Everybody knows this. The middle class would be restored and built upon if they could. Problem is, it's now impossible. There will not be growth in the middle class at least until the Boomers die out. 30-40 years. Best plan for it.
The major reason the middle class is toast is because Gummint and companies outsourced labor and services to low labor cost Asian countries. That leaves Americans who formerly had those jobs to compete for lower wage positions. The Boomers are going to put TREMENDOUS pressure on the purse of the country for Social Security and Medicare benefits. The Gummint has not properly prepared for it so will want more and more money from every source... including anyone who might ascend to a middle class earnings position will find his taxes high enough that he won't be hardly better off than welfare recipients. In other words, the Gummint will be "taking nearly everything from nearly everywhere", as we transition from "the home of the free and the brave" to The United Socialist States of America. How will the Boomers vote? Same way everybody votes.. their wallet. The Boomers are such a large group, Congress dares not cross them for fear of being ousted at the next election...
Exactly. Our government needs to understand that consumer spending is going to be under great PRESSURE for quite some time. Consumer spending is roughly 2/3rds of our GDP. Thus, the Government needs to pull their head out of their arse and legislate tax law changes that stimulate the MANUFACTURING SECTOR of our economy, before it is totally gone. Here's the solution: You do this by allowing interest on purchases of capital equipment to be written-off immediately - - - instead of over the life of the equipment. That would be a HUGE stimulus to the MANUFACTURING SECTOR and our Economy. Unfortunately, the bozos in Congress have never taken an Econ. 101A course and fail to understand this.
Thank you for the excellent and informative post! If you look at the consumer spending component of GDP, you can see that it was far too high in recent years, being fueled by a massive conversion of home equity into consumption. Consumer spending was entirely unsustainable and has created a lot of assets (housing, retail space, and factories) that simply can't be supported. You are right about the issue of investment -- the country needs to put money into areas that replace the old borrow-and-spend portion of the economy (e.g. SUVs & caramel lattes) with whatever America 2.0 should become. This means a stimulus effort that focuses on long-term economic performance, not short-term busy work. Although I can see the attraction of 'keeping people off the streets", that will do little good if the stimulus job fails to produce a follow-on non-stimulus job and fails to produce enough tax revenues to pay off money borrowed for stimulus spending. The current lack of "good paying" jobs is not the cause of the downturn, but a symptom of the deeper causes of downturn. Americans will not see improved employment conditions until American workers produce something that is worth paying for. The world (and even Americans) don't owe Americans a good paying job and couldn't afford to give them such jobs even if they did feel charitable to American labor. Resurrecting the American industrial base is nice, as long as it's competitive on a global basis. Although American labor will never be as cheap as Chinese labor, perhaps it can offer higher productivity, higher quality, better flexibility, or more innovation. That would justify paying more for American labor. But if American factories can't produce products that people are willing to pay for, then investing in this industrial base will be a money loser for all concerned.
