Saturday, July 07, 2012

American Blues

In November, Americans will have a chance to speak their minds through the ballot box. And there is a widespread and growing sense that life is not fair or right. In the never-ending tug-of-war between "labor" and "capital," it appears "capital" is so clearly winning.

Corporate profit margins just hit an all-time high. Companies are making more per dollar of sales than they ever have before. CEO pay is now 350X the average worker's, up from 50X from 1960-1985. CEO pay has skyrocketed 300% since 1990. Corporate profits have doubled. The top 1% of American wage earners have a bigger percentage of the country's total pre-tax income than at any time since the late 1920s. Their share of the national income, in fact, is almost 2X the long-term average. Between 1981 and 2008, however, things changed. The richest 10% grabbed 96% of the income gains in those years, leaving only 4% for the bottom 90%. And from 1997-2008, things got grossly unfair. ALL of the wage gains went to the top 10%. The top 1% of Americans own 42% of the financial wealth in this country. The top 5% own nearly 70%.  The top 1% only own 5% of the country's debt. Profits of U.S. businesses are only flowing through to those at the very top. In 2010 the US now ranks 93rd in the world in "income equality." In short, the capitalist system and philosophy has created a country of a few thousand over-lords and 300+ million wage-slaves. Social mobility is near an all-time low. The United States has become the country with the least equality of opportunity among the advanced countries for which there is data, and this includes many in ‘old Europe.’ This means that a child’s life prospects are more dependent on the income and education of his parents than in these other countries.

Fewer Americans are working than at any time in the past three decades. Unemployment. Three years after the financial crisis, the unemployment rate is still at one of the highest levels since the Great Depression. 8% unemployment rate, by the way, equates to about 13 million Americans—people who want to work but can't find a job. When you include people working part-time who want to work full-time, plus some people who haven't looked for a job in a while, unemployment is at 15%. A record percentage of unemployed people have been unemployed for longer than 6 months. The latest June figures show unemployment among black Americans rose to 14.4%, while the rate for Latino was unchanged but high at 11%. And that about one-third of the jobs gained in June were in temporary services, traditionally low-wage sectors. Nearly 2 million 20- to 24-year-olds are unemployed. Today, many employers are trying to replace as many employees as possible with computers, automation, robotics and other forms of technology. Those are jobs that are not ever going to come back. Today, workers aren't just competing for jobs with their neighbors. The competition now also includes millions upon millions of hard working people on the other side of the globe because of out-sourcing. The world is changing. Nothing is going to stop that. It doesn't matter who gets elected. Head of the International Monetary fund  Christine Lagarde expressed concerns over deteriorating global economy as the Western economic powerhouses show no sign of progress. "In the last few months, the global outlook has been more worrying for Europe, the United States and large emerging markets."

 Wages as a percent of the economy are at an all-time low. Since 1990 average "production worker" pay has increased just 4%. The minimum wage has dropped. (All numbers adjusted for inflation). After adjusting for inflation, average hourly earnings haven't increased in 50 years. From 1997-2008, things got grossly unfair The wages of the bottom 90% declined. This is both cause and effect. One reason companies are so profitable is that they're paying employees less than they ever have as a share of GDP. And that, in turn, is one reason the economy is so weak: Those "wages" are other companies' revenue.

And is the problem all because of greedy public sector workers as so many would like us to believe? About 16% now work for the government. There are about the same number of state and local employees as a percent of total US employees as there have been for the last 40 years. Let's be more specific. Is it those "state and local" governments that are doing all the hiring of all those bureaucrats such as teachers and firefighters whose pensions everyone's always yelling about? Well, no. State and local governments have actually been firing people in recent years. The number of Federal government employees has also stayed steady for nearly half a century and as a percent of total employed Americans, Federal government workers have been dropping steadily and are now near an all-time low.

One contributing factor to town and city debt was that they too were sucked into the housing boom. Property tax revenues soared, that over-spending seemed appropriate. In the recently declared bankrupt city of Stockton, for instance, house values quadrupled between 2000 and 2006, allowing the city of 300,000 residents to spend $47m on a loss-making sports arena, $100m on a smart marina. But with the bust, home values fell back to 2000 levels and revenues fell accordingly and the city was left with foreclosure rates of just under ten per cent, 15 per cent unemployment, and no way to meet the financial obligations it had built up during the good times. It began reducing retiree medical benefits, closing parks and libraries, and sacking police and fire officers. Crime rose, poverty grew. Another root cause was Proposition 13, a ballot measure passed in 1978 which froze property taxes and introduced a requirement that a two-thirds majority in the state's Senate vote for any major tax increases. Yet it is the workers who get the blame.

A thief once explained that the reason he robbed banks was because "that's where the money is" The man knew his stuff. Remember when the government bailed out the banks? Remember why they got bailed them out? We were told that it was so the banks could keep lending to businesses. Without that lending, we were told, society would collapse ...and did the banks lend after the bail outs? Nope. Bank lending dropped sharply, and it has yet to fully recover. And that helped produce their $58 billion of profit in the first six months of 2011, near-record financial sector profits.

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