Monday, December 22, 2014

224. Middle class wages are falling behind

One of the conservative economic concepts that drives me nuts is the apologetic argument that rich people create jobs. In the words of Robert Reich: That’s baloney.

Usually that notion is an excuse for lower taxes on the wealthy and corporations. And from there we hear about trickle-down economics and the push for a smaller government.

What creates jobs is the demand for goods and services. How is that demand created? It is easy. The middle and lower classes need to have money to spend. If they can’t afford to buy things, there are no sales. No sales means no profits and no profits means no raises or layoffs. Layoffs mean people don’t have money to spend and around and around we go.

Billionaire Nick Hanauer wrote an amazing story on the subject, “This is why the middle class can’t get ahead,” saying the same thing this way:

“In plain English, the real economy is you: Raise wages, and one increases demand. Increase demand and one increases jobs, wages and innovation. The real economy is simply the interplay between consumers and businesses. On the other hand… not even an infinite supply of capital can persuade a CEO to hire more workers absent demand for the products and services they produce.”

Rich people didn’t become rich by simply employing people they don’t need or that won’t work toward improving their bottom line. Companies either.

In fact, the opposite is taking place. Companies look to reduce labor costs as a way to improve profits, which improve stock prices, dividends to their wealthy shareholders, and excessive executive pay. They do this through technology, overworking employees, temporary employment, and outsourcing. It’s rich people that drive this profit-focused environment.

Hanauer continues in regard to company resistance to paying overtime and increasing the minimum wage: “The arguments that the corporate lobbyists are making — about how badly business will be hurt — just don’t add up. What is adding up instead are the trillions of dollars in corporate profits and stock gains that corporations have made over the same decades that your hours climbed and your wages fell.”

Economic professor River Smith, in an article entitled, “We must find ways to provide consumers with money to spend,” agrees: “As we face the 21st century, we are no longer the country that offers the best opportunity to move up from one economic class to another — in fact we’re rated seventh best in a recent study — we must acknowledge that, for most citizens in this country, the American Dream is more likely a nightmare, or a very bad dream. In spite of corporate profits, very few companies are raising employee wages by any substantial amount. The disgraceful minimum wage continues to pull wages for all workers down.”

Middle class wages have remained stagnant, even falling behind.

Hanauer explains: “If you’re in the American middle class — or what’s left of it — here’s how you probably feel. You feel like you’re struggling harder than your parents did, working longer hours than ever before, and yet falling further and further behind. The reason you feel this way is because most of you are — falling further behind, that is. Adjusted for inflation, average salaries have actually dropped since the early 1970s, while hours for full-time workers have steadily climbed.”

It’s obvious that if money doesn’t get into the hands of the working class, you can forget about a complete economic recovery. Since corporate America won’t give up their profits, the only choice is to tax them and their shareholders and redistribute the wealth through government investment programs (like improving infrastructure).

In other words, if successful companies won’t hire people or give meaningful raises for fear of disappointing shareholders, then they and the wealthy need to be taxed at previous levels such as the 1950s, when the top tax rate was around 90 percent. It’s the government that can create jobs and economic stimulation by putting money in the hands of the working class.

It’s not socialism, it’s a capitalistic correction. When the great wealth of our nation ends up in the hands of a few, our economic system is broken. Wealth is exponentially created, which also comes with the influence to protect that wealth, at the expense of a large percentage of the population that can barely make ends meet.

If people want a smaller government, then they need to protest corporations and politicians that support them (and vice versa of course). It is greed that creates the need for larger government.

Otherwise, the inequalities of wealth distribution will continue to grow at alarming rates. That’s not an opinion or a theory. It is an economic crisis. Trickle down is a complete failure. Rich people don’t create jobs.

Thursday, December 11, 2014

223. Pretty soon it'll be Black Wednesday

It seems that all good things must come to an end. If you enjoyed the day-after-Thanksgiving holiday rush that was known as “Black Friday,” you are probably disappointed that the event has evolved into one that now starts on Thanksgiving itself—if not earlier.

The event used to start bright and early-- briskly and with a sense of excitement in the air-- on Friday morning. Now the event has become a free-for-all, with businesses opening earlier and earlier to get first crack at the consumer dollars. In addition to some stores opening early on Thanksgiving, there are pre-Black Friday deals and early Black Friday sales. At any given time in November, a store may proudly proclaim, “Black Friday starts now!”

Most of the outrage about this evolution, and rightly so, surrounds the employees who have to leave their families to work on Thanksgiving. Polls last year revealed that 62% of Americans feel that businesses should be closed in observance of Thanksgiving. Sadly, despite the outcry and criticism, there will be lines of bargain-greedy shoppers at the door on Thanksgiving.

The unwritten rule of Black Friday was that it started at 6:00 am, then it was 5:00 am and 4:00 am. Granted 4:00 am was pushing it—employees probably only got 4-5 hours of sleep the night before. But then it was midnight, 10:00 pm on Thanksgiving and then 8:00 pm on Thanksgiving. The campaign is obvious, in addition to offering the best deals, get people to your store first. Customers only have so much money to spend. The stakes are high, Black Friday revenue approaches $64 billion.

For those who do not quite understand the evil side of capitalism, this progression provides a perfect microcosm. Competition in the marketplace is a good thing; it’s perhaps the most attractive side of capitalism. It’s what drives prices, through supply and demand, into equilibrium. And it works best when there is fair competition—that is companies playing by the same rules (whether written or unwritten). Companies that succeed should do so because of their processes—whether it is engineering, marketing or supply chain management.

The dirty side of capitalism is greed-inspired bending of the rules: lack of cultural consideration, mistreatment of employees, destruction of the environment and abuse of political influence. Businesses look for every advantage to decrease costs and increase profits. Of course, Black Friday is successful because lower prices create a great demand—a sales frenzy on the out-of-balance economic equilibrium--which in turn gets people out at all hours of the day and night.

It’s what capitalism does in the name of profits—the competition is so intense that it pushes ethical, moral and cultural limits. While employees are giving up time with their families on the holiday, you can probably bet that the corporate CEOs are spending the holiday with their families in Aspen (or wherever rich people go).

And, to the dismay of many, when companies will not do the right thing, government needs to step in to level the field and protect employees. Mother Jones reported that two Ohio lawmakers, Rep. Mike Foley and Rep. Robert Hagan, have sponsored a bill that would prohibit retaliation against employees who do not want to work on Thanksgiving—and paying overtime wages if they do. The bill is designed to discourage retailors from opening on Thanksgiving and to require them to care for their employees if they do. Unfortunately, the Republican-controlled State House, despite their commitment to family values (Governor John R. Kasich even designated Thanksgiving Week as “Family Week”), is not likely to advance the bill.

What people see in regards to the greed surrounding businesses that open on Thanksgiving is what I see on a global scale with corporations. When companies play fairly, share profits and care about their employees, everyone wins; when companies put competition, manipulation and profit above social responsibilities, only the rich win. Get caught cheating too much and regulation steps in.

Of course, each one of us can do our part to force companies to close on Thanksgiving—just don’t shop.  Stay home, eat a lot, play games and watch football. You can still shop on the real Black Friday.