Paul Volcker died last week. Itâs likely that few readers know who he was, or what he did. He was one of the most important persons in finance in the last 50 years.
Volcker was Chairman of the Federal Reserve under Carter and Reagan, until Reagan fired him in 1986. He is widely credited with having ended the high levels of inflation in the US during the late 1970s and early 1980s. Earlier, he was an important part of Nixonâs team that took the US off the gold standard in 1971.
In that time of red-hot inflation, Volcker’s goal was to stop the growth of prices, while keeping the dollar strong globally. Back then, Americans saw inflation as our most pressing economic problem. Volckerâs goal was to reduce wages as a way to reduce price inflation. As an example, during his time as Fed Chair, Volcker carried a card listing the wages of unions in his pocket to remind himself that his early goal was to crush the unions.
When Reagan and his people complained that interest rates were too high, Volcker would pull out his card on union wages and say that inflation would not come down permanently until labor âgot the message and surrendered.â Volcker said that the prosperity of the 1950s and 1960s was a:
“hall of mirrorsâ, and that the…”standard of living of the average American must decline.”
Volckerâs jacking up of interest rates eventually purged inflation from the system. Along the way, it hurt small businesses, farms, banks, and home owners who needed a mortgage. Mortgage rates reached a peak of 18.63% in October 1981.
While Wrongo briefly worked for Volcker at the big bank in the early 1970âs, we had no relationship. Â Wrongo reported to a guy, who reported to a guy, who reported to Volcker. Despite that (minimal) connection, Wrongo knows that Volckerâs stint at the Fed helped to shatter the American middle class. It might not have been his intent, but it was what he did. On to cartoons.
Trump outdoes Obama:
McConnell says heâll take his instructions from the defendant:
Wotans Throne, North Rim, Grand Canyon NP, AZ – photo by phantomcloud.
The WSJ has an important story on how people with what seems like pretty good household incomes, are getting more and more indebted trying to keep up a middle class lifestyle:
Cars, college, houses and medical care have become steadily more costly, but incomes have been largely stagnant for two decades, despite a recent uptick. Filling the gap between earning and spending is an explosion of finance into nearly every corner of the consumer economy.
Consumer debt, not counting mortgages, has climbed to $4 trillionâhigher than it has ever been even after adjusting for inflation. Mortgage debt slid after the financial crisis a decade ago but is rebounding.
Auto debt is up nearly 40% adjusting for inflation in the last decade to $1.3 trillion. And the average loan for new cars is up an inflation-adjusted 11% in a decade, to $32,187, according to a Wall Street Journal analysis of data from credit-reporting firm Experian.â
The Journal gives a generally sympathetic portrayal, provided you donât go deeply into their comments section, where readers spout platitudes about Millennialâs lack of fiscal responsibility. Hereâs a chart from the WSJ using some recent work by Georgetown bankruptcy law professor Adam Levitin showing how much certain costs have risen relative to wages:
More from the WSJ:
âMedian household income in the U.S. was $61,372 at the end of 2017, according to the Census Bureau. When inflation is taken into account that is just above the 1999 level.
Average housing prices, however, swelled 290% over those three decades in inflation-adjusted terms, according to an analysis by Adam Levitin, a Georgetown Law professor who studies bankruptcy, financial regulation and consumer finance.
Average tuition at public four-year colleges went up 311%, adjusted for inflation, by his calculation. And average per capita personal health-care expenditures rose about 51% in real terms over a slightly shorter period, 1990 to 2017.â
Of course, in Wrongoâs youth, few young people were carrying large amounts of student debt. And if they went to coastal cities to build their careers, the cost premium over living in a city in the heartland wasnât as high as it is now (except for San Francisco and New York, which have always been very expensive). Also, it isnât just tuition that has gone up. All the other college costs, housing, meals, books, and fees, have also gone up more than 300% in the past 30 years.
It is notable that college costs have far outpaced the ability of those in the middle class to afford them. That is why student loan debt has become so high: working your way through college is no longer as realistic as it once was.
Turning to housing, the WSJ quotes Domonic Purviance of the Federal Reserve Bank of Atlanta, who says that people earning the median income can no longer afford the median-priced new home, which cost $323,000 last year, and barely have the means to buy the median existing home, which is now about $278,000.
Failure of wages to keep up with costs is a huge problem, and it has to be emphasized that this is not some inevitable outcome of our so-called âfree marketsâ â it is driven by neo-liberal policy.
