This post is a collection of various commnents and references that will be continually updated.
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Robert Reich talks about "income concentration" in his latest book, "Aftershock". It is being caused by the usual ego and greed, but enabled by new technology, and supported by governmental policies that are unduly influenced by the small but very rich upper class. I believe that we may need a new economic model that takes into account the idea that technology is increasingly reducing the need for human labor to produce goods and services. Some people might interpret this to mean typical communist like redistribution of wealth. I assure you, I am not advocating communism or socialism.
But, it is definitely not a good thing when the vast majority of wealth funnels into a very small number of hands. When this happens, political disruption always follows, as history shows us. Pure capitalism, without regulations, leads to the same end as communism. So the issue becomes, how governmental regulation can create balance without becoming overly burdensome and being - in effect, the typical communistic state that we know doesn't work.
I don't know the answer, but I'm confident the solutions will derive out of open and honest discussions. The trick here is, "honesty". Too much misinformation, in the form of half truths and opinions disguised as fact, is spewing out of a lot of "news" sources. We need to ferret out the opinions that are not backed up by data. That won't be easy. We need to work harder. I dare say, part of doing this relies on people having the intangible characteristics of honor and principle.
Fareed Zakaria is journalist and editor for Time Magazine. He wrote an excellent article regarding the U.S. economy. I've copied and pasted a little of his article here. At the bottom, I have listed the URL link to his entire article on the Time.com web site. It is well worth reading.
. . . Some experts say that in every recession Americans get gloomy and then recover with the economy. This slump is worse than most; so is the mood. Once demand returns, they say, jobs will come back and, with them, optimism. But Americans are far more apprehensive than usual, and their worries seem to go beyond the short-term debate over stimulus vs. deficit reduction. They fear that we are in the midst of not a cyclical downturn but a structural shift, one that poses huge new challenges to the average American job, pressures the average American wage and endangers the average American Dream. The middle class, many Americans have come to believe, is being hollowed out. I think they are right.
Read the entire Time.com article here: How to Restore the American Dream
Other factual tidbits to consider besides the excellent points made in Mr. Zakaria's article:
Income inequality rates in the U.S. are some of the worst in the industrialized world, and here more people are falling into poverty than are being raised out of it — the 43 million Americans officially designated as living in poverty in 2009 was the highest number in the 51 years that records have been kept. (This is from another worthwhile article in Time.) Read more: http://www.time.com/time/world/article/0,8599,2043235,00.html#ixzz1Ba8rhLA0
So, America is getting poorer, yet the top 2% of income earners have never been wealthier, and their tax rates have almost never been lower. (See my other post on this blog about the "top 2 %" issue.) Doesn't anyone see the irony in this dichotomy? Or perhaps it is more a cause and effect relationship.
The average American's pay has been on a downward sliding scale for over 30 years. It has been the executive/upper management pay that has gone up. Remember, before unions and the labor movement, people were paid very poorly, kids were made to work, and working conditions were horrific. Sounds similar to the existing conditions in a lot of developing countries now. If it wasn't for government support, the benefits derived from the labor movement would never have happened, and there would not be a middle class.
The middle class is being decimated because of the lost jobs and lower wages that have been accumulating over the past 30 years. The effect of computer jobs shipped off to India and manufacturing shipped off to China is finally coming home to roost.
Victor Kiam, the late famous CEO of The Remington MicroShaver company, once said to his interviewer on a 60 Minutes episode from many years ago: "If we lose the manufacturing base in the country, you and I will be trying to sell each other insurance".
Do you remember what Ross Perot famously said when he ran for President: "That giant sucking sound you're going to hear is the sound of American jobs being shipped over seas". Ultimately, he was right.
Over the last 20 years, China, India, and South Korea, among others, have substantialy increased their ability to compete in the high tech arena. Jobs go over seas that never used to before. That is very different situation than when the U.S. built up its economy from 1948 through 1968. Foreign countries have reached the tipping point of being able to compete with higher skilled jobs, and that has had a detrimental effect on American job creation.
For the past 20 to 30 years, the U.S. has faked economic growth through financial bubbles and debt. We can no longer do that.
This is a complicated issue. Some of these trends are inevitable. There is almost no limit to the number of lower wages jobs around the world taking the place of what used to be higher wage jobs here in the U.S. But, that trend has an impact on our quality of life. How can it not? If it is not for government intervention, that trend will accelerate; because, in a totally free market world, work will go the lower wage worker every time.
