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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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    Rodger Malcolm Mitchell

    April 2, 2011, 10:42 a.m.

    â? . . . the only way you can show a positive GDP for the last decade is with government spending. . . . Without government spending, â??realâ? GDP would be at levels it was over ten years ago. And it is real growth that drives wages and creates jobs.â?

    Correct.  This is a fundamental tenet of Monetary Sovereignty, and is shown in these charts: http://rodgermmitchell.wordpress.com/2010/06/14/is-federal-money-better-than-other-money/ Is federal money better than other money?

    â?My book calls for a large increase in funded infrastructure spending through a fuels tax. . . â??

    You have confused monetarily non-sovereign governments with Monetarily Sovereign governmentsi. A Monetarily Sovereign government (i.e.) does not spend tax money. If federal taxes were zero, this would not reduce by even one penny, the federal governmentâ??s ability to spend.  By contrast, monetarily non-sovereign governments do spend tax money. Not understanding the difference between monetarily non-sovereign and Monetarily Sovereign casts doubt on your understanding of economics.

    �Yes, we have to make cuts to government programs. A 33% growth in federal discretionary spending (not including stimulus money) the last three years alone is not reasonable, given the size of the deficit.�

    A growing economy requires a growing money supply. The misnamed â??deficitâ? is the federal governmentâ??s method for adding money to the economy.

    �The last recession was not caused by too little government.�

    No, it was caused by too little federal government spending.  In fact every depression and most recessions follow decreased federal spending growth.  See: http://rodgermmitchell.wordpress.com/2009/09/07/introduction/  What causes GDP growth?

    â? I am worried about the survival of the country economically. Another crisis caused by the bond market driving up interest rates, because they become concerned about the size of the debt and deficits, will seriously reduce the choices we have â?? with none of them being good. Ask Ireland or Greece how it feels.â?

    Ireland and Greece are monetarily non-sovereign.  The U.S. is Monetarily Sovereign.  You are making a false comparison, something like saying water and gasoline are both liquids, so since gasoline burns, donâ??t put water on a fire, because it too will burn.

    Rodger Malcolm Mitchell

    David Champeau

    April 2, 2011, 10:32 a.m.

    Sir, since we live in a debt-based (or credit-based, depending on which side of the coin you are on) monetary system, we cannot get off the debt-wagon. All money is debt. Paying off debt destroys money. Charge something on your credit card, create money. Pay off the credit card, destroy money.

    The system requires inflation to survive. If we paid off all of the debt we would destroy the whole money supply. Note, we cannot pay off all the debt as the interest makes the total debt greater than the money in circulation.

    As we spend the rest of this decade deleveraging we will be destroying money, aka deflation. Some tough times ahead in this decade but we will survive.

    The US dollar has changed form at least 7 times since it was created by the Act the created the US Mint in 1792. We have had a two-tiered dollar (foreign and domestic) twice in our history. This could happen again with all the dollars and bonds being held overseas.

    Cheers,

    David

    Paul Wachtler

    April 2, 2011, 10:19 a.m.

    John, The graph of changes in earnings increases by year looks confusing to me. Are we saying that the group of workers in this segment saw annual increases of 4% to 2% per annum (if earnings = wages) for the past 10 or so years? If so, this is beyond inflation by quite a bit!

    William Franklin

    April 2, 2011, 10 a.m.

    John:

    Usually like your columns, don’t always agree.  In the case of this one, I think you left out some really important stuff, like the real reason that wages have been actively suppressed by business for the past 20 years, or longer.  Automation was not the sole reason for wage suppression.  Several other things entered into it:  (1) unbridled illegal and legal immigration which was encouraged by corporations and employers, (2) offshoring during and after NAFTA and other insane agreements and (3) refusal of corporations to share productivity gains which were driven out of the working people.  Add to this the immense inequaility which has developed between the lesser 95% or so and the top 1%.  So, we have flat wages for 30 years following the idiocy of Reagan’s firing of the PATCO employees. 

    And, yes, I have seen enough, closely enough, to know beyond doubt that these things were done and were calculated by Chamber of Commerce, NAM, etc. and their members.  The goal is a subservient population which will do whatever is required for what little is to be paid, and with no say in the latter or the former.  Add to this toxic brew a determined push to kill off all, repeat all, social safety nets, all of them by the employers and corporations—and they have gotten a portion of the hoi polloi to do their dirty work not knowing they are digging their own graves. 

