Subscribe to John Mauldin's
FREE Publication:

Thoughts From the Frontline

Sign up for John’s free weekly letter and join 1 million of his closest friends.

We will never share your email with third parties

Thoughts from the Frontline

The Plight of the Working Class

April 2, 2011

Choose your language

Clowns to the left of me, Jokers to the right,
Here I am, stuck in the Muddle Through Middle with you!
–With thanks to Stealers Wheel

I get a lot of email from readers. I recently got an impassioned letter from very-long-time reader Bill K., who asks some very pointed questions about austerity and spending cuts. It is a rather lengthy letter, so I will only quote part of it and use it is the launching pad for this week’s letter, where we look at today’s employment report, but from a little different slant. This letter will no doubt anger a few other long-time readers. I argue this week for the middle, but do so as a survivalist.

While Bill starts out by saying some very nice things about me (thanks), let’s jump to the meat of the letter:

“…. I would like to get something off my chest. I would like to know why you seem to side with those analysts who keep telling us that the only way we can sort out Western economies is by making the average guy suffer through austerity programs… You are a very intelligent guy – obviously. You can see how things work and what is broken. You can also see through the greed and excesses of Wall Street, and you can read the economic data which clearly shows that the wealthy continue to get more wealthy in America whilst the average Joe continues to see his standard of living going in the opposite direction. Capitalism today only works for the 'have gots'. It's been going in that direction for more than 30 years now. You saw the senseless and stupid greed of the derivative scheme which fueled the housing bubble which led to the meltdown which never melted because Bush/Obama handed out a huge welfare check to financial institutions that should have been allowed to fail.

“In the aftermath of all this, politicians in DC, you, and your guest pundits warn us that the world as we know it will end if we don't somehow reduce the average Joe's Social Security, pension, Medicare and Medicaid benefits. Oh and let’s not forget the budget, which is being argued in Washington as I type this. The line is that we have to make drastic reductions to spending on domestic programs, on our schools, on our infrastructure, on unemployment entitlements, on all the things that serve to give working people a chance at a dignified life. You're a smart guy. You can recognize what is fair and what is greed and excess. When the nation is as troubled as it is today and yet the wealthy are living even better than they did 30 years ago, what does that say about America? I wonder if we really care about our neighbors anymore? I wonder why such a great country with such great natural resources cannot find a way to be just and generous and a beacon to higher ideals? Ike warned us to be wary of the military-industrial complex. Looks like he was right. We're a nation constantly at war, spending trillions on defense, whilst at home we enrich the already wealthy and tell the average Joe that he has to pay for it. I wonder how you manage to rationalize all this away – if indeed you do?

“Thanks and with respect, Bill”

The Plight of the Working Class

Bill, you ask a very complicated question. There is not a simple black and white answer, but I am going to try and address your concerns. Let’s start with today’s employment numbers. We got a decent non-farm payroll number of 216,000, and 240,000 new jobs in the private sector (governments everywhere are still shedding jobs). That means over the last two months the private sector has added…

Discuss This

66 comments

We welcome your comments. Please comply with our Community Rules.

Comments

Page 2 of 7  < 1 2 3 4 >  Last ›

Paul Killinger

April 4, 2011, 8:32 a.m.

I can answer Bill’s concerns in a single word- GOVERNMENT.  Or, rather, our federal government involving itself in all manners and places of our economy where it has NO BUSINESS.  They do this in COUNTLESS ways. 

A partial list includes the Community Reinvestment Act, which led directly to the over-investment in housing on Wall Street and the resulting financial meltdown.  Federal “investments” in education, which had formerly been funded locally since the inception of our union.  Allowing bureaucrats to determine how our nation invests in energy exploration and production.  (We face near record high prices for gasoline despite having MORE natural energy resources than ANY other nation in the world.)  And the Govt’s. incessantly picking “winners and losers” in the economic arena.

I could go ON AND ON here, but you get the point.  I hope Bill does, too.  Not until we limit our federal “Masters” to their historic role as “public servants” doing their best to determine a “level playing field” for PRIVATE enterprise will we ever prosper again.

Rick Nasset

April 4, 2011, 7:06 a.m.

John.  I appreciate all the charts and graphs that show where we are and a little of how we got there, but you did not talk about the greed on Wall Street and the “rich getting richer and the poor getting poorer.”  Do you not want to anger your many rich friends?  Or do you not see the huge transfer of wealth through bailouts, tax breaks and market manipulations as a problem?  I think most of us are more upset about these issues than many others.  Also, no mention of the military industrial complex and the national penchant for our leaders to always keep us involved somewhere to keep the defense spending going.  I am not an isolationist but at some point we need to protect this country domestically and let other countries figure it out for themselves.  I know this comment may seem a little harsh but I really do enjoy your writing.  I think you just avoided some major points in Bill’s letter.