A few of the Democratic candidates are addressing the health and education cost burdens now adding to the debt load of all Americans. But we need more discussion that leads us to better policy.
With so much wrong in the world, we surely need to take a step back, and de-stress. To help with that, hereâs your Saturday Soother. Letâs start by brewing up a large mug of Finca Las Nieves Green-Tip Geisha coffee ($35.00/8 oz.). This coffee is grown and roasted in Mexico. Located at an elevation of 4,000 feet, Finca Las Nieves is a 1,000-acre coffee farm located in Oaxaca State. It is completely off the grid â both solar- and hydro-powered. In addition to growing, harvesting, processing and roasting coffee, the farm also offers vacation bungalows for rent on the property.
Now, settle into a comfy chair and listen to Bachâs unaccompanied Cello Suite No. 1 in G Major, movements 1-3 of 6, by Yo Yo Ma. The video uses a painting by Hudson River School painter, Thomas Cole. It is called âThe Oxbowâ, located on the Connecticut River in Massachusetts near Northampton, MA. Here is Yo Yo Ma:
Those who read the Wrongologist in email can view and listen to the video here.
Quilotoa Crater Lake, Ecuador. You get there by bus, and it takes six hours to walk around it.Â
The Senate is trying to pass their worst possible health care idea. They have already passed a $700 billion military budget, more than even Trump wanted. And they are trying to pass a $1 trillion tax cut for their buddies. Will any of that help you? No.
They should be focused on improving the lives of working class people, but they canât be bothered with that, because they have no desire to accomplish it. Things are just fine the way they are for Senators.
Wrongo has been remiss by not turning you on to howmuch, a site that creates visualizations about money, and in-depth tools about what things cost in the US. You should spend time checking them out. They created this very interesting chart about where working class people can afford to live in the US:
Each bubble represents a city. The color corresponds to the amount of money a typical working-class family would have left over at the end of the year after paying for their living costs, such as housing, food and transportation.
The darker the shade of red, the worse off you are. The darker the shade of green, the better off you are. The size of the bubble has meaning â large and dark red means the city is totally unaffordable. Bigger dark green bubbles indicate a city where the working class can get by. So, where are the best places from a financial perspective for a working-class family to live? These are the top five cities with the net surplus remaining after living expenses:
Fort Worth, TX ($10,447)
Newark, NJ (($10,154)
Glendale, AZ ($10,120)
Gilbert, AZ ($9,760)
Mesa, AZ ($7,780)
The worst five cities are:
New York, NY (-$91,184)
San Francisco, CA (-$83,272)
Boston, MA (-$61,900)
Washington, DC (-$50,535)
Philadelphia, PA (-$37,850)
Yes, a typical working-class family would need to make an additional $91K+ per year in NYC just to break even on a reasonable standard of living. And most job creation is taking place in cities, so the challenge for anyone, working class or higher, is how to afford living in one of them. There are exactly zero affordable cities on the West Coast. More from howmuch:
Of the ten most populous cities in the country, the only place where you can enjoy a decent standard of living without taking on debt is San Antonio. Out of the top 50 largest cities, only 12 are considered affordable. Low-wage workers are better off in smaller cities.
Kevin Erdmann, who blogs at Idiosyncratic Whisk, says the problem is that most coastal cities have closed access to housing, while inland cities have open access. Open access cities have relatively liberal housing and zoning codes that allow for new building, including relatively low-cost housing. Houston is the most prominent example. Closed access cities artificially reduce supply of housing, driving prices up. NYC is the most prominent example. From Erdmann:
You can tell what type of city it is just by looking through the newspaper. In open access cities, people complain that poor people are moving in and taking away jobs, pushing down wages. In closed access cities, people complain that rich people are moving in and bidding up rents.
People in red states have experienced high in-migration of low income people, both natives and immigrants. Poor people are leaving the closed access cities. So, to someone living in a closed access city, it seems racist for people to focus their ire on Mexican immigrants.
And think about what happens if folks in a bad neighborhood manage to do the hard community work to make it somewhat livable. In New York or Los Angeles, the minute that a neighborhood becomes safe, the plots that hold those $100,000 duplexes will be worth $500,000, and the neighborhood will gentrify.
Rinse, lather and repeat, and the cycle starts again.
Can a working-class family live comfortably in your town? If so, can they find work?
