Who’s Going to be Buying Stuff?
One of the ongoing aspects of our discussions regarding the Republican Recession (or the Great Recession, or the Global Financial Crisis, or whatever phrase you like) that has interested me most is how we don’t agree on the problems. And by ‘we’, I’m not talking about Tea Partiers and Wall Street Executives and Rush Limbaugh. I’m talking about the bulk of Americans who want a government and an economy that works.
Our political responses to our situation are so without precedent that the reality-based community can’t define reality at even a basic level of consensus. One of the variables I would propose to explain this doesn’t get a lot of attention because it doesn’t jive with the two main levers of corporatist power: fear and confusion. And generally speaking, this reason is a Good Thing.
We can’t agree on what’s happening, in large part, because we are such a wealthy country. What Silents, Greats, and Boomers did in the middle of the 20th century is pretty remarkable. We invested massively in our infrastructure, liberated the Free World (and remade it in our image), and pushed for enormous social advancement of blacks, the elderly, and women. Tens of millions of Americans have now grown up in a world where we have known no major world power that could threaten us. Tens of millions of us were never taught why the elderly shouldn’t have healthcare or why blacks and women can’t do anything whites and men can do. We still use infrastructure today that was laid out decades ago, from parks to highways to sewer systems to libraries to schools. Heck, the majority of Americans weren’t even alive when we landed on the moon.
20th century America created so much widely-disbursed wealth that it just plain takes a lot of time for people to realize the problems that concentration of wealth and power have wrought more recently. Even in the height of the ‘credit crunch’ or the ‘housing crisis’, most Americans still have access to credit.
Most Americans haven’t lost their house.
Most Americans haven’t lost their job.
Most Americans haven’t lost their health insurance.
Most Americans haven’t filed for bankruptcy.
Most Americans haven’t been sent to prison or relegated to deal with the more ambiguous nature of disposability plaguing much of our poorer rural and urban communities.
Generally speaking, ‘the worst financial crisis since the Great Depression’ has largely afflicted Other People. The people who, in aggregate, were under-represented and over-marginalized five years ago, or ten years ago, or fifteen years, are the same people bearing the brunt of the carnage so far.
I chose purposefully vague language for the title of this post in a hope to speak to a great amount of uncertainty regarding the future. It shouldn’t be Earth-shattering to mention that we can’t know the future for sure. Similarly, it shouldn’t be controversial to point out that things could get worse. That’s not pessimism or paranoia. That’s prudence and pragmatism. Optimism is the belief that we can make the future better; it’s not the fantasy of believing the future will be better simply because we wish it so. Even Jon Stewart has made jokes about the Tinkerbell economy.
Yet even though our ‘crisis’ was created by excessive inequality and risk-taking, we are told to essentially ignore risks that persist – and even grow larger. From a PR perspective, this is easy to understand. But it’s mind-boggling to grasp from any sort of evidence-based perspective.
Wages are at the heart of everything, both on the low end and the high end. At The End of the Day, over Long Periods of Time, the value of stuff for sale is simply, and solely, what Other People will pay for it. This can be broken down into two components for further analysis.
1. Income derived from letting Someone Else use Your Stuff
2. Capital gains derived from selling Your Stuff to Someone Else for more than you originally paid
No matter what propaganda you hear from the PR folks at the National Association of Realtors, the National Home Builders Association, or the Mortgage Bankers Association of America regarding the value of real estate, this basic rule of stuff holds true. This is the same for commodities, and precious metals, and stocks, and bonds, because it’s true for everything. It’s a definitional identity; in a capitalist system, prices are determined by buyers and sellers willingly engaging in transactions.
(short philosophical parenthetical: It’s not ‘wrong’ to choose a different method of valuation, something other than the pricing mechanism. It’s just different, something other than individual-centered, property-rights based, market-oriented capitalism. Different isn’t necessarily bad, it’s just different – and that means how we value all our stuff would have to change, from physical things like houses and cars to more abstract notions like patents, education, healthcare, and copyrights.)
And this is why wages are key. At the low end, it doesn’t matter what colloquial notion may float around about the ‘fundamental’ value of something; actual fundamental value is a finance concept meaning the present value of future payments (ie, scenario 1 above). Somebody making $8 an hour simply cannot buy a $30,000 car or a $300,000 house. They can’t buy a $10,000 car or a $100,000 house. If we extend credit, rather than wages, to people in this predicament, it doesn’t mean they can now afford expensive stuff. It simply means they’ll default on the loan sometime Down the Road. This is not because they’re Bad People. It’s because their wages can’t support Buying Stuff at the prices sellers want; there’s simply no cushion for when things go wrong. Sellers of course don’t have to sell – which is precisely how we get economic gridlock. ‘Owners’ can’t afford to write down their stuff, and buyers can’t afford to buy stuff not written down to their wage level. There are only three possible solutions to this predicament: debt goes down, wages go up, or economic activity grinds to a halt.
At the high end, meanwhile, wages are one of the primary drivers of our present situation. The financialization and risk (mis)managament of our society is literally driven by the efforts of specific financial industry employees to obtain massive personal profit. Board Members, who supposedly represent stakeholders by overseeing the management of the organization, have spent years cashing checks for which they have done little oversight – indeed, it’s not an exaggeration to suggest that most Board Members simply have no clue what, exactly, their organizations do. One of the more morbidly fun games to play at the moment regarding financial industry governance is to guess which Board Members are apathetically incompetent and which ones are purposefully fraudulent.
