The crisis of middle-class America

[Lord Tammerlain]

FT.com / Reportage - The crisis of middle-class America

Some interesting facts

Dubbed “median wage stagnation” by economists, the annual incomes of the bottom 90 per cent of US families have been essentially flat since 1973 – having risen by only 10 per cent in real terms over the past 37 years. That means most Americans have been treading water for more than a generation. Over the same period the incomes of the top 1 per cent have tripled. In 1973, chief executives were on average paid 26 times the median income. Now the *multiple is above 300.

The trend has only been getting stronger. Most economists see the Great Stagnation as a structural problem – meaning it is immune to the business cycle. In the last expansion, which started in January 2002 and ended in December 2007, the median US household income dropped by $2,000 – the first ever instance where most Americans were worse off at the end of a cycle than at the start. Worse is that the long era of stagnating incomes has been accompanied by something profoundly un-American: declining income mobility.

snip

Nowadays in America, you have a smaller chance of swapping your lower income bracket for a higher one than in almost any other developed economy – even Britain on some measures. To invert the classic Horatio Alger stories, in today’s America if you are born in rags, you are likelier to stay in rags than in almost any corner of old Europe.

Combine those two deep-seated trends with a third – steeply rising inequality – and you get the slow-burning *crisis of American capitalism. It is one thing to suffer *grinding income stagnation. It is another to realise that you have a *diminishing likelihood of escaping it – particularly when the fortunate few living across the proverbial tracks seem more pampered each time you catch a glimpse


snip

Fewer than a tenth of American private sector workers now belong to a union. People in Europe and Canada are subjected to the same forces of globalisation and technology. But they belong to unions in larger numbers and their healthcare is publicly funded. More than half of household bankruptcies in the US are caused by a serious *illness or accident.

The rest of the article is fillled with personal stories regarding the above

 

[cpwill]

well, firstly, Canada is now more economically free than the United States; and that 'more than half of US bankruptcies are caused by medical costs' line is utter bunk.

however, our median household income power purchasing parity is still higher than Canada's (though admittedly not by much, and they are headed in a better direction than we are).

furthermore, from 1967 through 2005, real median household income of all Americans rose from a little $36,379 to $46,326 in constant 2005 dollars:

that's an increase of more than 25%, not 10%.

and that increase is generally reflected at all levels:

and those levels are generally not static class categories, but functions of age.

 

[imagep]

FT.com / Reportage - The crisis of middle-class America

Some interesting facts


The rest of the article is fillled with personal stories regarding the above

Sounds like the rich have either gotten a lot more productive, or the non-rich have gotten a lot less productive. Since overall productivity has increased, and since I haven't seen any studies that show that the rich now work longer hours or are more brillant that they used to be, I cant believe that the rich have increased their productivity enough to justify them getting the lions share of our productivity increases - thus it is unlikely that the non-rich are less productive than they used to be.

Apparently, we some serious issues with wealth distribution.

 

[washunut]

Sounds like the rich have either gotten a lot more productive, or the non-rich have gotten a lot less productive. Since overall productivity has increased, and since I haven't seen any studies that show that the rich now work longer hours or are more brillant that they used to be, I cant believe that the rich have increased their productivity enough to justify them getting the lions share of our productivity increases - thus it is unlikely that the non-rich are less productive than they used to be.

Apparently, we some serious issues with wealth distribution.

Read Tom freidman's The World is Flat. Unskilled workers have to compete against the whole world not just locally. Factory jobs in the U.S. have been lost even before the recession. While service jobs at places like Wal Mart have grown.

On the other side, look at the two fonders of Google. They have become multi-billionaries. This is because with technology a great idea will be used by millions of people.

Then you have hedge fund managers who may make a billion dollars, often by taking risk through leverage. The type of leverage that almost brought down the U.S. and world economies.

 

[Lord Tammerlain]

well, firstly, Canada is now more economically free than the United States; and that 'more than half of US bankruptcies are caused by medical costs' line is utter bunk.

however, our median household income power purchasing parity is still higher than Canada's (though admittedly not by much, and they are headed in a better direction than we are).

furthermore, from 1967 through 2005, real median household income of all Americans rose from a little $36,379 to $46,326 in constant 2005 dollars:

that's an increase of more than 25%, not 10%.

and that increase is generally reflected at all levels:

and those levels are generally not static class categories, but functions of age.