Every time I meet someone from outside Silicon Valley â a normy â I can think of 10 companies that are working madly to put that person out of a job…
Well, that makes most of us ânormiesâ. In context, we are the people who do not work in Silicon Valley. We are the people who use technology, rather than invent technology, and many of us ought to see technology as a threat to our jobs and our place in society.
He’d sold his online ad company to Twitter for a small fortune, and was working as a senior exec at Facebook (an experience he wrote up in his best-selling book, Chaos Monkeys). But at some point in 2015, he looked into the not-too-distant future and saw a very bleak world, one that was nothing like the polished utopia of connectivity and total information promised by his colleagues.
Martinez pointed out that there are enough guns for every man, woman and child in this country, and theyâre in the hands of people who would be hurt most by automation:
You donât realize it but weâre in a race between technology and politics, and technologists are winning…
Martinez worries about how the combination of automation and artificial intelligence will develop faster than we expect, and that the consequences are lost jobs.
Martinezâs response was to become a tech prepper, another rich guy who buys an escape pod somewhere off the grid, where he thinks he will be safe from the revolution that he helped bring about. More from Mashable: (brackets by the Wrongologist)
So, just passing [after turning] 40, Antonio decided he needed some form of getaway, a place to escape if things turn sour. He now lives most of his life on a small Island called Orcas off the coast of Washington State, on five Walt Whitman acres that are only accessible by 4×4 via a bumpy dirt path that…cuts through densely packed trees.
Heâs not alone. Reid Hoffman, co-founder of LinkedIn told The New Yorker earlier this year that around half of Silicon Valley billionaires have some degree of âapocalypse insurance.â Pay-Pal co-founder and venture capitalist Peter Thiel recently bought a 477-acre escape hatch in New Zealand, and became a Kiwi. Other techies are getting together on secret Facebook groups to discuss survivalist tactics.
Weâve got to expect that with AI and automation, our economy will change dramatically. We will see both economic and social disruption until we achieve some form of new equilibrium in 30 years or so.
It will be a world where either you work for the machines, or the machines work for you.
Robert Shiller, of the famous Case-Shiller Index, wrote in the NYT about the changing meaning of the âAmerican Dreamâ from the 1930s where it meant:
…ideals rather than material goods, [where]…life should be better and richer and fuller for every man, with opportunity for each according to his ability or achievement…It is not a dream of motor cars and high wages merely, but a dream of a social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable…
That dream has left the building, replaced by this:
Forbes Magazine started what it calls the âAmerican Dream Index.â It is based on seven statistical measures of material prosperity: bankruptcies, building permits, entrepreneurship, goods-producing employment, labor participation rate, layoffs and unemployment claims. This kind of characterization is commonplace today, and very different from the original spirit of the American dream.
How will the âNormiesâ survive in a society that doesnât care if you have a job? That refuses to provide a safety net precisely when it celebrates the progress of technology that costs jobs?
The Silicon Valley survivalists understand that, when this happens, people will look for scapegoats. And we just might decide that the techies are it.
Todayâs music is âGuest Listâ by the Eels from the 1996 album âBeautiful Freakâ:
 Takeaway Lyric:
Are you one of the beautiful people
Is my name on the list
Wanna be one of the beautiful people
Wanna feel like Iâm missed
Are you one of the beautiful people
Am I on the wrong track
Sometimes it feels like Iâm made of eggshell
And it feels like Iâm gonna crack
Those who read the Wrongologist in email can view the video here.
Trump won because he led people who used to vote for Democrats to believe that they had nothing to lose if they voted for him. Below-median income voters had long ago lost faith that Democrats, and Hillary in particular, would ever do anything to change their plight.
Trump said he would look out for them. Whether he does or not, remains an open question, but even before Trump, Democrats had already lost a big swath of America. From the American Prospect:
In the race for the White House, the Democratic presidential candidate has won…fewer US counties with average incomes under the national median and with populations that are more than 85% white in every general election since 1996. Concentrated in the Midwest, Appalachia, and the upper Rocky Mountains, there are 660 such counties today. Hillary Clinton won two of them.
Think about that: The Democratic Partyâs influence in mostly white, lower-income America has eroded to nearly nothing since Bill Clinton was president. This chart documenting their fall is stunning:
The Parties basically split below-median income counties that were 85% white in 1996. Over a 20-year period, the erosion of the Democratsâ control was steady, and complete. This isnât just the result of a poor 2016 presidential candidate, it is an indictment of the Democratic Party, its leadership, and its strategy.
