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Saturday, November 13, 2010

A few plutocrats cannot keep an economy this size going all by themselves
Posted by Jill | 5:59 AM
The American economy post-World War II was built on a thriving middle class. Henry Ford may have been a vicious anti-Semite, but he recognized as early as 1907 that he could sell more cars if more people could afford them. It seems obvious that you will make more money selling a million four-dollar widgets than if you only sell a hundred of them at ten dollars because only a few people can pay ten dollars for a widget.

My parents both lived through the Depression. My father's parents were always poor, but their sons took advantage of free education at City College and both achieved advanced college degrees. My mother's family fared better, moving out to Altoona, Pennsylvania from the Bronx. I always picture their house as resembling the one in the movie A Christmas Story -- and I'm sure I'll get a call either confirming or debunking that very soon.

My sister and I grew up in a time of unequalled prosperity in this country. We knew about riots in Watts and in Newark, and we knew about poverty, but for white suburban kids like us (and there were a LOT of us), life wasn't the kind of luxury that kids of the McMansion generation have known (and likely will never know again), but it was comfortable. Some kids still shared bedrooms in larger families, but no kid had a private bathroom. Television was something that was in the living room and you largely watched what your parents wanted to watch, which in our house was shows like Ben Casey and The Defenders and The Twilight Zone. We had meat every night but steak rarely. And of course without the sheer number of electronic gadgets available now, we amused ourselves by building outdoor forts of empty cardboard boxes, playing with dolls or Kenner building sets, or playing board games. We had no "play dates"; if you wanted to play with another kid you'd just go to someone's house.

I'm not trying to paint some kind of 1950's-60's idyllic existence, certainly not in MY dysfunctional family. But my father, who was a biochemist in cancer research at Merck, worked a 9-5 day. My mother was a legal secretary and one of the only women in any of the neighborhoods we moved to who worked outside the home. There was none of this business of working 80 hour weeks to try to prove your value to the company. When we moved to Westfield in 1965, I became aware of people who were far more affluent than we were. They were the old-money WASP families who lived in the big Tudor mansions in the Wychwood section of town. But in our neighborhood, it was people like us. Not all worked white-collar jobs; there were trash haulers and manufacturing workers, but all could afford a three-bedroom, bath-and-a-half split on the outskirts of a town with a top school system.

In the late 1970's, I was out of college and renting a $350/month garden apartment in Linden. We were already starting to see the prosperity of my childhood disappear, what with the first oil shock in 1973 and the second in 1978. I began working weekends at the gas station around the corner, partially for extra money, but also so that I could be guaranteed to be able to put gas in my car. The station was run by a guy who worked full-time at GAF and also had this gas station. Joe wasn't the sharpest knife in the drawer, but he had a house in a decent neighborhood. He could probably have made ends meet with just the GAF job (which had health insurance and a guaranteed pension), but he wanted to be sure that he could do right by his kids in case he got laid off.

The bottom line of all this is that while there were always people who lived lavishly, my childhood and young adult years were populated by people of varying degrees of intelligence from varying backgrounds, some working blue-collar jobs, some white-collar jobs, but most of them didn't walk around with the kind of constant, gnawing fear that those of us who still have jobs do today.

For the first half of my life, corporations seemed to recognize that you could sell more stuff if people could afford to buy them. Globalization increased markets for American goods, except that somewhere along the line, American goods became something not worth having. In towns across this country, there are still people driving 1972 Dodge Darts like the one I had. But when the gas shocks hit, the U.S. auto industry responded by making crappy cars like the Ford Pinto and the Chevy Nova, while Toyota and Honda were ready with reliable, fuel-efficient cars to welcome us with open arms. Television may have been invented here in the US, but Zenith and RCA's color TVs couldn't hold a candle to those made by Japanese companies like Sony and Panasonic, who took our technology and instead of only looking at the financial performance of the next quarter, took the long view and made quality products that people wanted to buy. And instead of trying to compete on quality, American companies gave up and either closed up shop or shipped jobs overseas.

Mr. Brilliant has always said that we make nothing anymore in the US except paper and talk, only now it isn't even paper; it's a series of ones and zeroes being fed over a wire -- or through the air. Even American companies whose products ARE in demand, like Apple, don't manufacture here. Software development became a skill that commanded a high salary -- and so companies decided to offshore this work. Now X-rays can be read overseas. Financial back-office transactions can be done overseas. Accounting can be done overseas. The jobs that created the American middle class and a working class that could look forward to watching its children graduate college have been disappearing for thirty years, and continue to do so, as this race to the bottom among those who do the work in order to further stuff the pockets of those at the top shows no signs of abating.

And when it's all over; when Ronald Reagan's Shining City on a Hill is populated by a few billionaires in gated estates while the rest of us scramble for scraps, what then? When Thomas Friedman's dream of a flat earth in which wages even out worldwide -- at a far lower level than required to maintain a middle class, what then? The plutocrats simply cannot buy enough STUFF to keep an economy the size of ours afloat by themselves.

But that's where we're headed, and we see it now:
The good paying, predominantly white-collar jobs that once sustained many American communities are disappearing at an alarming rate, keeping the unemployment rate stubbornly high despite the end of the Great Recession.

More troubling, these jobs in accounting, financial analysis, commercial printing and a broad array of other mostly white-collar occupations are unlikely to come back, experts predict.

There isn't a single cause to the trend. Some of it is explained by changing technology, some of it is the result of automation. Sending well-paying jobs to low-cost centers abroad is another big part of the story. So is global competition from emerging economies such as China and India.

