Tuesday, September 6, 2016

The Dumbed-Down New York Times

A New York Times columnist writes Americans are so “dumbed-down” that they don’t know that Russia “invaded” Ukraine two years ago, but that “invasion” was mostly in the minds of Times editors and other propagandists.
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n a column mocking the political ignorance of the “dumbed-down” American people and lamenting the death of “objective fact,” New York Times columnist Timothy Egan shows why so many Americans have lost faith in the supposedly just-the-facts-ma’am mainstream media.

Egan states as flat fact, “If more than 16 percent of Americans could locate Ukraine on a map, it would have been a Really Big Deal when Trump said that Russia was not going to invade it — two years after they had, in fact, invaded it.”

But it is not a “fact” that Russia “invaded” Ukraine – and it’s especially not the case if you also don’t state as flat fact that the United States has invaded Syria, Libya and many other countries where the U.S. government has launched bombing raids or dispatched “special forces.”  Yet, the Times doesn’t describe those military operations as “invasions.”

Nor does the newspaper of record condemn the U.S. government for violating international law, although in every instance in which U.S. forces cross into another country’s sovereign territory without permission from that government or the United Nations Security Council, that is technically  an act of illegal aggression.

In other words, the Times applies a conscious double standard when reporting on the actions of the United States or one of its allies (note how Turkey’s recent invasion of Syria was just an “intervention”) as compared to how the Times deals with actions by U.S. adversaries, such as Russia.

Biased on Ukraine

The Times’ reporting on Ukraine has been particularly dishonest and hypocritical. The Times ignores the substantial evidence that the U.S. government encouraged and supported a violent coup that overthrew elected President Viktor Yanukovych on Feb. 22, 2014, including a pre-coup intercepted phone call between Assistant Secretary of State Victoria Nuland and U.S. Ambassador to Ukraine Geoffrey Pyatt discussing who should lead the new government and how to “midwife this thing.”

The Times also played down the key role of neo-Nazis and extreme nationalists in killing police before the coup, seizing government building during the coup, and then spearheading the slaughter of ethnic Russian Ukrainians after the coup. If you wanted to detect the role of these SS-wannabes from the Times’ coverage, you’d have to scour the last few paragraphs of a few stories that dealt with other aspects of the Ukraine crisis. While leaving out the context, the Times has repeatedly claimed that Russia “invaded” Crimea, although curiously without showing any photographs of an amphibious landing on Crimea’s coast or Russian tanks crashing across Ukraine’s border en route to Crimea or troops parachuting from the sky to seize strategic Crimean targets.

The reason such evidence of an “invasion” was lacking is that Russian troops were already stationed in Crimea as part of a basing agreement for the port of Sevastopol. So, it was a very curious “invasion” indeed, since the Russian troops were on scene before the “invasion” and their involvement after the coup was peaceful in protecting the Crimean population from the depredations of the new regime’s neo-Nazis. The presence of a small number of Russian troops also allowed the Crimeans to vote on whether to secede from Ukraine and rejoin Russia, which they did with a 96 percent majority.

In the eastern provinces, which represented Yanukovych’s political base and where many Ukrainians opposed the coup, you can fault, if you wish, the Russian decision to provide some military equipment and possibly some special forces so ethnic Russian and other anti-coup Ukrainians could defend themselves from the assaults by the neo-Nazi Azov brigade and from the tanks and artillery of the coup-controlled Ukrainian army.

But an honest newspaper and honest columnists would insist on including this context. They also would resist pejorative phrases such as “invasion” and “aggression” – unless, of course, they applied the same terminology objectively to actions by the U.S. government and its “allies.”

That sort of nuance and balance is not what you get from The New York Times and its “group thinking” writers, people like Timothy Egan. When it comes to reporting on Russia, it’s Cold War-style propaganda, day in and day out.

And this has not been a one-off problem. The unrelenting bias of the Times and, indeed, the rest of the mainstream U.S. news media on the Ukraine crisis represents a lack of professionalism that was also apparent in the pro-war coverage of the Iraq crisis in 2002-03 and other catastrophic U.S. foreign policy decisions.

A growing public recognition of that mainstream bias explains why so much of the American population has tuned out supposedly “objective” news (because it is anything but objective).

