama is proposing would make such investments all the more profitable.

In sum, Obama’s proposed corporate tax cuts (1) won’t generate more jobs because they don’t put any cash in worker’s pockets (as would, for example, exempting the first $20,000 of income from the payroll tax and making up the difference by applying the payroll tax to incomes over $250,000); (2) will subsidize companies to cut even more jobs; and (3) will cost $130 billion — money that could better be spent helping states and locales avoid laying off thousands of teachers, fire fighters, and police.

So why is Obama proposing them? To put Republicans in a bind. If they refuse to go along he can justifiably say they have no agenda other than obstruction. After all, the only thing they’ve been arguing for is lower taxes. On the other hand, if Republicans agree to support these corporate tax cuts, Obama can claim a legislative victory that will help Democrats neutralize their opponents in the upcoming elections.

The proposals also make it harder for Republicans to argue the Bush income tax cuts should be extended for the richest 3 percent of taxpayers because small businesses need it. Obama’s corporate tax cuts would appear to do the trick.

The White House probably figures even if Republicans agree to the proposed tax cuts, nothing will come of it. Congress will be in session for only about two weeks between now and the midterm elections so it’s doubtful these proposals would be enacted in any event.

But this cynical exercise could backfire if Republicans call Obama’s bluff and demand the corporate tax cuts be put on a fast track and get signed into legislation before the midterms.

More troubling, Obama’s whopping proposed corporate tax cuts help legitimize the supply-side dogma that the economy’s biggest obstacle to growth is the cost of capital, rather than the plight of ordinary working people.

Welcome to the worst Labor Day in the memory of most Americans. Organized labor is down to about 7 percent of the private work force. Members of non-organized labor — most of the rest of us — are unemployed, underemployed or underwater. The Labor Department reported on Friday that just 67,000 new private-sector jobs were created in August, which, when added to the loss of public-sector (mostly temporary Census worker jobs) resulted in a net loss of over 50,000 jobs for the month. But at least 125,000 net new jobs are needed to keep up with the growth of the potential work force.

Face it: The national economy isn’t escaping the gravitational pull of the Great Recession. None of the standard booster rockets are working. Near-zero short-term interest rates from the Fed, almost record-low borrowing costs in the bond market, a giant stimulus package, along with tax credits for small businesses that hire the long-term unemployed have all failed to do enough.

That’s because the real problem has to do with the structure of the economy, not the business cycle. No booster rocket can work unless consumers are able, at some point, to keep the economy moving on their own. But consumers no longer have the purchasing power to buy the goods and services they produce as workers; for some time now, their means haven’t kept up with what the growing economy could and should have been able to provide them.

1. The Origin of the Crisis

This crisis began decades ago when a new wave of technology — things like satellite communications, container ships, computers and eventually the Internet — made it cheaper for American employers to use low-wage labor abroad or labor-replacing software here at home than to continue paying the typical worker a middle-class wage. Even though the American economy kept growing, hourly wages flattened. The median male worker earns less today, adjusted for inflation, than he did 30 years ago.

But for years American families kept spending as if their incomes were keeping pace with overall economic growth. And their spending fueled continued growth. How did families manage this trick? First, women streamed into the paid work force. By the late 1990s, more than 60 percent of mothers with young children worked outside the home (in 1966, only 24 percent did).

Second, everyone put in more hours. What families didn’t receive in wage increases they made up for in work increases. By the mid-2000s, the typical male worker was putting in roughly 100 hours more each year than two decades before, and the typical female worker about 200 hours more.

When American families couldn’t squeeze any more income out of these two coping mechanisms, they embarked on a third: going ever deeper into debt. This seemed painless — as long as home prices were soaring. From 2002 to 2007, American households extracted $2.3 trillion from their homes.

Eventually, of course, the debt bubble burst — and with it, the last coping mechanism. Now we’re left to deal with the underlying problem that we’ve avoided for decades. Even if nearly everyone was employed, the vast middle class still wouldn’t have enough money to buy what the economy is capable of producing.

Where have all the economic gains gone? Mostly to the top. The economists Emmanuel Saez and Thomas Piketty examined tax returns from 1913 to 2008. They discovered an interesting pattern. In the late 1970s, the richest 1 percent of American families took in about 9 percent of the nation’s total income; by 2007, the top 1 percent took in 23.5 percent of total income.

It’s no coincidence that the last time income was this concentrated was in 1928. I do not mean to suggest that such astonishing consolidations of income at the top directly cause sharp economic declines. The connection is more subtle.

The rich spend a much smaller proportion of their incomes than the rest of us. So when they get a disproportionate share of total income, the economy is robbed of the demand it needs to keep growing and creating jobs.

What’s more, the rich don’t necessarily invest their earnings and savings in the American economy; they send them anywhere around the globe where they’ll summon the highest returns — sometimes that’s here, but often it’s the Cayman Islands, China or elsewhere. The rich also put their money into assets most likely to attract other big investors (commodities, stocks, dot-coms or real estate), which can become wildly inflated as a result.