Robert Reich recently said "It's easy to create low paying jobs. It's more difficult to create jobs that pay a good wage". Recent economic data backs that up. The business channel CNBC reported on Wednesday, Feb. 02, 2011, that a study of all the jobs that have been created in the past year shows that 76% of them pay between $8 and $15 an hour. Is that the future economic scale for most of us?
So instead, is everyone in the U.S. supposed to become a doctor or a lawyer, or a financial analyst? That won't work. But the higher skill positions that were supposed to be safe, like engineers, computer programmers, certain medical doctor functions, and other professional positions are increasingly being outsourced overseas. So, where are the decent middle class wage jobs supposed to come from folks? If you want to wait around until average wages around the world catch up, your grand-children will still be waiting before that happens. ... Unless you believe that the world is going to be hit by an asteroid and end in 2012, in which case, none of this matters. :)
The problems of our economy and oountry are complex, and don't lend themselves to platitudes and over-simplied explanations. Unfortunately, too many people want to cling to a simple explanation because it then leads (falsely) to a simple solution. That in itself is one of the problems. "It's the big bad government's fault". It appeases people's tendency to want to blame someone and find a simple solution. People also tend to believe in deep dark conspiracies, and good versus evil. It's all very simplistic, childish, and inaccurate. By inaccurate, I'm NOT saying that government doesn't play a role in our problems. It just not the primary reason for our problems. It's a complex problem because, people are complex.
The standard of living for a majority of Americans is declining. This includes loss of jobs and jobs that pay less, less opportunity, etc. It's the primary reason why everyone is upset, when it comes down to it, along with a related concept of the fear of the future.
So the question is, why is our standard of living declining? Why are jobs disappearing?
In order to answer that, one has to look at how the U.S. got so rich in the first place. The U.S. was in a depression in the 1930's, which was a deflationary spiral. Some people like to say that the U.S. would have gotten out of the depression without government spending. But we DIDN"T get out of it without government spending, and there is no evidence that the deflationary spiral would have broken magically on its own. A combination of The New Deal and then WWII, got the economy rolling again.
Most every developed country in Europe had its manufacturing base wiped out by the end of WWII. But the U.S. manufacturing base was in full swing from the war effort - and we were not bombed out.
So we manufactured everything for the world. The government realized that if the rest of the world didn't get redeveloped, there wouldn't be much of a market for our products, so we helped build Europe and Japan back up in order to have a market. It was of course, also the right thing to do.
As immigrants poured into the U.S., our manufacturing base continued to expand, so most of them were able to find employment. We exported products everywhere. The U.S. government funded R&D projects that led to the technological revolution. Also, many private companies invested in their particular product R&D niche.
We can stop the first part of the story there. That is how the U.S. got rich. Oversimplified, but bascially correct
.
Compare that to now: The rest of the world caught up. They manufacture most everything we can make, and they make it cheaper, because their people are willing to (or in some instances, forced to) work for much lower wages. As this scenario developed, U.S. companies began shipping work overseas. They were making a profit, but they could make a bigger profit by having the work moved overseas.
As jobs disappeared, the mantra was "you have to learn new skills". That was true. Most of the good jobs now became "professional". Engineers, lawyers, software programmers, accounting, finance, etc.
What the finance MBA types figured out is, they could now start to ship off even the higher level jobs overseas, and make even more profit.
I'm sure you've heard stories of U.S. workers who actually had to train their replacements in India to do their job, and then were laid off. I know people this happened to. These were skilled professional level jobs, the ones that supposedly replaced the manufacturing jobs that disappeared. It's a disgrace.
No company is concerned with the problems created by increasing amounts of laid off workers; they are only concerned with their own bottom line. Again, the story can stop here. This is the primary reason why our economy is in such bad shape. You can't eliminate that many good paying jobs and expect to have a vibrant economy.
But here is the big problem. This trend is inevitable, particularly in a free trade environment. Money always flows to where it will get the best return on investment. Unless you become protectionist, there is no way to stop cheaper goods and services being imported.
My economics professor in college used to say that foreign countries would export unemployment to our country by keeping the value of their currencies low in order to ensure their products remained lower cost. They create jobs, we get unemployment. That's the new reality.