Indeed, those Americans who are more sophisticated about Russia and Ukraine than Timothy Egan know that they’re not getting the straight story from the Times and other MSM outlets. Those not-dumbed-down Americans can spot U.S. government propaganda when they see it.

America the Illiterate

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We live in two Americas. One America, now the minority, functions in a print-based, literate world. It can cope with complexity and has the intellectual tools to separate illusion from truth. The other America, which constitutes the majority, exists in a non-reality-based belief system. This America, dependent on skillfully manipulated images for information, has severed itself from the literate, print-based culture. It cannot differentiate between lies and truth. It is informed by simplistic, childish narratives and clichés. It is thrown into confusion by ambiguity, nuance and self-reflection. This divide, more than race, class or gender, more than rural or urban, believer or nonbeliever, red state or blue state, has split the country into radically distinct, unbridgeable and antagonistic entities.

There are over 42 million American adults, 20 percent of whom hold high school diplomas, who cannot read, as well as the 50 million who read at a fourth- or fifth-grade level. Nearly a third of the nation’s population is illiterate or barely literate. And their numbers are growing by an estimated 2 million a year. But even those who are supposedly literate retreat in huge numbers into this image-based existence. A third of high school graduates, along with 42 percent of college graduates, never read a book after they finish school. Eighty percent of the families in the United States last year did not buy a book.

The illiterate rarely vote, and when they do vote they do so without the ability to make decisions based on textual information. American political campaigns, which have learned to speak in the comforting epistemology of images, eschew real ideas and policy for cheap slogans and reassuring personal narratives. Political propaganda now masquerades as ideology. Political campaigns have become an experience. They do not require cognitive or self-critical skills. They are designed to ignite pseudo-religious feelings of euphoria, empowerment and collective salvation. Campaigns that succeed are carefully constructed psychological instruments that manipulate fickle public moods, emotions and impulses, many of which are subliminal. They create a public ecstasy that annuls individuality and fosters a state of mindlessness. They thrust us into an eternal present. They cater to a nation that now lives in a state of permanent amnesia. It is style and story, not content or history or reality, which inform our politics and our lives. We prefer happy illusions. And it works because so much of the American electorate, including those who should know better, blindly cast ballots for slogans, smiles, the cheerful family tableaux, narratives and the perceived sincerity and the attractiveness of candidates. We confuse how we feel with knowledge.

The illiterate and semi-literate, once the campaigns are over, remain powerless.  They still cannot protect their children from dysfunctional public schools. They still cannot understand predatory loan deals, the intricacies of mortgage papers, credit card agreements and equity lines of credit that drive them into foreclosures and bankruptcies. They still struggle with the most basic chores of daily life from reading instructions on medicine bottles to filling out bank forms, car loan documents and unemployment benefit and insurance papers. They watch helplessly and without comprehension as hundreds of thousands of jobs are shed. They are hostages to brands. Brands come with images and slogans. Images and slogans are all they understand. Many eat at fast food restaurants not only because it is cheap but because they can order from pictures rather than menus. And those who serve them, also semi-literate or illiterate, punch in orders on cash registers whose keys are marked with symbols and pictures. This is our brave new world.

Political leaders in our post-literate society no longer need to be competent, sincere or honest. They only need to appear to have these qualities. Most of all they need a story, a narrative. The reality of the narrative is irrelevant. It can be completely at odds with the facts. The consistency and emotional appeal of the story are paramount. The most essential skill in political theater and the consumer culture is artifice. Those who are best at artifice succeed. Those who have not mastered the art of artifice fail. In an age of images and entertainment, in an age of instant emotional gratification, we do not seek or want honesty. We ask to be indulged and entertained by clichés, stereotypes and mythic narratives that tell us we can be whomever we want to be, that we live in the greatest country on Earth, that we are endowed with superior moral and physical qualities and that our glorious future is preordained, either because of our attributes as Americans or because we are blessed by God or both.

The ability to magnify these simple and childish lies, to repeat them and have surrogates repeat them in endless loops of news cycles, gives these lies the aura of an uncontested truth. We are repeatedly fed words or phrases like yes we can, maverick, change, pro-life, hope  or war on terror. It feels good not to think. All we have to do is visualize what we want, believe in ourselves and summon those hidden inner resources, whether divine or national, that make the world conform to our desires. Reality is never an impediment to our advancement.