    The deindustrialization of and financialization of the country’s businesses is another culprit.  Now capital is not a servant but a driver, a whip in the hands of an extremely rich few, who frankly do not give a damn about me, you or anyone not in their very small circle.  So, here we sit with a small international elite with no allegiance or affiliation with the country where they started, all of whom have no care for what to them is now a surplus population which should now shrivel and starve as need be.  As part of this cabal, these very rich people and corporations have bought up most of the Congress, Executive and Courts (in particular the Supreme Court).  One half of all the congress people are millionaires or multi-millionaires.  Who do you think they party with?  Who will they listen to.  They send their money offshore into tax dodges rampantly, as do corporations—who now want a tax holiday for bringing their profits “home”, as if these crooks have any home, only ports of convenience.

    It is nice to lecture us that we have to “take our medicine” when we, the middle and lower classes, did not cause the problems.  Look at the continued tax cuts for corporations and millionaires/billionaires, not just under Bush but since.  The rich want nothing to do with helping the country, we are unfortunately on our own without adult leadership.

    So, I think you missed the major components of this affair, really missed it.  Oh, by the way, as wage suppression really took hold in the late 1990s, people began, almost casually, to use their homes as piggy banks, with the total encouragement of the banks and financial institutions.  Oh, and did I miss it, but the banksters are criminally indictable, but have bribed their way out of the trouble they have fomented.  So, as long as you are telling the story, please tell the whole danged thing, or at least much more than you have—or do you fully approve how this thing has continued to happen to the detriment of ordinary citizens?  If you do, it makes you no better than the crooked corporations and wealthy who have ruined this country.

    R Gordon Schmidt

    April 2, 2011, 9:34 a.m.

    Good letter.  Bill raises interesting questions, you give interesting answers.  I wonder what we would have thought had we lived in the period from 1880-1940?  The appearance of greed and the concentration of welath were much greater then than now and look what happened!  We will likely be worse off now because there is no will to deal effectively with the debt problem.  But, if we find that will, things could be tremednously better, with all us “worker bees” included!!

    Ryan Conlon

    April 2, 2011, 9:20 a.m.

    This week’s reply to Bill K.‘s long email was great.  John, thank you for stating your position.  I have friends and relatives who are just getting by and when Social Security and Medicare have to be cut, they will be really mad.  In many cases they’ve contributed all of thier lives to these plans and now expect “the government” to fulfill their promises.  I doubt they’ve ever looked at their contributions versus what they are expecting in payouts—when one does that, the problems become very clear.

    My father, 84 (a retired firefighter) is really benefiting from the “promises” that various governments made in the past.  He “did the math” and realized that everything he’d put into his retirement would be paid out to him in the first 3 years.  After that, it was all extra.  Even compounding at 8% (a common assumption by retirement plans) it was all paid out after 6 years.  He’s now in his 27th year of retirement.  He understands how this just doesn’t work, long run.

    The problem, as you eloquently state in your book, is there are three groups of people.  Those who focus on the past, the present, and the future (two types in each group).  Unfortunately too many of today’s people fixate on the present.  Bill’s complaint is based on the present—the situation we find ourselves in—a bad place.  In the past the politicians we elected made us promises they will not be able to keep, including great Social Security benefits and fabulous Medicare.  Of course they were living in the present as well; they wanted to get re-elected.  Also, even if they new the promises were bunk, they knew they’d be gone by the the promises came due.  We are getting very close to the end, however.

    Imagine how the Bernie Madoff investors felt the day they heard the news there was nothing there.  This is how we will feel the day we face reality and no one wants to face this!  [I’m intentionally goning overboard here, but not that much].  The sooner we face reality and figure out what to do about it the better.  Unfortunately we need to go through the human process of denial, anger, bargaining, depression, and finally acceptance before we can move on.  Unfortunately this will take some time (my guess, 8 years).

    John, I love your writing.  Thanks for being one of the 10% who thinks about the future and being in the sub-group that is optimistic.  I’m with you, but the near future will be tough.  As a country we will make it, but wow, things will be different.

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