Meanwhile, as the economy grows, the vast majority in the middle naturally want to live better. Their consequent spending fuels continued growth and creates enough jobs for almost everyone, at least for a time. But because this situation can’t be sustained, at some point — 1929 and 2008 offer ready examples — the bill comes due.

2. What We Learned and Didn’t Learn From the Great Depression of the 1930s

This time around, policymakers had knowledge their counterparts didn’t have in 1929; they knew they could avoid immediate financial calamity by flooding the economy with money. But, paradoxically, averting another Great Depression-like calamity removed political pressure for more fundamental reform. We’re left instead with a long and seemingly endless Great Jobs Recession.

THE Great Depression and its aftermath demonstrate that there is only one way back to full recovery: through more widely shared prosperity. In the 1930s, the American economy was completely restructured. New Deal measures — Social Security, a 40-hour work week with time-and-a-half overtime, unemployment insurance, the right to form unions and bargain collectively, the minimum wage — leveled the playing field.

In the decades after World War II, legislation like the G.I. Bill, a vast expansion of public higher education and civil rights and voting rights laws further reduced economic inequality. Much of this was paid for with a 70 percent to 90 percent marginal income tax on the highest incomes. And as America’s middle class shared more of the economy’s gains, it was able to buy more of the goods and services the economy could provide. The result: rapid growth and more jobs.

By contrast, little has been done since 2008 to widen the circle of prosperity. Health-care reform is an important step forward but it’s not nearly enough.

3. What Else Should Be Done

What else could be done to raise wages and thereby spur the economy? I don’t pretend to have all the answers but some initiatives seem worthwhile.

[Pause for a commercial announcement. These points, and others, are developed at length in my upcoming book, “AFTERSHOCK: The Next Economy and America’s Future,” out in two weeks from Alfred Knopf.]

We might consider, for example, extending the earned income tax credit all the way up through the middle class, and paying for it with a tax on carbon. The carbon tax would raise the prices of goods and services especially dependent on carbon-based fuels, which is appropriate given that the social costs of carbon-based fuels should be included in their prices. Consider how much our society now spends on such things as foreign wars designed to secure our sources of oil, as well as oil cleanups. But the wage subsidies would more than make up for these price rises, at least for most Americans in the middle and below.

Another step would be to exempt the first $20,000 of income from payroll taxes and paying for it with a payroll tax on incomes over $250,000. This, too, seems reasonable, given that under current law only the first $106,000 of income is subject to the Social Security portion of the payroll tax – a particularly regressive system. Most higher-income people, who get good medical care, live longer and collect far more in Social Security benefits, than do lower-income people.

In the longer term, Americans must be better prepared to succeed in the global, high-tech economy. Early childhood education should be more widely available, paid for by a small 0.5 percent fee on all financial transactions. Public universities should be free; in return, graduates would then be required to pay back 10 percent of their first 10 years of full-time income.

Another step: workers who lose their jobs and have to settle for positions that pay less could qualify for “earnings insurance” that would pay half the salary difference for two years; such a program would probably prove less expensive than extended unemployment benefits.

These measures would not enlarge the budget deficit because they would be paid for. In fact, such moves would help reduce the long-term deficits by getting more Americans back to work and the economy growing again.

Here’s the point. Policies that generate more widely shared prosperity lead to stronger and more sustainable economic growth — and that’s good for everyone.

The rich are better off with a smaller percentage of a fast-growing economy than a larger share of an economy that’s barely moving. That’s the Labor Day lesson we learned decades ago; until we remember it again, we’ll be stuck in the Great Recession.

The Great Jobs Depression continues to worsen.

The Labor Department reports this morning that companies created ony 67,000 new jobs in August. That’s down from the 107,000 they created in July. And because the government laid off temporary Census workers, the economy as a whole lost 54,000 jobs.

To put this into perspective, we need 125,000 net new jobs a month just to keep up with the growth of the population and the potential workforce.

Think of it this way. The number of Americans willing and able to work but who cannot find a job hasn’t stopped growing since the start of 2008. All told, about 22 million Americans are now jobless. Add in those who are working part-time who’d rather be working full time, and we’re up to 25 million.

And because most families depend on two paychecks, the practical impact is almost double.

All this has a negative multiplier on the economy. If families can’t pay their bills, their mortgages become delinquent (that’s why mortgage delinquencies keep rising), their credit card bills go unpaid (we’re seeing a notable rise in credit card defaults), and they can’t afford to buy anything other than necessities (hence auto sales have plummeted, new homes sales are down, and retail sales are in the pits).

As a result, more and more businesses decide to lay off workers (or refrain from adding them) because they can’t sell the goods and services they produce.

The last time we saw anything on this scale was in the 1930s. The last time we did anything about this on the scale necessary to reverse the trend was in the 1930s and 1940s.