Canada took a big hit to earning during the 90's as all levels of government reduced deficits, and many had surplus's for a few years. This reduced the income growth during those years, but keeping us on a sound financial foundation. The crisis in the US is something I have been expecting for 7 years or so. The US did not take the hit it should have in 2001 when the tech bubble burst and instead relied on a new bubble and government stimulus to paper over what was the poor financial footings of the US economy, leading to this crisis which as a result is massive

 

[Ahlevah]

Read Tom freidman's The World is Flat. Unskilled workers have to compete against the whole world not just locally. Factory jobs in the U.S. have been lost even before the recession.

We're finding that even skilled workers aren't immune to the outsourcing phenomenon. Virtually any position that doesn't require face-to-face contact can be outsourced: consulting, design and engineering, accounting, educational instruction, certain medical disciplines like radiology. Even American executive "talent" is increasingly finding itself competing against foreigners. And imagine a world in which technology will be so cheap, powerful, and human-like that a company will be able to fire all of the workers, from the CFO down to the front-desk receptionist.

 

[Mensch]

Matt Ridley, author of the "Rational Optimist: How Prosperity Evolves" explains it best.

 

[imagep]

We're finding that even skilled workers aren't immune to the outsourcing phenomenon. Virtually any position that doesn't require face-to-face contact can be outsourced: consulting, design and engineering, accounting, educational instruction, certain medical disciplines like radiology. Even American executive "talent" is increasingly finding itself competing against foreigners. And imagine a world in which technology will be so cheap, powerful, and human-like that a company will be able to fire all of the workers, from the CFO down to the front-desk receptionist.

Thats true. I outsource some artwork to India. They are cheaper, faster, and better than I can have it done in-house. I can place an order for artwork at 6pm just before I leave work, and by 9am the next morning my artwork task is completed and in my email "in-box", perfectly drawn, and at a cost of only about $5/hr.

Actually, the most efficient thing to outsource is intelectual service because now with the internet there is no transportation barrier. If we outsource cars or garments there is a huge cost in transportation, but if we outsourced songwritting, architectural drawings, artwork, book writting, or anything else that can be transmitted as a computer file there is virtually no transportation cost. There could be a much larger cost savings to American businesses and consumers to outsource intelectual services than to outsource manufacturing. I can very well envision within my lifetime us outsourcing most of our intellectual services. The question is, if we outsource more intellectual services, would that outsourcing start to replace the outsourcing of manufactured goods (reviving our manufacturing base) or would that outsourcing be in addition our outsourced manufacturing.

 

[Kushinator]

Thats true. I outsource some artwork to India. They are cheaper, faster, and better than I can have it done in-house. I can place an order for artwork at 6pm just before I leave work, and by 9am the next morning my artwork task is completed and in my email "in-box", perfectly drawn, and at a cost of only about $5/hr.

Actually, the most efficient thing to outsource is intelectual service because now with the internet there is no transportation barrier. If we outsource cars or garments there is a huge cost in transportation, but if we outsourced songwritting, architectural drawings, artwork, book writting, or anything else that can be transmitted as a computer file there is virtually no transportation cost. There could be a much larger cost savings to American businesses and consumers to outsource intelectual services than to outsource manufacturing. I can very well envision within my lifetime us outsourcing most of our intellectual services. The question is, if we outsource more intellectual services, would that outsourcing start to replace the outsourcing of manufactured goods (reviving our manufacturing base) or would that outsourcing be in addition our outsourced manufacturing.

On the surface i assume no. Outsourcing to industrializing countries in line with those particular trade partners experiencing high rates of growth forces the cost (price) of labor to rise (relatively). I also believe it is incorrect to view "trading manufacturing for intellectual importing" as a zero sum relation. Point being, you already alluded to income effects of outsourcing artwork at a lower cost (and equal or similar quality). A considerable amount of consumption accounts for services. Even increased savings rates can possibly be linked (although im just speculating) to the income effect of outsourcing.

 

[Ahlevah]

I can very well envision within my lifetime us outsourcing most of our intellectual services. The question is, if we outsource more intellectual services, would that outsourcing start to replace the outsourcing of manufactured goods (reviving our manufacturing base) or would that outsourcing be in addition our outsourced manufacturing.