The American Prospect article is about Montanaâs Democratic Governor, Steve Bullock, who won his state by 4 points while Trump was beating Clinton by 20. Bullock is a rural populist in a party of technocrats. Obama lost Montana by 2 points in 2008. Bill Clinton won Montana in 1992.
But, the electoral failure of Democrats is worse than its showing in these below-median income white counties. The following graphically illustrates the abject failure of Democrats to be competitive in political contests at all levels:
Nothing that Barack Obama did by holding on to the White House for that entire period compensates for these terrible losses.
Democrats remain divided about their Party strategy, many clinging to the thought that if Hillary could have turned about 80k voters in Michigan, Pennsylvania, and Wisconsin, where white working-class people are abundant, she would be president.
But she would not control either legislative branch, and she would have had to propose Supreme Court Justices similar to Neil Gorsuch to get one confirmed by the Senate.
The question is where will the DNC be taking the Party in 2018? In a 2018 mid-term election where the president has a historically poor approval rating with independents and Democrats, like Trump has now, victory is possible.
If Democrats want to win back Congress, and the White House in 2020, they need to field candidates who believe in jobs and economic growth first. The candidates need to be authentic people, who listen more than they talk. And when they do speak, they should use PIE as a metaphor for Americaâs economy, as in: (H/T Seth Godin)
How big is the pie?
Is the pie growing?
What will my share of the pie be tomorrow?
Who allocates the slices of pie? Can they be trusted?
When voters think the economy isnât growing, things begin to feel zero-sum. People begin to think that they may permanently lose their place in our society.
If the Democrats want to win back Congress, they need to describe concretely what they plan to do when they say they support their working-class constituents, regardless of color.
They need to get to be better than Trump on jobs, economic growth and finding a peace dividend.
All of that, and Medicare for all. In Wrongoâs Thursday column, Gallup found that health care concerns ranked highest across all income cohorts.
Shouldnât these principles be credible with working-class peopleâincluding whites?
A song about pie: Here is DâAngelo with âDevilâs Pieâ from 1998. Itâs a dystopian vision of capitalism, where everybodyâs fighting for more of the tasty, materialistic dish. All is fair in pursuit of a bigger paycheck:
Those who read the Wrongologist in email can view the video here.
Takeaway Lyric:
Fuck the slice we want the pie
Why ask why till we fry
Watch us all stand in line
For a slice of the devil’s pie
Take a good look at this map. It shows which counties switched parties in the 2016 US Presidential election compared to 2012. Red counties switched from Democrat to Republican, blue counties switched from Republican to Democrat and the vast majority in grey did not switch parties:
Of course, it doesnât show vote margin or size of the total vote in each county. The main thing this map shows is the large number of counties in the North East and Midwest that flipped to Trump, after having been Democratic counties in the prior election. The effect was large enough to deliver the normally Democratic leaning states of Iowa, Michigan, Pennsylvania, and Wisconsin into the Republican camp.
Tim Duy has an article about how economists and most politicians get so wrapped up that they miss the human element in economic dislocations. Duy makes the point that they ignore two of the negative impacts of job losses. First, they say how lost jobs free up human capital for use elsewhere in the economy. Of course, as jobs are added to the economy, skill levels and training determine whether laid-off workers are part of that equation.
âHigh-skilledâ workers is what we need, but they are not always the kind of workers that were laid off.
Second, Duy reminds us that most workers have little ability to move to where better jobs might be found. Politicians tell us that the economy is shifting to urban and suburban areas; to higher skilled jobs; that workers must go and get retrained. That misses the point.
Most new jobs for those who were laid off will only be found if workers are able to relocate, to move from rural or devastated urban locations to geographic areas where jobs are expanding. Duy notes it is particularly difficult for rural areas:
The speed of regional labor market adjustment to shocks is agonizingly slow in any area that lacks a critical mass of population…Relative to life spans, in many cases the shocks might as well be permanent.
We donât have answers for most of these communities. Rural and urban economic re-development is hard. The people living in these regions have experienced job losses (or no jobs growth) for decades; positive jobs growth has occurred elsewhere.