So, what do people do for a living, particularly those people who are older, but not old enough to retire? It's not viable for most people in the 50's to go back to school and get a degree, or a different degree. There is no pay back for the investment at that point, let alone the fact that at 50, you don't have the same energy as you did at 20.
And here's the kicker. While all of these middle class jobs are being eliminated, U.S. corporate executives pay themselves huge bonuses because they saved so much money, and increased the stock price. This is one of the biggest reasons why there is an increasingly larger gap between the rich and everyone else.
Some more tidbits that I've gathered from researching various sources over the past several months:
#1 Ten years ago, the United States was ranked number one in average wealth per adult. In 2010, the United States has fallen to seventh.
#2 The United States once had the highest proportion of young adults with post-secondary degrees in the world. Today, the U.S. has fallen to 12th.
#3 In the 2009 "prosperity index" published by the Legatum Institute, the United States was ranked as just the ninth most prosperous country in the world. That was down five places from 2008.
#4 In 2001, the United States ranked fourth in the world in per capita broadband Internet use. Today it ranks 15th.
#5 The economy of India is projected to become larger than the U.S. economy by the year 2050.
#6 One prominent economist now says that the Chinese economy will be three times larger than the U.S. economy by the year 2040.
#7 According to a new study conducted by Thompson Reuters, China could become the global leader in patent filings by next year.
#8 The United States has lost approximately 42,400 factories since 2001. Approximately 75 percent of those factories employed at least 500 workers while they were still in operation.
#9 The United States has lost a staggering 32 percent of its manufacturing jobs since the year 2000.
#10 Manufacturing employment in the U.S. computer industry is actually lower in 2010 than it was in 1975.
#11 In 1959, manufacturing represented 28 percent of all U.S. economic output. In 2008, it represented only 11.5 percent.
#12 The television manufacturing industry began in the United States. So how many televisions are manufactured in the United States today? According to Princeton University economist Alan S. Blinder, the grand total is zero.
#13 As of the end of 2009, less than 12 million Americans worked in manufacturing. The last time that less than 12 million Americans were employed in manufacturing was in 1941.
#14 Back in 1980, the United States imported approximately 37 percent of the oil that we use. Now we import nearly 60 percent of the oil that we use.
#15 The U.S. trade deficit is running about 40 or 50 billion dollars a month in 2010. That means that by the end of the year approximately half a trillion dollars (or more) will have left the United States for good.
#16 Between 2000 and 2009, America's trade deficit with China increased nearly 300 percent.
#17 Today, the United States spends approximately $3.90 on Chinese goods for every $1 that China spends on goods from the United States.
#18 According to a new study conducted by the Economic Policy Institute, if the U.S. trade deficit with China continues to increase at its current rate, the U.S. economy will lose over half a million jobs this year alone.
#19 American 15-year-olds do not even rank in the top half of all advanced nations when it comes to math or science literacy.
#20 Median household income in the U.S. declined from $51,726 in 2008to $50,221 in 2009. That was the second yearly decline in a row.
#21 The United States has the third worst poverty rate among the advanced nations tracked by the Organization for Economic Cooperation and Development.
#22 Since the Federal Reserve was created in 1913, the U.S. dollar has lostover 95 percent of its purchasing power.
#23 U.S. government spending as a percentage of GDP is now up to approximately 36 percent.
#24 The Congressional Budget Office is projecting that U.S. government public debt will hit 716 percent of GDP by the year 2080.
The following is an excerpt from 23 Things They Don’t Tell You About Capitalism (Copyright © 2011) by Ha-Joon Chang.
The free market doesn’t exist. Every market has some rules and boundaries that restrict freedom of choice. A market looks free only because we so unconditionally accept its underlying restrictions that we fail to see them. How "free" a market is cannot be objectively defined. It is a political definition. The usual claim by free-market economists that they are trying to defend the market from politically motivated interference by the government is false. Government is always involved and those free-marketeers are as politically motivated as anyone. Overcoming the myth that there is such a thing as an objectively defined "free market" is the first step towards understanding capitalism.
The first chapter of the book is available to read on-line at the following website:
23_things_they_dont_tell_you_about_capitalism
It's very well worth reading.