If a foreigner can do a task for less, then the foreigner will do the work. If a machine can do the work just as well as a foreigner and for less, then the machine will get the job. So I can conceive of a society in which technology is so sophisticated and inexpensive that virtually all jobs, except those requiring human interaction, become historical curiosities. Business owners will employ a few people while supporting everyone else through government taxation. Call it "techno-socialism."

 

[Kushinator]

If a foreigner can do a task for less, then the foreigner will do the work. If a machine can do the work just as well as a foreigner and for less, then the machine will get the job. So I can conceive of a society in which technology is so sophisticated and inexpensive that virtually all jobs, except those requiring human interaction, become historical curiosities. Business owners will employ a few people while supporting everyone else through government taxation. Call it "techno-socialism."

Only if you have a disdainful view of society.

 

[Ahlevah]

Only if you have a disdainful view of society.

I'm not disdainful of society. I'm disdainful of selfish people who feel they owe society nothing, and I'm disdainful of lazy people who feel society owes them everything. I'm especially disdainful of lazy, selfish people.

 

[Kushinator]

I'm not disdainful of society. I'm disdainful of selfish people who feel they owe society nothing, and I'm disdainful of lazy people who feel society owes them everything. I'm especially disdainful of lazy, selfish people.

Don't we all?

 

[Ahlevah]

Don't we all?

At the risk of generalization, we have the hard-working industrious types who complain about the "lazy" poor while the poor complain about the "selfish" rich. Of course, no one ever admits to being lazy or selfish.

 

[Lord Tammerlain]

At the risk of generalization, we have the hard-working industrious types who complain about the "lazy" poor while the poor complain about the "selfish" rich. Of course, no one ever admits to being lazy or selfish.

I will admit to being selfish

I pay taxes to take care of the poor because I am too selfish with my time to do it personally

 

[cpwill]

I will admit to being selfish

I pay taxes to take care of the poor because I am too selfish with my time to do it personally

interesting way of putting it.

given that government is a less efficient mechanism (at the very least it will demand a hefty cut off the top) to provide for others, are you saying you are willing to make the poors' situation worse in order to not have to deal with them yourself?

 

[Lord Tammerlain]

interesting way of putting it.

given that government is a less efficient mechanism (at the very least it will demand a hefty cut off the top) to provide for others, are you saying you are willing to make the poors' situation worse in order to not have to deal with them yourself?

It may have some inefficiency in it, but it will reach everyone regardless of poltical, religious or ethnic standings. A christian charity may only give to christians, a muslim one may only give to muslims. Ethnically based charities will likely support other of the same ethnicity. Then there is the issue of distance, I would be hard pressed to be able to help directly the people in northern Quebec, given the distance involved, the government would not have that issue.

The government is held accountable, not only by myself, but those that it is supposed to be helping. If it is failing, it should be removed from power in the next election. I also dont trust many large charities, I believe that many waste resources on advertising or on large salaries and benifits. Look at the large number of teleevangilists who have their leaders living in mansions, building massive building for their congregation, rather then helping the poor.

 

[washunut]

It may have some inefficiency in it, but it will reach everyone regardless of poltical, religious or ethnic standings. A christian charity may only give to christians, a muslim one may only give to muslims. Ethnically based charities will likely support other of the same ethnicity. Then there is the issue of distance, I would be hard pressed to be able to help directly the people in northern Quebec, given the distance involved, the government would not have that issue.

The government is held accountable, not only by myself, but those that it is supposed to be helping. If it is failing, it should be removed from power in the next election. I also dont trust many large charities, I believe that many waste resources on advertising or on large salaries and benifits. Look at the large number of teleevangilists who have their leaders living in mansions, building massive building for their congregation, rather then helping the poor.

In America few would do anything but laugh when you put the words government and efficient together. I will not comment on what muslim "charities" have brought to the U.S.

 

[Lord Tammerlain]

In America few would do anything but laugh when you put the words government and efficient together. I will not comment on what muslim "charities" have brought to the U.S.

You get what you vote for.

Elect people who feel government is incompent and you will get a government that is incompetent. Elect morons who bankrupt private business's and you will get a government that is poorly run.

Elect people who feel they can do a competent job running a government and hold them accountable to do so, and the results will be much better

Recall that poorly run organizations are not just the providence of governments.

Recall
AIG
Citigroup
GM
Chrysler
BOA
Goldman
Morgan Stanley
etc down the line of private organizations that required the GOVERNMENT to bail them out from piss poor management

 

[washunut]

You get what you vote for.

