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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…

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David Fitzsimmons

April 3, 2011, 11:32 a.m.

Two further notes for Bill K. to consider:

“The rich get richer and the poor get poorer” is not a mere anecdote; there is hard math to back it up now. (see Barabasi)

Also, to the extent investors and corporations have been making gains over the last decade, they have been doing so by going to where the growth is strongest.  Every investor should consider investing in growing regions outside the US - for their own good. Doing so adds (at least one) level of complexity to the process, but that is not insurmountable.

PS. despite being an Army brat, and a strong supporter of our military, I must agree that the budget for those activities must be part of the “grown-up discussion”; including how much do we want, of what kind, and how much can we realistically afford.

Paul Handover

April 3, 2011, 9:41 a.m.

Excellent article backed up by some super comments.  Very thought-provoking.

Alain Barbier

April 3, 2011, 8:57 a.m.

Bonjour Monsieur,
One request : would it be possible that your diagrams could be enlarged (like by Stratfor) to make small print readable? Thanks.
About health spending, Scientific American Pathways page 11 shows it to be (2007) 16% of GDP in the US (in fact 21% if you acount for the 25% of US residents who cannot afford to pay a physycist) against 11% in France, 10.8% in Switzerland and 10.4% in Germany.
A visit to a generalist costs â?¬ 23 (US $ 32) and half an hour with a leading world renowned rhumatologist â?¬ 120 (US $ 168) in France.
Where is the catch?
Respecfully submitted.
Alain F.J. Barbier

Ron Young

April 3, 2011, 7:48 a.m.

Good article,read charlotte Iserbyt’s book on “the deliberate dumbing down of america”- free on internet @ her site, same as book. She knows whereof she speaks.. Listen to G. Edward Griffin talk about return to ;Jeykl Island"on for money problem. Now we just have to figure
out what to do with the fellows that are responsible, I have a few ideas but thats not allowed.

Ken Grakauskas

April 3, 2011, 7:35 a.m.

Thank you John, for making the complex understandable. While your analysis is spot on, I do think the boat was missed in answering Bills questions though. Your answers are from the arena of logic, while Bills questions were more “heart and mind” issues.

First, I wished we were a capitalist nation. That dream died 30 year ago. We have a corporatocracy now where folly and bad decisions are not only covered, but rewarded with federal largesse, and the government decides which products should be commercially viable.  We need to get back to these capitalistic ways if we ever hope to regain our standard of living.

Second, I think Bill makes the mistake of looking outward to the government instead of inward to himself, his family, and his community. The reason there is no money to give the hard working stiffs like Bill the little financial nudge that he thinks he needs, is that there are so many full time suckling’s on the government teat, that there simply is not enough federal milk to go around. This should be an economics 101 moment for America. Where did the self reliance go? A country of takers is doomed to fail.

Linda Nelson

April 3, 2011, 6:16 a.m.

THREE WORDS ZERO SUM BUDGET.  The federal government simply continues to ratify and extend poor spending habits of the past. It is time for a citizen group comprised of businessmen and experts like yourself to commit whatever time is necessary to a Citizens Budget Summit. Start with ZERO and determine what needs to be spent. How many times have you heard a government or public worker say that they had to hurry and spend all of their money at the end of a fiscal period so they will get more the next year. We are not looking at the dollars going out as though they are household dollars. I have contacted Heritage and they said it is too complex. While I don’t have a full understanding of the scope..I disagree….it is past time that this measure be taken…and it must be citizens…the government simply will not do it…as proven by 3 mos. of fooling around over a 60 billion dollar cut which is entirely insufficient!

kim siewers

April 3, 2011, 12:55 a.m.

“And note that we have gained 30,000,000 more people in the US over the last decade! And negative job growth!” This is copy/pasted from your post. There are probably between 20-30 million foreigners who have come to the USA to work, legally and illegally, over the last decade or so. It seems this has had a depressing effect on wages. Seldom have I seen it mentioned however.