It is not that America is out of ideas. We know what to do. We need massive public spending on jobs (infrastructure, schools, parks, a new WPA) along with measures to widen the circle of prosperity so more Americans can share in the gains of growth (exempting the first $20K of income from payroll taxes and applying the payroll tax to incomes over $250K, for example).

The problem is lack of political will to do it. The naysayers, deficit hawks, government-haters and Social Darwinists who don’t have a clue what to do would rather do nothing. We are paralyzed.

If there was ever a time for bold government action it is precisely now. Obama should be storming the country, demanding the largest responses to the jobs emergency in history. He and the Dems should be giving Republicans hell for their indifference to all this.

Instead, Obama is all over the map — a mosque controversy, an Israeli-Palestinian peace talk (that may take years to complete if ever), a symbolic withdrawal from Iraq, and lots of little tax-cutting ideas.

Senate and House Democrats, meanwhile, are on the defensive. Polls even suggest Dems may lose the House and possibly even the Senate in November.

Business leaders have either gone silent or gone reactionary, as they did in the 1930s.

But the pain and suffering of tens of millions continue. Government revenues continue to drop, and the safety nets and public services they rely on are subject to even more cuts. 

Ever wonder why the nation is turning isolationist and xenophobic? Why we’re lashing out at undocumented immigrants, even though fewer are here now than a few years ago; why the rise of anti-Islam feeling now, although 9/11 was nine years ago? Why the virulence and hate-mongering on right-wing radio, and the surliness in the blogosphere?

The practical choice we face is this: Either major action to reverse the jobs emergency or years of intolerably high unemployment coupled with demagoguery and scapegoating.

What passes for business reporting in the United States is too often a series of breathless reports about the stock market. When the Dow rises precipitously, as it did today (Wednesday), the business press predicts an end to the Great Recession. When the stock market plummets, as it did last week, the Great Recession is said to be worsening.

Pay no attention. The stock market has as much to do with the real economy as the weather has to do with geology. Day by day there’s no relationship at all. Over time, weather and geology interact but the results aren’t evident for many years. The biggest impact of the weather is on peoples’ moods, as are the daily ups and downs of the market.

The real economy is jobs and paychecks, what people buy and what they sell. And the real economy — even viewed from a worldwide perspective — is as precarious as ever, perhaps more so.

Today’s rally was triggered by news that one of China’s official measures of its growth – its Purchasing Managers Index – rose. The index had been in decline for three straight months.

Why should an obscure measurement on the other side of the world cause stock markets in New York, London, and Frankfurt to rally? Because China is so large and its needs seemingly limitless that its growth has been about the only reliable source of global demand.

Many big American companies have been showing profits because they’re doing ever more business in China while cutting payrolls at home. American consumers aren’t buying much of anything because they’ve lost their jobs or are worried about losing them, and are still trying to get out from under a huge debt load (the latest figures show more consumer debt delinquent now than last year and a surge in personal bankruptcies). The U.S. housing market is growing worse, auto and retail sales are dropping, and the ranks of the jobless continue to swell.

Europe is in almost as much a mess. The problem there isn’t just or even mainly that Greece and other nations on the “periphery” have too much public debt. A bigger problem is European consumers aren’t buying nearly enough to generate more jobs. Unemployment remains high, and the trend is bad. Manufacturing growth there has slowed to its weakest pace in six months. Yet bizarrely, Europe’s large economies – Britain, Germany, and France – are paring back their public budgets. It’s exactly the wrong time, and a recipe for disaster.

Germany’s so-called “job miracle” (as Chancellor Angela Merkel calls it) is more mirage than miracle. Most of the gains in employment there have come from part-time jobs, often at low pay. Average annual net income per German employee continues to drop. This explains why domestic demand there is so sluggish and why Germany is desperately dependent on its exports of machinery and manufacturing components to Asia, especially China.

Meanwhile, Japan, now the world’s third-largest economy, is a basket case. Japanese consumers aren’t buying much of anything, and why would they? The country is still in the grip of a deflationary cycle that shows no end. Japanese consumers reason if they can buy it cheaper next week there’s no reason to buy now. Basically the only thing keeping Japan’s economy going are its exports of cars and electronic components to China.

Australia is booming, but look closely and you see the same buyer. Australia is making a boatload of money selling its minerals and raw materials to China (Australia is fast becoming one big Chinese mine shaft). The Brazilian economy is soaring. Why? Exports of wheat and cattle to China. Middle East oil producers are getting richer. Why? China’s insatiable thirst for oil.

Elsewhere around the globe the picture is as uncertain. Much of Pakistan is under water. Much of the rest of the Middle East is under tyrannical or corrupt regimes. Russia has suffered such a dry spell it’s hoarding wheat. Despite its wealthy few, India’s masses are still terribly poor.

The stock market could plunge tomorrow or the next day because the world’s economic fundamentals are so precarious.

The global economy cannot be sustained by one big, voracious nation – especially one that’s suffering bouts of civil unrest, actively repressing dissent, suffocating under a blanket of pollution and coping with other environmental hazards, and whose biggest companies are run by the state.