Trump surrenders to Iran, lifts embargo, eases sanctions; Netanyahu key to peace

(Originally published June 15 in “What in the World“) Trump held a cage match. Tehran won.

Trump’s new agreement to reopen the Strait of Hormuz begins the painstaking process of clearing hundreds of ships through the passage and restoring the normal flow of energy. “Let the oil flow!” Trump proclaimed in a post announcing the deal.

Trump’s new ceasefire agreement with Tehran, a final draft of which hasn’t been released, won’t be signed until Friday. But it only lasts for 60 days, during which both sides will again pursue peace talks. Trump agreed to lift his blockade of Iranian ships in the meantime. Reuters, quoting an unnamed “senior Iranian official,” said the U.S. and United Nations will suspend sanctions on Iranian oil sales and release $25 billion of frozen Iranian assets. Iran will in return open the Strait to traffic, stop charging tolls on ships passing through and presumably remove its mines. Iran will, as part of any final agreement, also get to keep its enriched uranium, but dilute it.

It could take weeks before traffic in the Strait is back to normal, however. As many as 500 ships have been sitting in the Gulf, unable to exit. Iran must first de-mine the Strait. Then the process of moving hundreds of ships through the passage without creating congestion will itself be gradual.

Many shippers may prefer to wait and see if the latest ceasefire holds. The deal reportedly requires that Israel cease strikes against the Iran-backed Hezbollah militia in Lebanon. Whether Israel will abide by that remains to be seen. Israel launched airstrikes against Hezbollah targets in Beirut’s suburbs Sunday before the ceasefire agreement was announced, prompting threats of retaliation by Iran.

In the Red Sea, by comparison, shipping remains at just 56% the volume prior to the launch of attacks there by Iran-backed Houthi rebels. Whether oil will resume flowing through Hormuz fast enough to lower pump prices (and other prices) for summer motorists, therefore, remains to be seen.

Trump’s entire Iran fiasco and the resulting energy shock has reinforced the perception among many Americans that the U.S. economy is no longer working for them. Even though the job market is growing, wages aren’t keeping up with rising prices. While consumer prices are rising at 3.8% a year, average hourly earnings have dropped to 3.4%. Hourly earnings, adjusted for inflation, have thus dropped 0.7% over the past year. Accelerating inflation has effectively erased any wage gains Americans received over the past year.

Worries that inflation is eroding the purchasing power of their paycheck weigh more heavily on most U.S. households than the stock market’s performance might suggest. So do fears that inflation could prompt the Federal Reserve to raise interest rates, increasing borrowing costs for U.S. households.

While rising stock prices are boosting the wealth of households fortunate to have saved enough to invest in them, they’re rapidly increasing the gap between rich and poor. The wealthiest 1% of Americans own roughly 50% of all listed stocks, while the top 0.1% own more than double the bottom 90% combined.

The U.S. social safety net, meanwhile, is increasingly threadbare. Social Security’s retirement and survivors’ trust fund will be depleted by 2032, according to the latest projections. That means, barring action by Congress to shore it up, Social Security will have to cut benefits to that group by 22%. Medicare’s hospital trust fund is slated to run dry by 2033, resulting in an 11% cut to hospitalization benefits. The other parts of Medicare benefits, like consultations and drugs, are okay, as are Social Security benefits for the disabled.

What’s draining the funds? Fewer births and lower immigration mean fewer workers paying payroll taxes. Social Security and Medicare are funded largely with a payroll tax. But payouts are rising faster than tax revenue, hence the looming cuts.

Those rising income disparities are also reducing the amount of payroll taxes that Social Security collects as a proportion of all U.S. incomes, as Robert Reich explains:

Back in 1983, the cap was set so the Social Security payroll tax would hit 90% of total income in America. That 90% figure was built into the Greenspan Commission’s fixes. The Greenspan commission assumed that, as the cap rose with inflation, the Social Security payroll tax would continue to hit 90% of total income. Today, though, the Social Security payroll tax hits only about 83% of total income in America. It went from 90% to 83% because a steadily larger portion of the nation’s total income has gone to the top. In 1983, the richest 1% of Americans got 11.6% of total income. Today, the top 1% takes in more than 20%.