John Dolan-Heitlinger

April 3, 2011, 9:12 p.m.

Thank you John Mauldin for a very insightful commentary.  I could not care less about the super rich (unless they adopt me :-)).  As you pointed out, the debt burden the current Federal government has created will primarily affect and burden the non-super rich.  I and other voters need to elect representatives who vote to rapidly reduce our debt burden. I do not want my children to suffer under the burden we created. 
John D-H

Colin Henderson

April 3, 2011, 8:42 p.m.

Bill answered his own question partially.  He mentioned defense spending.  The budget for 2010 shows government spending of $3.7 trillion and a deficit of $1.6 trillion.  Defense spending accounted for $0.7 trillion.  US could eliminate the military and yet still have a $1 trillion deficit which means another trillion of debt. 

Your well worded post is dead on.  Increase taxes or decrease spending across all aspects of the government. 

Sorry Bill .... your heart is in the right place, but if you look at government spending as you would your own bank account, the choices are narrowly defined.

Scott Fulton

April 3, 2011, 8:23 p.m.

Well said John. I understand where Bill is coming from; something is definitely broken. I think the disparity between the most highly compensated and the least compensated has much to do with the migration from a producing / manufacturing society to a banking & services society. I think that is what led to the debt appetite starting ~1980. It would be interesting to see THAT chart (e.g. ratio of CEO compensation / lowest compensated professional for the Dow or S&P or Nasdaq). Getting back to the middle… yes both higher taxes and REAL spending cuts. Just like diet & exercise, there are no short-cuts; we’ll just go broke looking for that magic pill. Then let’s get back into a structure that will lead to greater innovation and producing more things of value we can export.

Richard Janzen

April 3, 2011, 6:55 p.m.

I have been receiving your emails for 2 years now along with those from an associate of yours . Initially there were a lot of parallels between you and a shift happened along the way . That is what it is . What is of the greatest concern to me is how you are taking govt. data at face value too quickly when it is the role of government to save face on data at any cost.
  To the point of my comment , in response to “The plight of the working class” . John, I read it twice for fear that I missed something or perhaps that I was being asked to read between the lines. 
  Having read your reply to Bill I can’t help but think you would be well suited to the political arena if you are not considering yet.  From my vantage point you gracefully danced around answering Bills query . Rather you marched out graphs and statistics and avoided the initial question of why must the austerity measures be paid by the working class exclusively . 
  I fully understand your need to protect your own wealth and that of your clients , but it is a clear signal that the compassion for the working class has vanished from your thought process . 
  I will continue to look forward to further submissions from you in the future . I do not make a decision to leave or stay based on a couple writings that I disagree with .
  My kindest regards to you and your family . Keep up the good work . 
  With all due respect, Ric Janzen

George Hamlett

April 3, 2011, 3:56 p.m.

...a complete structural change to the tax system, gearing it more to encouraging growth, real Medicare reform, and even larger spending cuts, etc., that are linked to real, measurable metrics!

April Fool!  Good one John.  You know as well as anyone that what you’ve described is simply not in the cards.  It won’t happen, because it is not in the interests of the corporate and political classes with the power to do it.  Who are the honest brokers?  There are none, at least none with the power and influence to make it happen.  And isn’t it amazing how quickly the newest members of that power elite get co-opted?  How fast they learn where the butter is on their bread, so to speak?  All the politicians are bought and paid for.  None of your rational, common sense solutions will ever see the light of day.  Your book will sink out of sight, like all those before it.  How many tomes have been written about energy independence?  How many perfectly workable ideas have been put on the table by well-meaning, competent but powerless thinkers?  How many made any difference at all?  Precisely.

I really don’t understand how someone with the clear understanding of the problems can remain as optimistic as you that somehow we will muddle through.  The end of the muddle is going to be no fun at all.

Richard Commins

April 3, 2011, 2:44 p.m.