The Princeton Review analyzed the transcripts of the Gore-Bush debates, the Clinton-Bush-Perot debates of 1992, the Kennedy-Nixon debates of 1960 and the Lincoln-Douglas debates of 1858. It reviewed these transcripts using a standard vocabulary test that indicates the minimum educational standard needed for a reader to grasp the text. During the 2000 debates, George W. Bush spoke at a sixth-grade level (6.7) and Al Gore at a seventh-grade level (7.6). In the 1992 debates, Bill Clinton spoke at a seventh-grade level (7.6), while George H.W. Bush spoke at a sixth-grade level (6.8), as did H. Ross Perot (6.3). In the debates between John F. Kennedy and Richard Nixon, the candidates spoke in language used by 10th-graders. In the debates of Abraham Lincoln and Stephen A. Douglas the scores were respectively 11.2 and 12.0. In short, today’s political rhetoric is designed to be comprehensible to a 10-year-old child or an adult with a sixth-grade reading level. It is fitted to this level of comprehension because most Americans speak, think and are entertained at this level. This is why serious film and theater and other serious artistic expression, as well as newspapers and books, are being pushed to the margins of American society. Voltaire was the most famous man of the 18th century. Today the most famous “person” is Mickey Mouse.

In our post-literate world, because ideas are inaccessible, there is a need for constant stimulus. News, political debate, theater, art and books are judged not on the power of their ideas but on their ability to entertain. Cultural products that force us to examine ourselves and our society are condemned as elitist and impenetrable. Hannah Arendt warned that the marketization of culture leads to its degradation, that this marketization creates a new celebrity class of intellectuals who, although well read and informed themselves, see their role in society as persuading the masses that “Hamlet” can be as entertaining as “The Lion King” and perhaps as educational. “Culture,” she wrote, “is being destroyed in order to yield entertainment.”

“There are many great authors of the past who have survived centuries of oblivion and neglect,” Arendt wrote, “but it is still an open question whether they will be able to survive an entertaining version of what they have to say.”

The change from a print-based to an image-based society has transformed our nation. Huge segments of our population, especially those who live in the embrace of the Christian right and the consumer culture, are completely unmoored from reality. They lack the capacity to search for truth and cope rationally with our mounting social and economic ills. They seek clarity, entertainment and order. They are willing to use force to impose this clarity on others, especially those who do not speak as they speak and think as they think. All the traditional tools of democracies, including dispassionate scientific and historical truth, facts, news and rational debate, are useless instruments in a world that lacks the capacity to use them.

As we descend into a devastating economic crisis, one that Barack Obama cannot halt, there will be tens of millions of Americans who will be ruthlessly thrust aside. As their houses are foreclosed, as their jobs are lost, as they are forced to declare bankruptcy and watch their communities collapse, they will retreat even further into irrational fantasy. They will be led toward glittering and self-destructive illusions by our modern Pied Pipers—our corporate advertisers, our charlatan preachers, our television news celebrities, our self-help gurus, our entertainment industry and our political demagogues—who will offer increasingly absurd forms of escapism.

The core values of our open society, the ability to think for oneself, to draw independent conclusions, to express dissent when judgment and common sense indicate something is wrong, to be self-critical, to challenge authority, to understand historical facts, to separate truth from lies, to advocate for change and to acknowledge that there are other views, different ways of being, that are morally and socially acceptable, are dying. Obama used hundreds of millions of dollars in campaign funds to appeal to and manipulate this illiteracy and irrationalism to his advantage, but these forces will prove to be his most deadly nemesis once they collide with the awful reality that awaits us.