And the laid-off workforce isnât mobile. In effect, we have limited access to housing in our major cities by pushing housing costs beyond the reach of most middle class workers. This, from Kevin Erdmann:
If you lost your manufacturing job in Buffalo, and you’re thinking of moving to New York City because there are more jobs there, you might decide not to move because it is too expensive. It is the affordability that is keeping you out. But, even here, the affordability problem is just the messenger. It is the rationing mechanism for a housing stock that is relatively fixed for political reasons.
If you decide to move to the NYC area, you see that the housing supply is largely fixed. New buildings are hard to get through zoning. Construction costs in big cities are very high. Income taxes are rising rapidly.
Erdmann makes the point that housing in big cities doesnât move up with increased demand:
So, it doesn’t matter if Brooklyn apartments rent for $500, or $1,000, or $2,000, or $4,000. There isn’t one for you. Fixing this by fixing affordability isn’t going to change the supply curve. It’s simply substituting non-monetary rationing mechanisms for the monetary one.
Trumpâs message that US firms need to consider domestic jobs as much as their bottom line, also resonated with middle and upper-middle class households. OTOH, it’s not like Trump took on the Coal Industry on behalf of workers. He blamed federal environmental policy, but that isnât what caused the loss of coal industry jobs.
Trump doesnât really have any answers, but he pretends to care while pretending to have answers. Pretending to care and pretending to have answers gave him the switched counties on the electoral map above. People want work. They want secure jobs.
Trump might be running a “jobs” scam, but if it fails, what is the Democratsâ alternative?
We have four years until the next election, two if you are looking at Congress. What policies will work? Will we just trade Trumpâs scam for another one peddled by the establishment?
Business as usual hasnât delivered. The idea that economic growth creates jobs is a pipe dream for many: For the past 40 years, economic growth did not improve wages.
Trump’s promise swung the election. If he fails, what will be the Democratsâ response?
We are in a time when a presidential candidateâs personality counts for more than the candidateâs policies. Candidates obfuscate on most policy issues and the media lets them get away with absolutely outrageous declarations of near-facts or outright half-truths.
One policy we must make them nail down explicitly is their jobs policy.
The key to making America great again is adding more jobs. Wrongo is a pest on this subject, but without more jobs, growth in GDP is harder to achieve. Tax revenues are more difficult to grow. People who are idle get into trouble.
The Pant Suit and the Pant Load know this, so they will talk from here to November about adding manufacturing jobs back to cities that lost them starting in the 1970âs. Those jobs are never coming back, but both of them are working hard to convince you they can do it. Consider this, from Parallel Narratives:
Weâre now being told by folks who know better that all we need to do to bring those jobs back, to resurrect a future we can believe in, or make America great again, is to elect the outsider politician who is not beholden to elite interests like banks, CEOs and politicians. Unfortunately, that horse has left the barn, those jobs are gone for good…
A great example of a politician braying the âI can bring jobs backâ mantra was in Sundayâs NYT business sectionâs column, âPreoccupations.â In it, a young couple had the option to work from home, so they moved from Austin, TX, that hot-bed of tech, to South Portland ME, not so techie. They work for two different firms from two home offices. Then, they are invited to attend a funds-raiser for a gubernatorial candidate: (emphasis by the Wrongologist)
The candidate raising campaign funds was a hard-working lawyer who seemed genuinely well meaning, but no one had told him that his economic platform of protecting manufacturing jobs and Maineâs traditional industries wasnât going to fly with an audience of health care professionals, programmers, web designers and researchers…We muttered to each other that this guy didnât have a place in his platform for people like us, many of whom worked for employers in other states. Our checkbooks stayed in our pockets.
If you hear this kind of BS from the Pant Suit or the Pant Load, your checkbook should also remain hidden.
While the low-wage jobs problem has been around for more than 40 years, Americaâs politicians are still peddling the same solutions. In fact, a new analysis from the White Houseâs Council of Economic Advisers (CEA) released Monday shows that only 88% of men ages 25 to 54 are participating in the US workforce. The CEA reports that the US has the third-lowest labor-force participation rate for âprime-age menâ among the worldâs developed countries. We have done so well that, on a percentage basis, Greece, Slovenia and Turkey all have more men working than the US does. Greece! The decline is concentrated among less educated. Here is a chart:
More than 95% of men used to work in 1964, regardless of their educational attainment. Today, you better have at least a bachelorâs degree if you want to be sure you will get a job. Â But it is worse than that. The CEA said:
In recent decades, less-educated Americans have suffered a reduction in their wages relative to other groups. From 1975 until 2014, relative wages for those with a high school degree fell from over 80% of the amount earned by workers with at least a college degree to less than 60%.
