Economic Disparity

Since the 1980's and even before, if you were to ask a presidential candidate what the campaign's primary issue was, they'd tell you that far above any social issue, any security issue, (even post 9/11) the economy has been the biggest concern for Americans.  Economy means inflation, income, housing, international trade, Wall Street and more, so it's a very complex issue.

So let's examine the economy.  Today, more than at any time in American history, the stock market is vibrant.  Breaking new records almost daily, the DJIA closed last week above 16,000 for the first time in history.  As I'm writing this, it's standing at almost 16,100.

Yet today, unemployment is above 7 percent overall, and far higher in key demographics.  Average income in the US is down precipitously since before 2007's Great Recession.  Historically high numbers of Americans are on some sort of government assistance.  Student loan defaults are at historic highs.  And as a country, our debt continues to increase, as we pour trillions into programs that have no chance or intention of changing the economic trajectory of the average American.

Today's presidential candidate might say their primary campaign issue would be economic inequality.  Today, the share of income flowing to the top 1 percent is over 20 percent - the highest level since right before the Great Depression.  Since 1993, the top 1 percent has benefitted from over two thirds of US economic growth, per family, real income.  Since the 'recovery' of the 2007 Great Recession, 95 percent of the total increase in income went to the top 1 percent.  Staggering.

In terms of wealth, the top 5 percent of Americans now control 72 percent of the wealth.  The other 95 percent control only 28.

So how can Wall Street be so vibrant, while Main Street is barely getting by?  The truth behind the numbers is telling.  The current market cap of the stock market is bigger than the Gross National Product of the US.  That doesn't happen often - only three times in history, two of which were right before the crash of the economy in 2007.  All the while, the Fed is providing economic stimulus to the tune of billions per month to help prop it all up.

Let me provide some insight behind the sharp contrast between Wall Street and Main Street.

The first reason market indices no longer reflect conditions on the ground is, they are based on productivity gains, not employment.  Corporations are investing in technology instead of workers.  The tax code is fertile with tax deductions for equipment and technology, not so much for investment in employees.  Higher productivity + lower payroll = higher profits.

Another reason - workers have no bargaining power when unemployment is high.  Wages stay low because those who are employed feel fortunate to have a job.  While governmental support systems, such as tax breaks for hiring the unemployed, may have helped in a different place and time, government is operating under very austere conditions as we chip away at deficit spending and try to at least reduce the rate of growth of the National Debt.  The result of a powerless work force is lower wages for workers and higher short-term profits for corporations.

American corporations are beholden first to stockholders, so they go searching globally for cheap workers.  That usually means moving much of their manufacturing and production off-shore.  That results in lower taxes, and again, less investment in employees.  Wall Street looks positively on all of this.

I mentioned the Fed.  The easy money they provide plays a huge role, pushing investors toward Wall Street, because bond yields are at historic lows.  Stocks, while riskier, produce far higher returns.

One final reason that doesn't get much play, but is a concern of mine: The methodology of the stock market.  At one time, investors looked for companies they felt were 'doing it right'.  They invested in ideologies and strategies.  Today, much or most of the trading on Wall Street is done by computer algorithms, and a share of stock might be bought and sold within 1/10th of one second, for a profit of less than a penny.  That's not much, but do it a billion times a day, and the results are staggering.  More important than corporate ideologies and philosophies in today's stock market, is the speed of your Internet connection.

The result: Wall Street is healthy, Main Street is not.

Adding insult to working-class injury, sequestration has eliminated or reduced the DOE's Title 1 Program, Head Start, and WIC, which provides nutritional education and assistance.  Rent subsidies are disappearing.  Cuts to the Department of Agriculture have eliminated or reduced food stamp benefits for many who need them.  Those who are suffering as a result of the productivity gains of corporations, the unemployed, are finding their long-term benefits are disappearing because of government sequestration.

Never before have governmental policy, and the need to feed the beast that is Wall Street, so inopportunely coincided to so radically help America's most fortunate, and hurt the least among us.

The icing on the cake is, nothing will likely be done about it.  Lax campaign finance laws mean those with the most money will get the most attention.  One individual can, through various means, contribute an unlimited amount of money to a Congressperson.  The Supreme Court says corporations are people, and money is free speech, a constitutional guarantee.  As bargaining power of employees is slowly whittled away, and the power of unions is reduced or removed, the rich hold not only the trump card, but virtually all of the cards.

Gerrymandering, and an apathetic (or worse, blindly partisan) electorate, ensure that those in power will remain, and little will change in the near future.

I'm not saying nothing will ever change.  History is a great tool, and easily reveals what happens to top-heavy economies.  Pyramids crumble when turned on their heads.  But our continued blindness to signs is discouraging.  Capitalism, in its orderly and regulated form, is an absolutely amazing system.  Capitalism unbridled and unregulated, is no better than Marxism or Communism, and is as dangerous a scourge as exists anywhere.

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Spare me the tired slogans or accusations of class envy, I've lived through extremes, both high and low.  I'm a vibrant supporter of Capitalism.  I'm stating facts, feel free to check them.  We live in interesting times.

May you live in interesting times...

That Chinese proverb will soon gain a new level of meaning for all of us.

My Dad has been warning me for a while that the paradigm of "normal" in this country will soon change. For a while I've been skeptical and pretty dismissive of his words. I am now changing my tune a little. Economically, all bets are off.

First of all, it's popular to criticize big business for greed and profiteering, (oil companies, banks, corporate employers) but it's important to maintain perspective. I agree, the exorbitant lifestyles of some of the CEOs, and the grotesque levels of profit made by the investors (stockholders) is a bit much, but I'm still a fan of profit. I don't blame someone for hopping on an elevator going up, and if a salary and benefits are offered to a CEO, it's personally irresponsible to decline it.

Unfortunately, stockholders and CEOs have been so bent on taking profits, there is little buffer for bad times. Those banks and corporations are the first to experience exigency when the economy degenerates. The popular recourses are now bankruptcy, layoffs and restructuring, which leaves employees in an unkind position. I fear that we as a public haven't even begun to understand how lengthy and severe this economic depression will be.

In our current economy (and the world economy as well), we've seen the first effects, drop in demand. Orders for raw materials have spiraled to serious, unprecedented lows. Consumer demand is dropping in most categories. Layoffs have begun, but we haven't even scratched the surface. As the impact filters down, business models are being jettisoned.

Deflation will be the next word of the day... and not for good reasons. The supply of money will dry up and the government cannot keep printing it. Prices will go down, and without a corresponding consumer confidence boost, they will not spur sales as intended. More companies will suffer losses, cut jobs and close their doors.

The biggest investment any of us have, our homes, have dropped in value precipitously. We (many of us, myself included) sit on a product that is worth less than we owe. This bubble-burst has been the elephant in the room for several years, as we saw 10, 20, and in some areas, 30 percent increases in real estate prices PER YEAR. Those of us who paid those prices are now left sitting on the edge with a stiff wind blowing. (and if you bought a home between 2000 and 2005, this is probably you)

Reality is now coming home to roost, my friends. I think we are living in VERY interesting times.