DOJ Report on Baltimore Echoes Centuries-Old Limits on Black Freedom

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African-American rights in Baltimore have always been in jeopardy. The recently released report from the Department of Justice on the Baltimore Police Department is sobering, but not surprising.
As a scholar of early African-American history in Maryland, I see similarities between laws regarding enslaved and free blacks living in Baltimore prior to the Civil War, and the overpolicing of African-Americans today. African-Americans in antebellum and contemporary Baltimore share the same problem: limits on black freedom.
Antebellum Foundations for Unequal Treatment
On the eve of the American Revolution, Maryland was second only to Virginia in the number of people it held in bondage. By the beginning of the 19th century, the number of free blacks began to rise. Baltimore had a significant free black population well before the 14th Amendment made blacks citizens. According to the 1790 US census, 927 free blacks resided in the county that included Baltimore city. By 1830, Baltimore city and the surrounding county was home to some 17,888 free African-Americans.
Historian Barbara Field notes that the increase of free blacks in Maryland was a direct result of replacing tobacco harvesting, which required a full-time labor source, to wheat. Harvesting wheat did not require a year-round labor supply. Between the change in labor demands and African-Americans protesting their condition, the free black community in Virginia and Maryland grew.
This was a concern for lawmakers. Laws such as the 1790 Act Related to Freeing Slaves by Will or Testament were designed to extract the maximum amount of labor from the enslaved before they were awarded freedom, or their free black relatives could purchase it for them. This meant enslaved men were freed only when they ceased to be in peak physical condition, and enslaved women were freed after their childbearing years.
Once freed, African-Americans had to show "proof of a sufficient livelihood," affirming their ability to care for themselves, or otherwise end up in the city jail or re-enslaved. The irony of this proclamation was that once freed, African-Americans found ways to stave off poverty by working in trades similar to the jobs they had while enslaved. If they avoided the county jail, free blacks were subject to curfews and sanctions against traveling. Many counties in Maryland passed laws requiring free blacks to move out of the state for fear they would incite the local enslaved population to rebel.
Perhaps the most alarming attempt to address the problem of black freedom was thedevelopment of the American Colonization Society (ACS) and its chapters in antebellum cities such as Baltimore. Under the guise of Christianity and missionary work, the ACS promised enslaved African-Americans all the rights and privileges of freedom, so long as they relocated to Liberia. Organized by white slaveholders, politicians and religious organizations, the ACS offered a solution to both slavery and the rise in free blacks in the United States -- resettle blacks outside the country.
Black intellectuals of the time were divided over resettlement campaigns. Abolitionist newspapers published countless articles protesting the efforts of the colonization society. Historian Robert Brugger notes that a group of free blacks surrounded the gangplanks in the Baltimore harbor in an attempt to stop the forced removal of their friends and family to Liberia.
As these 19th-century examples demonstrate, policing African-American freedom has a long history in Baltimore. African-Americans could escape slavery, but they were not truly free. New laws were continually passed to limit, if not completely dismantle, the very few rights they possessed.
Baltimore Today: DOJ Report Documents Violations of Civil Rights
The findings in the DOJ report echo the restrictions on lives of antebellum free blacks in key ways. African-Americans were arrested in greater proportion than their nonblack peers. According to the report:
BPD made roughly 44 percent of its stops in two small, predominantly African-American districts that contain only 11 percent of the City's population. Consequently, hundreds of individuals -- nearly all of them African American -- were stopped on at least 10 separate occasions from 2010-2015. Indeed, seven African-American men were stopped more than 30 times during this period.
African-Americans were frequently arrested for loitering. If their presence became a problem, whether real or perceived, Baltimore police exercised a zero-tolerance policy when it came to African-Americans resulting in unlawful searches, seizures and arrests. As in the 19th century, the mere presence of African-Americans provided grounds for arrest.
In the 19th century, attempts were made to remove blacks from society by, among other means, sending them to Liberia or forcing them to move away. Today, arresting and detaining African-Americans quarantines them from the rest of society. If the arrest sticks and the individual is prosecuted and found guilty, he is incarcerated. If convicted of a felony, he is not allowed to vote.
African-Americans make up 44 percent of the Baltimore police force and 63 percent of the population of Baltimore city. As the New York Times points out, "Baltimore's police department has a lower percentage of blacks than the population it serves. But in contrast to other cities that have been wracked by tension and protests over police confrontations with black men, the city's mayor, its police commissioner, the state's attorney are all black, giving a somewhat different tenor to clashes between the power structure and its critics." Indeed, arguments about policing that exclusively point to racism or bias among officers as the root of the problem don't hold for cities like Baltimore. I believe the problem is also tied to anti-black aspects of the laws they are tasked with enforcing.
The DOJ report provides a critical opportunity to assess and reform disparities in the legal system, especially as we continually bear witness to the almost daily death dance between African-Americans and the police. It makes clear that African-American rights are in jeopardy. The key difference between African-Amerians in Baltimore then and now is that blacks are now citizens. They are entitled to, among other things, the right to due process under the law.
However, the DOJ findings make clear that African-Americans in Baltimore are disproportionately harassed, searched, detained and, in the case of Freddie Gray, murdered. The fear is not that the DOJ report has unmasked truths that we prefer to deny. The fear is that there will be a failure to reform the system in light of these findings. Greater than the fear is the reality that policing black citizens will continue to include practices that are eerily reminiscent of the past.