Our economic problems all started with “Collective Bargaining”, a good thing.  The working man deeded a way to fight back against the oppressions of the industrial complex.  But, any good thing, taken too far, will become bad.  Collective Bargaining (Unions), starting winning their fights against bad workplace practices and gained real power over business.  As they gained power, greed crepe into their negotiations and they demanded greater and greater benefits for their union people, without regard to the economic realities of the business.  The businesses had to give in to their demands (with a fight of course).  This tactic was then turned onto the government, demanding increases in entitlement programs like Social Security, Medicare, Medicaid and Unemployment Insurance.  These entitlement programs are now bloated and unsustainable in their current states. What the Unions don’t realize is that you can’t extract too much money or benefits from business.  If you do, they will shut down the business or move their business offshore.  The production of goods and services has real value.  Money is just a means of keeping score.  As jobs were off shored, we tried to compensate by making the financial sector 40% of our economy.  Moving money around does not produce real value.  We have offset the loss of jobs by increasing productivity, but in the end more and more people stopped making goods and services. The government is trying to maintain the status quo by borrowing 50% of the money needed to fund the bloated entitlement programs, Wars and the greed and corruption of the government.  We have “Hit the Economic Wall” and what can’t be maintained, won’t!
John Mauldin is an optimist and a very likeable guy.  His philosophy is “If everyone just gets along we will just muddle through”.  He is philosophically right in his views but he is not a realist.  John lives in an ivory tower of fine wine and jaunts to exotic lands to educate his friends.  What he doesn’t seem to see is that people are naturally self centered and are protecting themselves and their families.  The financial system is breaking down.  We have fraud, scams, ponzi schemes and outright thief with no enforcement of the financial laws to prevent these abuses.  You can steal from the “Little People”, the “Peasants”, the “Poor”, the “Elderly”, the “Middle Class” or the “Just Plain Stupid” for just so long, until they can’t feed themselves.  What the Fed and Congress do with QE(n) affects the rest of the world. We have now arrived at a time when the world’s economic system breaks down and everyone starves.  We are right now standing at the “Edge of the Abyss” and looking into the “Valley of Death”.  History has shown that when mankind reaches this point, revolution or all out war occurs to balance the “Economic Equation” and restore order.  In the past, war was fought with honor and civilians were not included in the fighting and war was self limiting. This all changed after WWII.  We now have the power to destroy all our cities and the people that live in them before anyone who is sane can stop it.  We need to step back from the edge and start becoming realistic before it is too late.  John doesn’t want to talk about what he really anticipates happening because he is afraid of being labeled a “Doom and Gloomer” and this won’t be positive for his Millennium Wave Advisors business. Trust me, he is very educated when it comes to the financial system, he knows the score, but chooses to obscure what he knows.  Still, John Mauldin in a nice guy, but he should start telling people the whole truth about our financial future.  We are not going to “Muddle Through”!  We are going to balance the economic equation and the last man standing wins the economic war.  Be prepared for the worst mankind has to offer, there is no turning back.

rainer richter

April 3, 2011, 2:16 p.m.

I think it boils down to a question of fairness.  The American people don’t mind sacrifices provided we are all in it together.  But we’re not.  The Wall street types get massive bonuses for making massive mistakes and are seemingly immune from the realities of the economy.  Wall street used to be the engine of finance which enabled industries and job growth, but now it’s a charlatan’s casino where the “experts” strive to outgame each other with no regard for the consequences.  They get paid obscene amounts to play these games (e.g. high frequency trades ) which primarily benefit each other and occasionally collaterally true investors. 

You mention cancer.  I think the cancer is the billions of dollars of bonuses sucked out of the economy going to a relatively few individuals who don’t need it.  Capital that should be invested in companies, products or education to make us more competitive in the world.

Let’s not increase net taxes but restructure them.  Tax income over $1M at 50% and over $5M at 70% and close the loopholes that shelter it.  Lower payroll taxes to encourage hiring and add tax credits to encourage investments.  Add a per trade tax to discourage at least one of the games.  Make it more worthwhile to invest $20M in a business than pay it out in bloated salaries to the self appointed smartest guys in the room who turned out to just be the greediest ones.  I’m sure there are qualified people, actually MORE qualified people, who will work for those more fair and still generous amounts.

I know the numbers of people affected are not high, and the net revenue will not be as much as actions that effect much larger groups of people, but the battle here is for hearts and minds not wallets.  You want to cut my Mom’s Medicare benefits, you better have squeezed elsewhere first.  If we ALL need to sacrifice, it sure as heck better start at the top.  Trickle that down for a change.

Thanks for a great article and to Bill for a great letter.

Erik Bentzen

April 3, 2011, 11:45 a.m.

A very informative article.  What I found particularly alarming was your friend’s assertion: “the only way you can show a positive GDP for the last decade is with government spending”. 

If it’s true we’re doomed.  In order to work the current monetary system needs a continually growing money supply because money is created by banks (as loans) with interest attached but the money to pay the interest is never created.  New money plus re-spending of existing money (if done quickly enough) pays the interest.  The money supply can only be increased without causing inflation if there is GDP growth.  If the single reason for GDP growth is government borrowing and spending it’s pretty easy to foresee the eventual outcome.  Weâ??re stuck between a rock and a hard place: we cannot afford to pay more interest on outstanding debt yet reducing deficits by cutting spending (reducing GDP) will have serious consequenses on the monetary system.  It seems that before going full bore on debt reduction measures we first need to tackle monetary reform. 

If anyone hasnâ??t seen it already thereâ??s a good short documentary called â??money as debt 2â? that can be found for free on various internet documentary sites and youtube.  It explains how the current monetary system works; something everyone should know but very few do.

Page 2 of 7  < 1 2 3 4 >  Last ›