Elect people who feel government is incompent and you will get a government that is incompetent. Elect morons who bankrupt private business's and you will get a government that is poorly run.

Elect people who feel they can do a competent job running a government and hold them accountable to do so, and the results will be much better

Recall that poorly run organizations are not just the providence of governments.

Recall
AIG
Citigroup
GM
Chrysler
BOA
Goldman
Morgan Stanley
etc down the line of private organizations that required the GOVERNMENT to bail them out from piss poor management

One of the weakest responses I have ever seen. Why anyone would bail out auto firms beats me. Someone would have purchased them out of bankruptcy, but union contracts would have been tossed out.

As to the banks and investment companies you refer to. Ever hear of a run on the banks. If the Fed and the government had not stepped in all have financial institutions in the World would have gone down. Many forget it was not only U.S. companies in trouble.

Goldman for all of it's troubles is probably the greatest investment bank in the world. I doubt that anyone on this site would even qualify for an interview in their finance group.

 

[Kushinator]

You get what you vote for.

Elect people who feel government is incompetent and you will get a government that is incompetent. Elect morons who bankrupt private business's and you will get a government that is poorly run.

Elect people who feel they can do a competent job running a government and hold them accountable to do so, and the results will be much better

Recall that poorly run organizations are not just the providence of governments.

Recall
AIG
Citigroup
GM
Chrysler
BOA
Goldman
Morgan Stanley
etc down the line of private organizations that required the GOVERNMENT to bail them out from piss poor management

Haven't you heard? It is not the fault of these respective firms, but that of government....

 

[washunut]

Haven't you heard? It is not the fault of these respective firms, but that of government....

It was not the government's fault. There was a business model which allowed a run on their institutions to wreck them. BTW, there are few financial institutions that can take a run and survive. The European banks almost went down the drain when Greece was on the ropes. Bad stuff sometimes happens in business, even to smart folks..

 

[imagep]

Bad stuff sometimes happens in business, even to smart folks..

Ya know, when they pay their executives millions of dollars, even tens of millions, you would think that they would be smart enough to deal with anything.

I've never claimed to be too smart, but my little company has survived lawsuits, we have had several product lines to disappear due to changes in the market, we survived 2 prior recessions, and we expect to survive this one. Everytime I hear of a "big time" company that goes under, it reminds me that those hot shot executives aint quite as smart as most people believe. Year after year I have been able to honestly claim that my little company made more money that GM, Ford, Enron, Tyco, etc.

 

[washunut]

Ya know, when they pay their executives millions of dollars, even tens of millions, you would think that they would be smart enough to deal with anything.

I've never claimed to be too smart, but my little company has survived lawsuits, we have had several product lines to disappear due to changes in the market, we survived 2 prior recessions, and we expect to survive this one. Everytime I hear of a "big time" company that goes under, it reminds me that those hot shot executives aint quite as smart as most people believe. Year after year I have been able to honestly claim that my little company made more money that GM, Ford, Enron, Tyco, etc.

You may want to consider that for example Goldman was profitable even as they were concerned they would be forced out of business. Their business model meant they had to be able to borrow very short term money. There was nothing they could do if the credit was shut off quickly. That is why when they were able to go to the Fed window the crisis disappeared for the stonger companies. The weaker companies who made bad decisions by holding lousy assets on their books had more trouble.

 

[imagep]

You may want to consider that for example Goldman was profitable even as they were concerned they would be forced out of business. Their business model meant they had to be able to borrow very short term money. There was nothing they could do if the credit was shut off quickly. That is why when they were able to go to the Fed window the crisis disappeared for the stonger companies. The weaker companies who made bad decisions by holding lousy assets on their books had more trouble.

You would think that they would have a businesses model that would prevent them collapsing if credit was shut off quickly. That doesnt sound like a good business model. I could run my businesses "hand to mouth" or paycheck to paycheck also (as a matter of fact, I pretty much do), but I don't expect to be helped out by the "Fed window" or any other type of government help. I would expect that any business that was just one day away from collapse would generally be thought to be a poorly run business. Most accountants would likely recomend any business to have cash reserves large enough to outlast any temporary economic downturn.

What the heck did they do with all the "proft" that they made? Overpay their executives? Or maybe buy off a lot of congressmen?