War clouds overhang Obama’s Asian trip

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What is likely to be US President Obama’s final trip to Asia takes place amid acute geo-political tensions, especially between the United States and China, for which his “pivot to Asia” aimed at maintaining American hegemony bears direct responsibility. Both forums—the G20 in Hangzhou, China and the Association of South East Asian Nations (ASEAN) summits in Vientiane, Laos—will be overshadowed by the worsening global economic breakdown and the growing danger of war.
The White House has already flagged that Obama intends to use the international gatherings to make “a forceful case” for ratification of the Trans-Pacific Partnership (TTP) which is the economic spearhead of US efforts to subordinate China to American interests. The TPP agreed last year between 12 Asia Pacific nations is a comprehensive trade and investment pact to ensure, as Obama has stated, that the US, not China, writes the economic rules of the twenty-first century.
Speaking prior to Obama’s trip, deputy national security advisor Ben Rhodes declared: “The TPP is a litmus test for US leadership.” If it is not ratified by Congress, the US “would be ceding the [Asia Pacific] region to countries like China, who do not set the same types of high standards for trade agreements.”
Both US presidential candidates—Democrat Hillary Clinton and Republican Donald Trump—have publicly expressed their opposition to the TPP on the basis of economic nationalist claims that it would destroy American jobs. With strong opposition in Congress, Obama is desperate to find political levers to push ratification through prior to the end of his term.
The TPP, however, is far more than an economic deal. The Obama administration has regarded it as a vital component of the “pivot”—a diplomatic offensive and military build-up throughout Asia against China. US Defence Secretary Ashton Carter last year openly drew the connection between the TPP and the Pentagon’s war plans, declaring that the deal was “as important to me as another aircraft carrier.”
Failure to ratify the agreement would be a blow to American efforts to reassert its dominance in Asia and undermine US economic and military ties throughout the region. Speaking in Washington last month, Singapore’s Prime Minister Lee Hsien Loong urged the US to “stay engaged and maintain its indispensable role in the Asia Pacific.” He warned that ratification was a “test for your credibility and seriousness of purpose.”
For Obama to use the G20 to push the TPP will only exacerbate tensions with the host country, China, which is effectively excluded from the agreement and thus any discussions surrounding it. During the summit, Obama will meet with Chinese President Xi Jinping in a bid to extract concessions on a range of issues. US Treasury Secretary Jack Lew flagged American demands for cutbacks to excess capacity, particularly in steel, as one of the items on Obama’s agenda in talks with Xi.
Amid a deepening global slump and rising trade war tensions, the TPP is not the only agreement that is in doubt. The US-European equivalent—the Transatlantic Trade and Investment Partnership (TTIP)—is under a cloud after Germany’s economy minister Sigmar Gabriel declared that negotiations had effectively failed. A bitter dispute has now erupted after Lew accused the EU on Wednesday of “reaching into the US tax base” after it ordered the American mega-corporation Apple to pay $13 billion in back taxes.
Also in the background to the Xi-Obama talks are the maritime disputes in the South China Sea between China and its South East Asian neighbours. Over the past five years, the US had deliberately exacerbated these disputes including by backing and assisting the Philippines to mount a legal challenge China in the Permanent Court of Arbitration (PCA) in The Hague. The PAC’s politically-driven ruling in July negating all of China’s claims has set the stage for the US to further exploit the issue to isolate Beijing and justify the American military build-up around the South China Sea and the region.
The Hague ruling will likely be a focus of discussion at the ASEAN summits in Laos where Obama next week will become the first US president to visit the country. As is the case throughout the region, Washington has engaged in strenuous diplomatic efforts to press Laos, which has had longstanding ties with China, to tilt its foreign policy more towards the US. A change of government in Vientiane in April has seen an apparent shift away from Beijing—as indicated by the stalling of a major $7 billion rail project—and towards Vietnam, which has moved closer to the US over the past two years in particular.
Since taking office as Philippine president in July, the fascistic Rodrigo Duterte has attempted to steer a less confrontational course with China than his predecessor Benigno Aquino, raising concerns in Washington as a result. While he has indicated his support for the military basing agreement with the US reached under Aquino, Duterte has suggested that a negotiated solution to territorial disputes with China could be possible.
Obama is due to meet with Duterte in Vientiane. In his comments this week, White House deputy national security advisor Rhodes indicated that Obama intends to raise the issue of “human rights” during the talks. Duterte is notorious for unleashing a wave of extrajudicial killings of alleged drug dealers by police and vigilantes that has resulted in more than 1,800 deaths. The Obama administration, which has promised funds for this anti-drug campaign, intends to use the issue as a threat. If Duterte does not fall into line on the South China Sea, he will confront an increasingly strident, and utterly hypocritical, “human rights” campaign against him.
While Duterte said last week that he does not intend to raise the South China Sea at the ASEAN summits, Philippine Foreign Secretary Perfecto Yasay signalled a harder line against Beijing on Tuesday. “When we start formal negotiations or bilateral engagements with China, we will have to do it within the context of the arbitral decision [in The Hague]. There are no buts or ifs insofar as our policy on this matter is concerned,” he said. The comments put Manila on a collision course with Beijing which has refused to recognise the court or its ruling.
A comment this week in China’s state-owned Global Times, which usually adopts a hawkish stance, suggested that the meeting of the Chinese and American presidents in Hangzhou was “a crucial opportunity to bring bilateral relations back on a steady footing.” What is far more likely is that the Obama’s trip to Asia will only heighten tensions between the two countries including in dangerous flashpoints for conflict such as the South China Sea.