I struggle with this. I totally agree that everyone should have a relatively good paying job (relative to the value they create). How to get there is what I can't divine by myself. "Good paying jobs" and limiting consumptions choices to only those items produced by people with "good paying jobs" just means expensive stuff, and then people needing to have even better paying jobs to afford them, and so-on... Simply reverting to making all stuff available for consumption in the US in the US (and I'm not insinuating that that is what you're proposing), is the unsophisticated thinker's "obvious" solution. Unless there is a significant productivity advantage to those with "good paying jobs" no-one will choose to purchase the stuff they make over the better value stuff produced with less well paying jobs. Those with modest intellects then usually propose not allowing those better value goods as options to the American consumer, or to at least burden them with taxes, duties, quotas, levies, etc. to the point where they become uncompetitive in the US market. Ok, so far we're all only fucked in the sense that we have to spend more money on everything. If all the other countries in the world magnanimously allow us to be the only country that keeps imports out that's where it would end. If they choose to retaliate, and raise barriers of their own (only towards the US, not to each other), then a) all the Americans working making or delivering goods or services for the other 5.7 billion people on the planet, but not in the US, suddenly have NO job at all to buy the expensive stuff that the people with "good paying jobs" are making, and b) those countries will accelerate past the US in economic development. Plus it's just incredibly stupid. Let's just use oil as the example: Let's shut the border and we'll make our own oil! Itâll cost $700/barrel, but that's ok, because everyone in America will just have to deal with it to support our own American Oil Industry. It's the patriotic thing to do. We'll be better off. ... In all seriousness: What's needed is some sort of transformational breakthrough in productivity. Something that starts in the US and takes a little while to duplicate elsewhere, to give us an advantage Something like electricity or the internet/telecommunications. Maybe (likely) something I can't even fathom. Too bad we're not setting ourselves up to discover it. We're too busy wrangling about bullshit like steroids in baseball. Regarding the shrinking middle class: I agree that the benefits of free trade are a little bit out of balance in favor of the wealthier Americans. I say this because much of the benefit of the labor arbitrage goes to the consumer (and everyone consumes), and some to the companies (and their investors) engaged in the labor arbitrage as profits. I don't just mean mega wealthy institutional investors, I also mean regular 401k or IRA owners. Wealthier Americans are more likely to own stocks than dirt poor people so that's where that demographic gets the edge. For the middle class to come roaring back they need to become more productive. Productive to the point where they out-produce cheap foreign labor on a per $ cost basis. If someone slides out of the middle class because the local pvc pipe company they spent 15 years doing one task at goes broke, then that's tough shit. That was never middle class anyway. That was just 13 years of extorting the pipe company because of local labor scarcity. I am aware that there are lots of skilled, educated & developed people out there that are suffering right now from the collateral damage of sending all the bullshit jobs overseas, and I feel terrible for them. The current financial condition is hurting them even more. They need help. But not by shutting off trade, or conjuring up "good paying jobs" arbitrarily. They need help to become business owners, or custom carpenters, or doctors, or attorneys, or something for which there is a strong, un-outsourceable local demand. Anyway, I need to get a life. Been posting way too much today.
I like it. (not that the chinese couldn't immedeately do the same for their companies, but anyway). I'll take it one step further: make the US a superior place to do business for all businesses, not just manufacturing. Not at the expense of civil rights or harm to the planet, of course, but yeah, that's my kind of idea.
About a century ago, my great grandfather owned a cotton gin just south of Arlington, Texas. A man working there lost his arm in the machinery and when he recovered my g-grandad rehired him. I have some old records of how great grandfather was highly praised locally for his kindness in rehiring the now one armed man who probably was not as productive as before. One can draw many conclusions from this, but I'm sure we can all agree that things have really changed. Stosh
For the middle class to come roaring back they need to become more productive. Productive to the point where they out-produce cheap foreign labor on a per $ cost basis. ------------------------------------------------------------------------------ How can this be accomplished? If an American worker is being paid $15 per hour plus benefits and a foreign worker is being paid 15 cents per hour without benefits, the American worker would have to be more than 100 times productive, not factoring in the other costs of production, to be competitive. And to add insult to injury, the foreign worker is probably working in a more modern and updated facility with the latest technology since our government has been providing tax incentives for American companies to invest offshore for years. Besides using protective measures, the only way for there to be a level playing field in a global economy is for all economics to be equal. The American economy would have to become similiar to a third world economy with all workers making 15 cents per hour with no benefits. That is not realistic. Our government has supported a policy that has caused an imbalance in payments due to imports and the elimination of our industry base at the expense of the middle class. Such a policy has decreased consumer spending and reduced tax revenue.
when you buy you have a choice to purchase something productive or nonproductive. an asset is productive. when you buy a $10,000 car to get to work to make $50,000 a year - that is productive. when you buy a $50,000 benz to get to work to make $10,000 - that is nonproductive. eventually this person will be broke. so now you can apply that same logic to the entire economy. now you can determine if 'spending' is good or bad.