Lou,
ReplyDeleteHere is a article that offers a more moderate point of view on inequality. It offers suggested solutions. I quote the conclusions paragraph below.
http://www.economist.com/node/17959590?Story_ID=17959590
>>> Viewed from this perspective, the right way to combat inequality and increase mobility is clear. First, governments need to keep their focus on pushing up the bottom and middle rather than dragging down the top: investing in (and removing barriers to) education, abolishing rules that prevent the able from getting ahead and refocusing government spending on those that need it most. Oddly, the urgency of these kinds of reform is greatest in rich countries, where prospects for the less-skilled are stagnant or falling. Second, governments should get rid of rigged rules and subsidies that favour specific industries or insiders. Forcing banks to hold more capital and pay for their implicit government safety-net is the best way to slim Wall Street’s chubbier felines. In the emerging world there should be a far more vigorous assault on monopolies and a renewed commitment to reducing global trade barriers—for nothing boosts competition and loosens social barriers better than freer commerce.>>>
John, that seems to be pretty good. As I write this, I've only read the conclusion that you typed in. I'll go back and read the entire article for sure.
ReplyDeleteIn the mean time, I wanted to post the following comment before I lost it. :) It comes from someone reviewing Aftershock:
"Former Secretary of Labor Robert B. Reich, in his own commentary also entitled Aftershock, shows that the reason for such a drastically changed economy is different than most of the experts have told us. While many Americans, including leaders in Washington and the press, painted Wall Street as the primary perpetrator of the Great Recession, Reich says that this interpretation is shallow and ultimately inaccurate.
The problem, Reich argues, "...lies in the increasing concentration of income and wealth at the top, and in a middle class that has had to go deeply in debt to maintain a decent standard of living....The last time in American history when wealth was so highly concentrated at the top--indeed, when the top 1 percent of the population was paid 23 percent of the nation's income--was in 1928, just before the Great Depression. Such a disparity leads to ever greater booms followed by ever deeper busts."
The real problem now is that "...the middle class lacks enough purchasing power to buy what the economy can produce...Unless this trend is reversed, the Great Recession will only be repeated....Technically, the Great Recession has ended. But its aftershock has only begun."
In this environment, says Reich, even those who keep their jobs will see their wages go down, and unemployment will stay high. Most challenging of all, the U.S. government will not be able to fill the gap long term.
Reich points out that mortgage debt explosions between 2000 and 2008 are much like those from 1920-1929, and the stock and real estate speculation of the 2000s is similar to that of the 1920s. He is concerned that although President Obama's response to the downturn kept the Great Recession from following the depressionary path of 1929, this very success has "reduced the urgency of dealing with the larger challenge..."
In short, according to Reich, the American middle class can no longer maintain its standard of living without debt, and until this is solved America's problems will only spiral downward. Since about 1975, Reich argues, the middle class has experienced a growing gap between their income and the lifestyle that they have come to consider normal. Since even coping mechanisms like sending both adults in the home into the workforce didn't entirely fill in the gap, they compensated with debt.
Then their children did the same, and now their grandchildren are following suit. But each new generation is comfortable with much higher levels of personal debt and simultaneously more convinced that they are entitled to their accustomed lifestyle."
"When an honest and hard working individual cannot earn enough money to provide even just a modest living for a family, we are in trouble."
Lou, I truly wonder whether or not you really read the things that I post. You seem to give a one sentance complementary acknowledgement and then move on to your agenda. Anyway I digress.
ReplyDeleteI think the question of standard of living expectations needs to be explored. There are many many people that provide a modest living for their family on $40,000/year (or what ever income you want to insert). There are many many others that go into huge debt with that same income under the same circumstances.
It always frustrates me that the former get no respect for living within their means and the latter has media story after media story written about their plight.
John, I most definitely read the things you post, and read the articles from the links. It took me a while to get through the one about California Public Unions, but I did read it and acknowledged that it made some valid points.
ReplyDeleteIn terms of your comments about living expectations, I think it very much depends on where you live, whether a given salary level could be considered enough to modestly raise a family of four in a decent environment.
The article you linked to from the Economist is a good. I read the entire thing, and I also read the comments posted by people about the article. Both the contents of the article and many of the comments are worth reading.
