Monday, March 03, 2014

Maximizing profits right into the poor house

It's not a stretch for the average guy to see that the world today is fouled up. We should not be surprised by the notion that it probably always has been. Pick any time in history and plunk yourself down. Unless you were a prince or a noblemen your life is hard, brutal and short. I say this to imply that life for the average guy has always been a struggle. With that we have to acknowledge today's hardships are relative. Americans by and large live better today than at any time in history. No matter how bad things have gotten in the past 60 or 70 years there was always the belief that things would get better. However, now for the first time in my 50 plus years I wonder whether a vast middle class will ever thrive again in America, because it isn't thriving now.

We are at an odd crossroads economically, socially and demographically where the workforce, wages and opportunities are shrinking in real terms for the traditional middle class. Where the well connected and wealthy in business and government have never seen better times. We are on the cusp of becoming a two-tiered society. The elites and the serfs.

Of course if you listen to the politician of your choice he is fighting for you like never before. I doubt it. The President does nothing helpful and blames the Republicans when nothing gets done. The Republicans pass bill after bill they know Harry Reid's Senate will never consider and then they blame the Democrats and the President. The sad fact is they are not fighting for anybody but themselves and their cronies. How is it that corporate profits just hit another all-time high, in absolute value and as a percent of the economy as a whole. The U.S. stock market just hit yet another record, after having a phenomenal year in 2013. What gives? If corporations and shareholders are making piles of money, and the Federal government is spending more than ever before why is (real) unemployment so high the economy still so bad?

In the name of maximizing profits the corporate chieftains are able to hold down payroll and keep more and more of the company's wealth for the execs and the shareholders while wages are at an all time low as a percentage of GDP. While wages as a percent of GDP doesn't tell the whole story workers continue to fall victim to technology advancements and efficiency improvements - it's not necessarily just simple greed. Still corporate managers aren't hiring because they feel they don't need to in this peculiar environment of high unemployment and increased automation. But is it short sighted? Is it sustainable? Maybe... But can their customers continue to afford their products if they fall further and further behind?

Does intense focus on profit and share price starve out the rest of the economy? Huge companies complain about higher taxes and more regulation but how does that explain these profits statements and stock prices? On the flip side taxation and regulation does smother small businesses and it's those same factors that create a barrier to entry and competition. Larger companies take advantage of the tax and regulatory environment to make it easier for them to lock out their competitors and maximize their profits. The deck is so ridiculously stacked in their favor that they have nothing to fear from upstarts. The inevitable result is everything becomes too big to fail. The problem is that it's the little companies that employ the majority of Americans an with regulation and taxes are smothering them, that job creation engine has been stripped. There are fewer small business start-ups, those that have closed are not being replaced, and as a consequence the wage and job growth we enjoyed has evaporated.

So, in the battle to balance capital vs labor things have tilted so far in favor of capital that labor is hardly a factor, certainly not a powerful factor. Unions aren't necessarily an answer anymore, so where does that leave labor? Who is advocating for the labor side of the equation? The government? How can government advocate for labor when government is in partnership with big business. Minimum wage? Yeah sure.

We live in system of rampant crony capitalism. We have now witnessed the result. The challenge for the powers that be is to pay the wretched (the rest of us) just enough to keep us from rioting, keep the "American Dream" fantasy alive, and distract us from recognizing the fact that we are becoming serfs.

The key, I think, is to be as apolitical as possible. Neither party is your friend in all of this. The middle class has been set adrift. The challenge now is to get the middle class to understand that they have suffered and need to do something to help re-assert an acceptable balance. Of course "do something" is the key, do what?


Inequality is like water, a part of life, but may, because of the size of its gaps, become toxic.