Fed chair lays out long-term scenario of economic stagnation

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In a much-anticipated speech Friday to the annual meeting of central bankers held by the Federal Reserve Bank of Kansas City in Jackson Hole, Wyoming, Fed Chairwoman Janet Yellen indicated that the US central bank was preparing to raise interest rates at least once this year.
Virtually all attention and commentary on the conference was focused on its implications for the short-term movement of the benchmark US federal funds rate. This reflects the fixation of the financial elite on the near-term implications of Fed policy for its own speculative bets and stock and bond holdings.
Yellen’s remarks, which kicked off the two-day conference, together with similarly “hawkish” statements by other Fed officials attending the meeting, had a generally negative impact on the stock indexes. The Dow Jones Industrial Average, which was up by more than 100 points in early trading, ended the day down 53.
There was little comment on the more fundamental significance of Yellen’s speech, which all but acknowledged that low levels of economic growth and extreme financial instability were permanent features of the US and world capitalist economy, requiring the Fed and other central banks to continue indefinitely their policies of ultra-low interest rates and massive subsidies for the financial markets in the form of bond purchases (so-called quantitative easing).
Citing “solid growth in household spending” and “job gains [averaging] 190,000 per month over the past three months,” Yellen said: “Based on this economic outlook, the [Fed] continues to anticipate that gradual increases in the federal funds rate will be appropriate over time to achieve and sustain employment and inflation near our statutory objectives. Indeed, in light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months.”
In an interview with CNBC following Yellen’s speech, Fed Vice Chairman Stanley Fischer said her remarks were consistent with a possible rate hike at the next meeting of the Fed’s policy-setting Federal Open Market Committee in September.
More significant were Yellen’s statements about the likelihood of extremely low interest rates for the indefinite future as well as the incorporation of quantitative easing into the permanent “tool kit” of the US central bank. She noted, “Forecasts now show the federal funds rate settling at about 3 percent in the longer run. In contrast, the federal funds rate averaged more than 7 percent between 1965 and 2000.”
She related this to “the marked decline over the past decade, both here and abroad, in the long-run neutral real rate of interest--that is, the inflation-adjusted short-term interest rate consistent with keeping output at its potential on average over time.” She attributed this, in part, to “a paucity of attractive capital projects worldwide.”
This long-term decline in the so-called neutral interest rate, defined as that rate which neither boosts nor slows the economy, is an expression of a systemic crisis, rather than a mere conjunctural downturn, in the American and world capitalist economy. The fact that interest rates have been driven so low—to the point where one-fourth of world output is from countries with negative interest rates—shows that the crisis that erupted in September 2008 with the collapse of Lehman Brothers marked a historic breakdown in the system. It refutes all claims that trillions in bank bailouts and subsidies to the financial markets via super-low interest rates and trillions more dollars in virtually free credit have effected a genuine recovery.