Meanwhile, senior management and certain, uh, ‘driven’ employees have driven their firms right off the cliff through compensation systems designed to shift personal pay from the future to the present by shifting risk from the present to the future. After all, who cares what happens to the firm Later when you can make your fortune Now and the government will prevent the Unwashed Masses from touching your money? Later has become Now, and well, here we are, with our hotshot monied interests deciding that pay-for-performance is grand when things are good but ain’t so hot when things are bad. They certainly can’t be expected to use their hard-earned money to solve a problem they created!
And this disparity, this Two Americas, holds even at the most extreme wage level: zero. One of the fantastically inefficient conditions of our labor market is that we have some Americans literally working themselves to death while other Americans can’t even get a job. Or as Condor Options quoted a NY Times piece discussing a Labor Department report (I love the internet):
After noting that “most experts” see the number of jobs beginning to increase, the article goes on to summarize the bigger story:
But even as the report eased worries that the economy might tip back into decline, it did little to dislodge the widespread notion that the recession had given way to a tepid and tentative expansion, one unlikely to significantly cut the ranks of the jobless.
…“It’s almost two separate Americas,” [Lakshman Achuthan, managing director of the Economic Cycle Research Institute] said, meaning that much of the work force is already seeing the return of work opportunities, while those mired in long-term joblessness are facing the worst prospects since the Great Depression. “They have been left behind, and their problems are not solved by recovery.”
That other America includes the underemployed and “persons marginally attached to the labor force”—i.e., those who want to work but have given up looking for employment within the past 12 months. These people are included in the Bureau of Labor Statistics’ U-6 unemployment measure, which actually rose, from an already astounding 16.5% in January to 16.8% in February.
A lot of ink has been spilled and electrons sent scurrying on just how much downside risk there is in our economy. Bobswern has been particularly exhaustive in some of his posts on Daily Kos. And they can basically boil down to the Inconvenient Truth that our financial industry is now more concentrated and more powerful than before the ‘crisis’. Wealth and wages are now more unequally distributed than before the ‘crisis’.
But because those of us from Middle Class persuasions got so wealthy (or perhaps more accurately, perceive ourselves to be wealthy), we’ve been susceptible, en masse, to the PR flim-flam behind the Great Risk Shift, or alternately, the Great Defrauding. Wage stagnation doesn’t crash the system overnight; it’s a long, slow bloodletting. Changing compensation incentives for highly paid employees doesn’t crash the system overnight; it’s a long, slow bloodletting. Shifting risk from We the People to Me the Individual doesn’t crash the system overnight; it’s a long, slow bloodletting.
Once broken, it’s difficult to put Humpty Dumpty back together again. That’s why
1. It’s important to prevent things from breaking, and
2. It’s important to take action of sufficient boldness and vision to actually confront the potential problems once breakage occurs.
Our policy actions to date have been remarkably different from that. First, people raising concerns were labeled cooks or ignored. Then, it was the corporatists who Declared Armageddon and said The World Would End if we didn’t give them lots of money, quick, now, more, hand it over, that too, and that, give it here. Then, we didn’t do anything to actually fix The Crisis. It’s become a CINO – a Catastrophe In Name Only. There is nothing bold or visionary because everything we’ve done has been designed to save the inherently unstable status quo ante of debt-based asset bubbles. The concept of dealing with the inequality of wealth and power that makes our democracy so weak and our economy so fragile is completely off the table of acceptable discourse. The concept that high income workers make too much money and low income workers too little money is completely taboo.
I wonder sometimes how long the unsustainable will last with respect to our financial system specifically and the corporatist economic model more generally. We are fortunate, because most of us still have the basic necessities and a little leisure time; we don’t have to deal with our situation until it actually is a crisis.
And that’s the conundrum. Even for many Democrats who are otherwise ‘reality-based’ and empathize with our less fortunate compatriots, we seem perfectly content to wait.
Next year, I’ll get that raise. Next year, my house will be worth more. Next year…
So far, the promise of next year has been very powerful.
So far, we seem to be content to clap for Tinkerbell.
Why is it that we seem collectively willing to take that risk? In particular, I’m interested in why Democrats go along with policies that entrench the status quo. The corporatists and their GOP lackeys I get; greed and hypocrisy are natural human conditions where I can understand and even relate. What puzzles me to no end are Democrats who go along with policies that amount to little more than Trickle Down economics.
So far, we seem paralyzed by this conundrum. We say the Reagan-Bush era was awful, that we want Change, and then we go along with doing More of the Same. The Secretary of the Treasury and the Chairman of the Fed aren’t even Democrats, never mind new people bringing new ideas to Washington. Our wealth frees us not to panic; we can make good choices. But, we abuse that freedom by simply kicking the can down the road.
And we’re the ones who are going to pay the price. Those in poverty are already poor, told to wait patiently while the comfortable selectively quote MLK and others about the long arc of justice, and the rich are plenty good at looking out for themselves – they’ll be fine. They’ve never had it better, you might say. They’re laughing all the way to the bank, you might say.
Those of us in the middle, we’re the ones with Stuff to Lose. So far, though, we don’t even agree on whether the greatest risks are behind us or ahead of us.
You can read these words all over again at Daily Kos.