Dave Scotese

April 2, 2011, 11:36 p.m.

“...all the things that serve to give working people a chance at a dignified life.”

This is very very sad.  What this ought to mean (the responsibility to spend the money they earn in the ways they feel is best) is opposite to what he means by it (the insistence on the part of the government to take taxes and spend them for the working people’s benefit).

I think a healthy dose of personal responsibility, and a recognition that (phantom) dependence on government as well as government’s (real) dependence on citizens earnings to continue building its empire around the world are major factors contributing to our suffering.

It is certainly easy to blame the government for everything.  20% of everything we do is taken from us immediately, and about 30% more is taken indirectly.  I never consented to that.  Did you?  John?  Bill?  Anyone?

Anthony Cartonia

April 2, 2011, 9:06 p.m.

Thank you for taking the time to respond to Bill’s comments.  It seems the root of the problem stems in the very nature of our democracy.  It is clear when people respond with their comments to your responses which side of the political aisle they are on.  I am reading the Endgame.  You have presented a clear picture of what the future holds in store and needless to say given the inability of our political leaders to implement policies that will reverse what we are seeing with regard to our mounting debt, we have a very serious problem on our hands.  Neither party has the will to accomplish anything material to address the debt issue.  We are muddling along politician by politician as they hang up their hat as they retire in a sea of wealth built with tax payer money, protected by their own Federial Retirement Syetem, health care plan and utter financial security they have built up serving the public with tax payer dollars.  Individually none of them can do anything to stear the Titanic away from its eventual fate.  You can see this in the current budget reduction efforts in Washington as the Republicans had pledged $100 billion of cuts and the Democrats countered with $8 billion now up to $34 billion.  The Republicans are now thinking of $68 billion (rough numbers I do not know all the exact numbers, but that is close enough).  These proposed cuts represent .0000333 percent of this years $1.2 +/- trillion dollar budget deficit assuming they compromise and agree on $50 billion in cuts.  It is amazing how dumb and powerless they assume the average American citizen is and the level of confidence the have in knowing that the average individual has no power to expose their true intentions, which is to continue serving in government to maintain their political office.  This behavior is true in all levels of government - State, Local and Federal.  As such, I fully agree with the concept of the Endgame.  The financial disaster clock is ticking.  Nobody in Washington is going to solve these problems.  I do not see how this is not going to blow up in our faces as you predict.  When the crisis comes it will be too late to make the compromises and sacrifices that should have been made today. We will all pay the piper at that time as we all (Democrats, Republicians,  State and Local Governments workers, private and public wokers, and uniion workers - no one will be spared) lose a large percentatge (our fair share) of whatever financial assets and net worth we have.  Your right, all you have to do is look at Greece and Portugal.  Ireland, Spain and Itally.  We will eventually follow the same fate.  You can see by looking at what happen in the USA the past 50 years, excessive government legislation and regulation, environmetal regulations,  increase in the size of government, unrealistic wage increases in the private and public sector caused by collective bargining, higher individual and corporate taxes are all the things that have ruined out country, totally stupid energy (no) policy all have made our great country uncompetitive in the world markets.  Heaven help us… we are going to need it.

Pan Skeptic

April 2, 2011, 9:05 p.m.

Let me endorse William Franklin’s comment. Your long, painstaking reply has nothing in it about getting the top brackets to step up to the plate and do anything at all to help.

The Bush tax cuts for the wealthy were an abomination, and Congress’s inability to repeal them a clear indicator of exactly who has friends at court in what’s supposed to be a representative government.

Your analysis still focuses entirely on cutting spending, and highways aside, is studiously mute on the revenue side of the equation.

As long as those at the top regard any form of taxation as theft, instead of the price we pay to live in a developed society, nothing will come of all of your charts and hand-wringing.

And I deeply wish all those who regard government as the enemy would move to Somalia, and see what living in a country without a government is like.

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