These policies have had the intended result of rescuing the global financial aristocracy and adding to its wealth by massively inflating stock and bond prices. They have also made possible a ruthless assault on the jobs, wages and living standards of the working class and a further redistribution of wealth from the bottom to the very top of the economic ladder.
But they have completely failed to engineer a revival of productive business investment, the original justification given for their implementation. They have done the opposite, encouraging a growth of financial parasitism and speculation even beyond the manic levels that led to the 2008 crash in the first place. Business investment in North America and Europe has failed to return to its pre-2008 levels.
Banks and corporations are hoarding their vast profits and using a portion of them to increase the holdings of executives and big investors through stock buybacks, dividend increases and mergers and acquisitions—all entirely non-productive and socially destructive activities that generally involve job losses rather than gains.
In her remarks, Yellen alluded in passing to the decline in business investment, noting that despite improvements in the job market and consumer spending, this essential barometer of economic health remained “soft.” The other crucial measure of economic strength, labor productivity, is also in decline, having dropped in the US for three straight quarters, the first time that has occurred since 1979. The sharp slowing of labor productivity is bound up with the depression in business investment, an essential catalyst for increasing the rate of output.
The seriousness of the underlying crisis was reflected in Yellen’s further comments on the neutral interest rate. “By some calculations,” she said, “the real neutral rate is currently close to zero, and it could remain at this low level if we were to continue to see slow productivity growth and high global saving. If so, then the average level of the nominal federal funds rate down the road might turn out to be only 2 percent.”
While conceding that a continuation of ultra-low interest rates and massive subsidies to the financial system “might inadvertently encourage excessive risk-taking and so undermine financial stability,” the Fed chair concluded, “Despite these caveats, I expect that forward guidance and asset purchases will remain important components of the Fed’s policy tool kit.”
In fact, these policies have already produced financial and asset bubbles that are unsustainable, and there are increasing signs of financial instability and crisis. There are growing warnings that the spread of negative interest rates is leading to a new financial meltdown even worse than the disaster that struck eight years ago.
Fed Vice Chairman Fischer was more blunt in a speech he gave on August 21 to a conference of the Aspen Institute in Colorado. He noted that the “decline in estimates of the neutral interest rate” was “related to the fear that we are facing a prolonged period of secular stagnation.” The latter term denotes a state of indefinite economic stagnation and slump, in which low interest rates are ineffective in boosting growth.
Noting that real growth in the US gross domestic product over the past year is estimated at only 1.0 percent to 1.25 percent, he focused on the role of what he called “exceptionally low productivity growth.”
He pointed out that “output per hour increased only 1.0 to 1.25 percent per year on average from 2006 to 2015, compared with its long-run average of 2.0 to 2.5 percent from 1949 to 2005.” He called a 1.0 to 1.25 percent point slowdown in productivity growth a “massive change.”