The result is the same in all cases, however. Jobs that paid well, required skills and produced vital communities are going away and aren't being replaced by anything comparable.

"Unfortunately, the evidence is that you see a form of downward mobility of workers who are displaced from middle-skilled, stable career occupations," said David Autor, an economist at the Massachusetts Institute of Technology, in an interview.

Autor published a much-discussed paper in April, suggesting that the U.S. labor market has become polarized, with employment growth in the high-skill, high-wage end, and the low-skill, low-wage end. The vast middle, he concluded, is shrinking.

"The Great Recession has quantitatively but not qualitatively changed the direction of the U.S. labor market," Autor concluded, pointing to an accelerating trend that he said has been underway for more than a decade.
In a 2007 study, Princeton University economist Alan Blinder estimated that 1 in 4 U.S. jobs potentially could be sent offshore because of technology, low-cost labor and the fact that service sector jobs are so much more abundant in the U.S. economy.

"I'm not totally convinced that the deep recession has accelerated the trend toward offshoring. There are certainly examples of that. But the main effect seems to be that firms learned to get by with less labor, whether domestic or foreign," said Blinder, a former vice chairman of the Federal Reserve. "That said, as employment expands and labor markets normalize, we should see the offshoring trend reassert itself."

Blinder identifies accountants and providers of similar financial services as prime targets. Accounting blogs set up to lure these jobs to India boast of a $47,000 saving per U.S. accountant whose job is sent offshore.

Historical trends also reveal the mounting loss of middle-skill jobs.

According to data in the MIT study by Autor, skilled professional employment rose by 28 percent from 1979 to 1989, while employment in office and administrative jobs jumped 11 percent.

Then, from 1999 and 2007, those employment gains slowed to 11 percent and 1 percent respectively. And from 2007 to 2009, spanning most of the Great Recession, there was no job growth for professionals, while office and administrative employment fell by 8 percent.

This loss of middle-skill jobs — what Autor calls polarization of the job market — intersects with another discouraging trend, the concentration of wealth at the highest rungs of the wealth ladder.

Research from University of California-Berkeley economist Emmanuel Saez shows that from 1993 to 2006, average real income per family grew by an annual rate of 1.9 percent. But when subtracting out the top 1 percent of income earners, the rate of growth is 1.1 percent annually. Instead of income growth of 28 percent over the 15-year period, it's almost half that, 15 percent.

This suggests that the top 1 percent of earners in the nation captured almost half of the growth in income over a period of stellar growth in the U.S. economy. And this came against the backdrop of disappearing good-paying union jobs in manufacturing, and what now appears to be an escalating departure of well-paying middle-skill jobs.

"The middle class think they will be rich someday. The chance that people are going to become super rich is negligible. In fact, what we know is that income mobility up the ladder is slowing down, it's not increasing," said Robert Reich, an economist and former U.S. labor secretary, in a recent interview. "It's harder now for a kid born into a middle-class family to make it. It's harder for a kid in a lower middle class to do well . . . the story is obvious and so clear that it really needs to be laid out to people."

But as long as we are willing to vote for people who get out on the stump and say, "Look! Look at that [black guy/illegal immigrant/Muslim/Indian guy/welfare mother/pick a boogeyman any boogeyman]! HE's your problem!" -- while they lift our wallets from our back pockets; as long as Americans jump at the red meat tossed at them by opportunistic hatemongers like Sarah Palin and Rand Paul; as long as we persist in this fantasy that if we just stuff enough taxpayer cash into the pockets of the wealthy they might hire a few people, we're going to continue to be like the proverbial frog in the slowly-heating water on the stove -- unable to see our participation in our own doom.

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Anonymous Ted said...
Jill, Jill, Jill,

You miss the point! American plutocrats don't care if there is an _American_ economy or not. They can get whatever they [think] they need from Chinese factories. And indeed, current thinking [theirs, mostly!] suggests that the Chinese middle class [if that's not an oxymoron; there are already more "middle class" Chinese than there are American] will purchase all of the overpriced widgets that they or their cronies will ever be able to make -- in their Chinese factories no doubt.

And, they will likely be helped in their efforts by the Chinese authorities who care not except for the money they will likely bring to the table.

Look! As the price of living goes down generally, the plutocrats will _still_ have more money than anyone else. If they do nothing else except buy "things" that they can later sell -- gold comes to mind; as does water -- they will continue to be richer than everyone else.

And if America becomes too uncomfortable, there is always the south of France -- or Dubai. At some point they may have to stop selling "stocks and bonds", but by then it won't really matter. They will have the several trillion from Social Security to play with!

And don't give American industry up yet! We haven't even begun to build nuclear submarines for the Chinese or Indians! That has got to be worth a few billion. Trillion!?

Do you think the Royal Courts of the 18th and 19th century -- long before there was a serious "middle class" -- much cared about the "economy" of the surrounding countryside. Would we even recognize an "economy" in the surrounding countryside? The courtiers got the luxuries they wanted; the countryside mostly operated a subsistence lifestyle with no interaction upward -- except the periodic, and hated, tax collectors. Who I have no illusion will ever go away!

Anonymous mandt said...
When can we take their money and burn down their houses? How-a-bout Guy Fawks Day?

Anonymous Ed From Indiana said...
I think the scare we got from China is just what we needed. With a little bump from our unions, school systems and industry, we can enjoy the good times again. And lower taxed just might do it!