I often plan to give detailed responses to your comments, but my intentions sometimes get ahead of the reality - which is that it takes a lot of time to read all of these things and think through a response that is detailed and articulate. :)
So anyway, the article in the Economist confuses things by mixing comparisons of different countries with comparisons from within a given country. Those are two very different concepts and should not be mixed.
Another idea - pointed out in one of the comments is, the free market in skills/people works only within a skill set (including the unskilled). So it may be good at setting the relative wages of financiers, but contributes little to the relative rewards of, say, financiers versus engineers.
I also like this comment, which reflects my own opinion: "Here is the rub. No one is a success on their own. The only reason some are skilled/lucky enough to make BIG money is the opportunity provided by the supporting infrastructure of the society they live in. The myth that such wealth is 'self made' is put to the lie by this fact. The rich indeed should be taxed more for they are utterly dependent on the on the wealth of the not so rich. While life is not a zero sum game the opportunities available are not evenly divided."
And this one: "The myth of the "self-made" man is alive and well in the consciousness of America, probably because people need to believe that they can make it on their own. Unless you've worked your way up from hunter-gatherer picking a living from the Sahara, this idea is pure B.S., everybody from your 2nd grade teacher to they guys who laid the pavement in the street connecting your house to the highway 20 years ago played a part in your success. We are a society, and despite American protests to the contrary, and individual is nothing by him/herself, and no one man or woman is worth hundreds or thousands or millions of times what another hard working compatriot is worth."
More to follow..
A comment that I think is very good is the following: "I've read that Plato suggested a 1:5 ratio between the lowest and highest paid members of a society (haven't read the original work, so this is second hand), so this isn't a new question. To me, this seems about right - with a ditch digger making 50k/year and a doctor making 250k, and everybody else falling somewhere between those two extremes - doesn't seem to me to be too far off the mark. "
ReplyDeleteGreetings Lou, This seems to be a much more productive forum and environment for debate and discussion, than some others we both have had experience of? ....:-)
ReplyDeleteAs to this debate I would comment that splitting hairs about Unionized workers, as to public or private is really not the major overall issue, as to the dissembling of the modern American economy. That the American worker, as in the middle class, regardless of his employer, has "priced himself out of the market" is a matter of fact and there is plenty of blame to go around!
That this has had no effect upon the actuality that is the widening gap between the rich and this disenfranchised majority, when it comes to access to opportunity , is the real debate. This condition still continues to this very day. The wealth and earning capacity of the nation is still out of balance and It becomes increasingly evident that your political system, corrupted by lobbyists both from corporate and military influences, is unable to address the real needs of the citizenry?
The abuse of capitalism is the main issue. As a tool, originally meant to help the entirety of any nation to prosper, it has been kidnapped by essentially "socialist" structured entities, which have no real interest in the health and welfare of citizenry or community. This debate will be lengthy and opinions abound from all sides, but is it not about just the wealthy and the poor, as this is an oversimplification of the problems that are rife within this complex and broken system?
From my responsive article to prof of law: Donald J Kochan's essay, "Should we regulate Luxury?" Los Angeles Times, August 1st 2010..... (for full text go to www.jamesconvey.com)
".................... Indeed it is true and I agree, that when one buys any product, the transaction is good for all. Similarly wealth accumulation in and of itself is not an evil.
Rather the absence of 'equitable' opportunity is the true evil, and when damage is seen to be done accordingly, to the least amongst the citizenry, then it is the duty of the state to act and enable a leveling of opportunity once again!........................." James M. Convey
Additionally the following supports your comments about the need for those achieving success to understand their accountability to society for their good fortune.........:-) sourced from my site.www.jamesconvey.com
ReplyDelete"........It never fails to disturb me, how many times throughout my 40
some year career, that I have witnessed perfectly able and talented
people, having finally achieved some wealth and the trappings of
authority and power, choose then to abuse the privilege, by
immediately inserting their heads firmly up their own
backsides............? "
Ego is certainly a necessary component of the list of talents required
for success in life's efforts,........... But uncontrolled ego is the
single most blinding event in business and life. This is born from the
belief, that they achieved their status or success, somehow solely
upon their own merit and guile and without any "significant" input
from their community, or society in general .............
In this definition, ego becomes arrogance! Arrogance begets
revolution! Rome will burn again and again, until the progress of man
is about the progress, health and welfare of the individual!