Air of crisis overhangs central bankers’ meeting

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When the annual conclave of central bankers gets underway at Jackson Hole, Wyoming on Friday, the main focus of financial markets will be on the speech delivered by Federal Reserve Chairwoman Janet Yellen. They will be searching for clues as to if and when the Fed might start raising interest rates.
The Fed made the first increase in its base rate for a decade last December, lifting it by 0.25 percentage points. It indicated that a further rise would come in 2016, but has since kept it on hold. However, last week Fed Vice Chairman Stanley Fischer pointed to changes in the jobs market and inflation, saying the Fed might be getting close to its target on these two indices, remarks interpreted as favouring a rate rise.
But overshadowing the conjecture about short-term decisions on monetary policy is a growing sense in ruling circles that the quantitative easing (QE) program of pumping trillions of dollars into the financial system has completely failed. What’s worse, it is creating the conditions for a new crisis.
In an article on the upcoming meeting, the right-wing British Daily Telegraph said there were three tough questions central bankers needed to ask themselves: is quantitative easing actually working, has the banking system been broken by the spread of negative interest rates, and is it time to update an economic model that “no longer tells us much about the real world.”
The rationale for QE, which bailed out the banks and financial institutions responsible for the 2008 crisis and fostered further speculation, was that lower rates would stimulate finance capital to invest in the real economy. This has not happened.
Eight years on, investment worldwide is well below where it was before 2008 with no sign of any uplift. This has been coupled with a downturn in the rate of productivity growth because of the reduction in capital spending, as funds accumulated by major corporations are channelled into speculative activities such as share buy-backs and mergers. So sharp has been the decline that productivity in the US could well be in negative territory.
The chief effect of quantitative easing has been to increase financial asset prices. Share values in the US are at or near record highs under conditions where economic recovery is taking place at the slowest rate for any period since World War II. In major cities around the world, cheap money has fuelled a property boom.
The most significant impact of QE has been in the bond market. It has created a situation where some $13 trillion worth of government bonds are trading with negative yields, meaning the price of the bond is so high, and the yield so low (the two move in an inverse relationship to each other), that an investor purchasing a bond would receive a negative return if he held the bond to maturity. Bonds, however, continue to be purchased in the expectation that their price will rise even higher, leading to capital gains. But such has been the escalation in prices that there has been a series of warnings from hedge fund and bond traders of a massive bubble heading for collapse, sooner rather than later.
But even as these warnings are made, the financial madness continues. This week the Wall Street Journal reported, in an article entitled “Credit Markets: Stimulus Efforts Get Weirder,” that, as part of its quantitative easing program, the European Central Bank is inducing investment banks and companies to create new forms of debt.
Having turned money lending on its head by moving to negative interest rates, the article said, central banks were now “all but inviting private actors to concoct specific things for them to buy so they can continue pumping money into the financial system.” While the ECB arrived late to QE, it had now “embraced bond-buying with fervor.”
When the US Federal Reserve began its QE program, its then-chairman, Ben Bernanke, predicted its actions would turn the situation around, lifting inflation and returning the capitalist economy to its previous growth path. “We have a technology called the printing press,” he said in a major speech on deflation in 2002.
The contradictions of the capitalist system, however, have proven to be more powerful than even the most powerful of central bankers.
Despite QE, inflation is running at below historical norms in the US and the UK and close to zero in Japan and the eurozone. Far from overcoming the crisis, QE has exacerbated it.
Ultra-low and even negative interest rates have directly impacted on one of the pillars of the global financial system. Pension funds and insurance companies are now facing a situation where their returns on secure assets, principally government bonds, are so low that their entire funding model is under threat.
Former UK pensions minister Baroness Altmann has said the entire system is at a “crisis point,” blaming the policies of the Bank of England for driving down yields, while the Financial Times this week reported on the growing crisis facing pension funds that rely on steady returns from secure investments in government debt. It noted that pension funds run by companies in the S&P 500 index were underfunded by $562 billion at the end of last month, an increase of $160 billion over the past seven months because of low bond yields.
Apart from indications about future interest rate movements, one of the issues that will be most closely studied in Yellen’s remarks will be what she has to say about the so-called neutral rate of interest. This is the rate at which it is judged that the economy is in equilibrium—with interest rates neither too low to lead to high levels of inflation nor too high, resulting in recession and unemployment.
There is a growing fear this rate has fallen so low, largely because of a slowdown in US economic growth, that interest rates cannot be raised much further. This is of concern because without an increase in rates, the Fed has no room to manoeuvre downwards in the event of another recession.
On top of this there are concerns that the bond markets have been inflated to such a degree that any increase in real growth rates will put upward pressure on interest rates, bringing a fall in inflated bond prices. This will result in significant losses for investors and speculators who have bought into the market at already high levels, expecting that prices will rise even further. The Fitch ratings agency has calculated that even a return to the market conditions of 2011, when interest rates were already at very low levels, would bring losses totalling some $3.8 trillion. In other words, even a small “success” in moving back to more “normal” conditions could have the effect of triggering a financial crisis.
The central bankers and financial authorities gathered at Jackson Hole have no economic answer to the crisis of the profit system over which they preside. Their only “solution” is ever deeper attacks on the working class coupled with the development of more authoritarian forms of rule aimed at suppressing the social struggles this will produce.