Clinton and Trump would have you believe that the problem is bad trade deals with China, the TPP, or immigration. Trump in particular, is saying that the political elites have knowingly caused this all at the expense of the American worker. There is a modicum of truth to that, but it is the American corporation and the American tax code that is closing out US jobs, and hammering the middle class. American corporations now pay about 11% of our total US taxes, down from about 30% of US taxes in 1960, as jobs (and markets) have moved abroad.
What are the Pant Suit and/or the Pant Load going to do in the face of advancing automation now facing us not just in manufacturing, but also in the service and knowledge industries?
It is time to make the candidates talk about this on the campaign trail.
The basic policy choice we have is to put people to work, or to continue to allow the profit motive to dominate. If the profit motive remains supreme, we will continue our relentless drive to reduce labor costs — by eliminating jobs, or by paying workers less for the same work.
To date, our leaders have chosen the latter path, and we have reaped the results. We have become a land of spreadsheets and flags.
Yesterday we talked about how America is losing middle class jobs to technical outsourcing on our way to becoming a land of spreadsheets and flags. Today, letâs discuss another aspect of that; how technology continues to cost more and more mid-skilled jobs. We usually think of technology as a great panacea, making most of our processes more efficient. In fact, many of us can look back on the âsneakernetâ of the 1980s and feel good about how far weâve come with technology.
But technology has also reduced the number of middle class workers required, at a time when American wages are stagnant and benefits are falling for the remaining available jobs.
The meme used to be that if technology replaced workers, new jobs came along and net-net, more people were employed. Although things werenât that simple, by 1900 if you were displaced, you could get another job because 99% of all jobs were still done only by humans.
Today corporations tell us that the knowledge economy can take as many workers as we can create, and since we canât create them fast enough, technology firms need more of the H-1B visas we discussed yesterday. This is false. Facebook is touted as a prime player in the knowledge economy, but it only employs 5,800 to service 1 billion customers! Twitter has 400 million total users. It has 2,300 employees.
What is the value of Facebook and Twitter to the jobs economy? These are two of our very âbestâ success stories, and they only employ 8,100 workers. They have had a huge impact on society, but the total jobs they have created are only a rounding error in our economy.
Much of what we want to buy is produced in factories increasingly run with robots, and maintained and operated by small cadres of engineers. Increased sales of iPhones only add a few sales jobs at $12/hour in the US and not many new factory jobs in China. Also, keep in mind that globally, some 3 billion people are looking for work and the vast majority are willing to work for less than the average American.
We all know that technology is costing jobs, and by some estimates it could cost half of all current jobs in the next 20 years. So, we can expect an ever-greater number of unemployed chasing an ever-shrinking number of jobs that canât be eliminated or simplified by technology. Thus, the prognosis for many medium and some higher-skilled workers appears grim. With this being said, technology is benefiting a lot of businesses and the way they operate. You’ll get a better understanding of it just by reading these Quotes about AI. Seeing as technology doesn’t look like it is going anywhere anytime soon, we might as well use it to our advantage in a business.
The oligarchs have seen these forecasts. That may explain their unwillingness to do anything serious to create effective jobs programs here at home. They donât need to do anything, because there is a (virtually) infinite supply of skilled and unskilled workers in the overpopulated third world.
The issue is not technology, or robots, or restoring our manufacturing base. Nor is the issue better skills, or technology or outsourcing. We have too many people chasing too few good jobs.
Incomes will continue to stagnate, because automation does not threaten unskilled jobs. This is sometimes called âMoravecâs Paradoxâ, which says that, contrary to traditional assumptions, high-level reasoning requires relatively little computation, but low-level sensorimotor skills require enormous computational resources. The âRoombaâ robotic vacuum cleaner is, despite years of development, just an expensive toy. It has had zero impact on the market for janitors and maids, yet, wages for American janitors and maids have fallen because of competition from the currently unemployed and newly arrived immigrants. While the Roomba aims to be a forward-looking cleaning solution, it still cannot compete with the manual vacuum cleaners, like Bissell’s, that still prove to be the preferred choice despite innovative attempts to move towards automation. See this link for Bissell vacuum cleaners – https://www.bissell.com/vacuums/upright-vacuum-cleaners/
If we forecast continuing technology breakthroughs (and we should), and combine that with the 3 billion people currently looking for work globally, we have to conclude that the planet is overpopulated if the goal is a growing global middle class.