James, thank you for your excellent post. I should also say thanks to John C. for participating. I hope both of you continue to comment to this and other posts.
ReplyDeleteJames, I think your last two paragraphs are right on. Well, I agree with everyone you said, but those last two paragraphs really hit at the "spiritual" heart of what is going on. I hope you read and comment on my post "Data on the disparity of wealth and income". I plan to continue to add to that post and follow it up with other posts on that topic.
I am currently reading a book called "Perfectly Legal" by David Cay Johnston. It is very good, and well worth reading. It's feeding my passions on this topic. :)
James Covey wrote
ReplyDelete<>
James,
I believe that most of the comments about public employee unions are mine. This is an issue that I am particularly concerned about. I live in California and have seen first hand how they disrespect the public they serve and how they corrupt the political process. My concern is that we not allow this to get out of control in other parts of the country. They are the non-corporate equivelant of the Giant Vampire Squid.
Just to emphasize – my comments on public employee unions are completely unrelated to the wealth inequality discussion.
I tend to stay away from the wealth inequality discussion because there is nothing that can be done to solve the situation.
@JohnC........ I believe that the original intent and the purposes of the Union movement, were an essential cog in the arising of the great industrial power that the US became after the great depression.
ReplyDeleteThat this genesis has morphed over the last 30 years, and seemingly in particular in your California, into an abusive system of an "entitlement mentality" amongst its members, is simply another indication of the pendulum swings of extremism that occur, regardless of the ideological sectors or beliefs within your society. Right or wrong that is the truth as I see it?
Unfortunately the cure for this extremism, which would be sensible regulation and common sense adjustment through debate and discussion, has become instead a cause celebre' for disingenuous politicians from all sides. It may add spice to the debate, but very rarely offers sensible compromise solutions? To reestablish protections for both the worker and the community should after all, not need such virulent animosity? The pathos of blame and search for 'scapegoats' has entered the debate!
It appears that the American political realities of today are those of extremism and not common sense solutions? The 'moderate voice' as we all know is seldom heard, over this hate filled rhetoric from both sides. It frankly "doesn't sell papers", to use an old aphorism.
The polarization of the American community at present, is without doubt founded in very real and severe wealth disparities. Real fear has entered the dynamic of the American worker at all levels, allowing blame and ridicule to rule over any sensible solution seeking! And it will not allow for any change that is not seen to be formulated from an apparent and open "worker friendly" dialogue.
The enemy in this dynamic is seen to be the right, and of course the right maintain their questionable and I believe extreme, approaches to economics, which also supports their insistence, that the masses of workers are too soft, non productive, overpaid, over entitled etc etc. In essence they attack the workers with excessive verbosity and blame. Hardly an issue solving environment?
Unfortunately there are those politicians in your dynamic who have grown and matured under a system that permitted this great economic disparity to grow. The cries of the worker for a leveling of access to opportunity and security for them and their futures, are no less genuine in America, than those of young people and workers around the world.
It is fear that drives this issue and for any politician to use attack dog tactics for political expediency, is inviting severe repercussions, hopefully short of violence!
All of this being written, it is still a fact that the average American individual has for 30 years Union worker and otherwise, been the beneficiary of an unreal "excessively exuberant" (to quote Greenspan) economic boom, that has basically crashed, and impoverished the entire Global capitalist system, with a debt tsunami that has not yet fully run it's course!
The new dynamics of the good old "trickle down" economics will obviously only trickle down to the lower levels, as the wealthy, although somewhat affected, are protected by their superior positioning over the boom period. Economic facts! The people, in this case representing the vast majority of Americans, will continue to see increasing costs, lower incomes, reduced buying power and a loss of leverage in the workplace.
All this will of course serve the corporate purpose and one can then more easily understand therefore, the reasons for the right wings surge of evident confidence going forward. After all what choice do the people really have? Starve or work? It will be argued that a new competitive Global dynamic requires such sacrifice. This may be true, but for me this is no time to use attack dog tactics, upon a nation of workers that are entering into such a fragile and unsure future. Easy does it should be the motto!
@JOHNC........ Please pay a visit to my site www.jamesconvey.com. The drop down menus cover "economics" : "politics":"literature":" Religion"
ReplyDeleteHope you enjoy your visit and please comment as you wish. My BIO and mission statement is also available.
regards James