This is why the quest for better technology has become the enemy of sustaining middle class growth in the developed world.
(Galt’s Gulch was the sanctuary in Atlas Shrugged where Ayn Rand’s Real Men of Genius spurned American socialism for their own libertarian paradise.)
Welcome to the economy that has just turned the page. But not that page.
The World Economic Forum ended in Davos Switzerland. This is their 45th annual meeting at Davos. Who attends? 2,500 business leaders, politicians, diplomats and a few celebrities take part in the meeting. As in the past, 73% of the delegates are men, and almost 800 of the attendees are from the US.
According to CNN, most of the 1% flew in to Davos on private jets. Roughly 1,700 private flights landed in Switzerland, 5% more than last year. The Guardian reported that, for Davos insiders, the big story was the world economy, but this year, they werenât concerned all that much about income inequality. From The Guardianâs live blogging at Davos: (emphasis by the Wrongologist)
A year ago, Davos attendees said income disparity was the top threat to world stability, as years of lobbying by the likes of Occupy Wall Street hit home. Today, though, the issue doesnât appear in the top 10. The Ukraine conflict, and the turmoil in the Middle East, have elbowed it out.
However, another Guardian article described that many of the global oligarchs attending Davos are already planning their escape. These people know full well that the current game wonât last forever. Their response is to take as much money as possible, and flee before the pitchforks emerge. At a packed session in Davos, former hedge fund director Robert Johnson revealed that worried hedge fund managers were going to create an oasis of uber-wealth and then lock the doors:
I know hedge fund managers all over the world who are buying airstrips and farms in places like New Zealand because they think they need a getaway.
They want to leave to live in a Galt’s Gulch of their own creation. And Hedge fund managers are just a small part of the Plutocracy. The concentration of wealth and ownership in very few hands is growing, and that process has reached epidemic proportions.
In fact, according to the anti-poverty charity Oxfam, the wealthiest 1% will soon own more than the rest of the world’s population. Oxfamâs research shows that the share of the world’s wealth owned by the richest 1% increased from 44% in 2009 to 48% last year. Based on the current trend, Oxfam says it expects the wealthiest 1% to own more than 50% of the world’s wealth by 2016.
But, hasnât our economy turned the page? Apparently, the Davos 1% types are way ahead of the Obama administration. From Mondayâs NYT: (Brackets by the Wrongologist)
The middle class has shrunk consistently over the past half-century. Until 2000, the reason was primarily because more Americans moved up the income ladder. But since then, the reason has shifted: [Now] there is a greater share of households on the lower rungs of the economic ladder.
The Times uses yearly income of $35,000 to $100,000 to define middle class. The $35k amount is about 50% higher than the official poverty level for a family of four.
Here is the NYTâs graph of the current breakdown by income: (All numbers on the solid black lines in the chart are percentages of the US population and do not add to 100% due to rounding)
From the NYT:
Even as the American middle class has shrunk, it has gone through a transformation. The 53 million households that remain in the middle class â about 43% of all households â look considerably different from their middle-class predecessors of a previous generation…
Recently, the fastest-growing component of the middle class has been households headed by people 65 and older. Todayâs seniors have better retirement benefits than previous generations. Also, older Americans are increasingly working past traditional retirement age. More than eight million were in the labor force in 2013, nearly twice as many as in 2000.
A December New York Times poll showed that 60% of people who self-identify as middle class think that if they work hard, they will get rich. But the income and census data suggest that goal is moving increasingly out of reach.
If 60% of the middle class still think they can get rich, despite clear evidence to the contrary, the Plutocrats and lobbyists have successfully brainwashed the American public. They are unable to see just how systematically and catastrophically they have been played.
We may be able to take back control from the Plutocrats and the Oligarchs. But they now have control of our militarized police, they control cyber spying programs aimed at American citizens, and they control a byzantine political system completely removed from the average person’s day-to-day.
Gone are the days when we could storm the castle with torches and pitchforks, demanding change, and win.
If we succeed in bringing about real change, and not the faux change marketed by politicians, it will not be a pretty affair. They will fight. And they have the means to do so.
