Repeat after me: Workers are consumers. Consumers are workers.
We're slouching toward a double dip, and the stock market is imploding, because consumers -- whose spending is 70 percent of the economy -- have reached their limit.
It's not just the jobless who can't spend. It's mainly people with jobs. Median wages continue to fall. Weekly wages in July for Americans with jobs were 1.3 percent lower than eight months before.
America's median earners are now earning less (adjusted for inflation) than they earned ten years ago.
Every CEO of every company that continues to squeeze payrolls (Verizon, are you listening? Ford?) needs to understand they're shooting themselves in the feet. Where do they expect demand for their products and services to come from?
They're doing the reverse of what Henry Ford did back in 1914 -- paying his workers three times what the typical factory employee earned at the time. The Wall Street Journal called his action "an economic crime" but Ford knew it was a cunning business move. With higher wages, his workers became his customers, snapping up Model-Ts and generating huge profits.
Many on Wall Street are scratching their heads, trying to understand why the stock market is plummeting. After all, they tell themselves, corporate earnings are still near record highs.
But it's becoming clear those earnings can't be sustained. Corporate earnings are the highest they've been relative to worker wages and benefits since just before the Great Depression. And the richest 1 percent of Americans are getting a higher percent of total income since just before the Great Depression.
Get it? It was only a matter of time before the boom on Wall Street turned into a bust. Economic booms cannot continue without American workers participating in them.
Foreign consumers have helped sustain earnings, but that won't continue, either. The European economy is sinking and China is pulling in the reins on growth.
What will happen to the Dow Jones Industrial Average when corporate earnings revert to their historic average relative to American wages? I've seen various estimates. They're not pretty.
Robert Reich is the author of Aftershock: The Next Economy and America's Future, now in bookstores. This post originally appeared at RobertReich.org.
Follow Robert Reich on Twitter: www.twitter.com/RBReich
Sadly, corporations need protection against their own short-term, smash and grab antics. They fail to see that they are the architects of their own destruction, because the very workers and consumers who keep their companies afloat, bail them out after their greed has reached the tipping point and causes a bubble, which leads to a crash.
Corporations abuse on the production-end and they abuse on the market-end. They are killing us, while they sit in the lap of luxury, smoking cigars and ordering sexual favors home delivered.
"The Tide" Protest/Solidarity Song http://www.youtube.com/watch?v=O2Rm9uX9sPA
Campaign finances are built on a legal fiction. Similar & related to the legal fiction granting Corporations the same rights as individuals.
What's that quote from Shakespeare?'
"The first thing we do, let's kill all the lawyers."
How about starting with demanding they make sense?
They get too greedy and starve the host.
What we have in the present day is Corporatism without representation.
One thing you can say about Humanity is we are a tool making & tool using species. One of our greatest strengths seems to be our ability to adapt to change. Although most would agree adaptation is sometimes a blunt instrument & works as a double edged sword. I view our systems of government, including the political & economic systems, as rather sophisticated tools.
Tools can be misused or used not for their intended purposes, & sometimes they are destroyed in the process. In any event, a tool is created & meant to be used by people, & not the other way around.
If people desire to be used by tools, rinse & repeat.
If that is not our desire, we should stop.
Critical/creative thinking is a tool of inquiry & a process. No one thing takes the place of a process. We can, I believe, recalibrate our tools to better serve Humanity.
I don't know if we can avoid the massive civil unrest that is just over the horizon. We can't even have an honest conversation about jobs and unemployment. No republican dares to speak of real solutions because it would conflict with conservative mantra of less government, a balanced budget and lower taxes. We have no proof that Obama understands the accelerating slide into chaos.
Soon we may understand what France was like in 1789. Liberte, egalite, fraternite
"They're doing the reverse of what Henry Ford did back in 1914 -- paying his workers three times what the typical factory employee earned at the time. ...With higher wages, his workers became his customers, snapping up Model-Ts and generating huge profits"
H. Ford What ever he said would not pay his employees more is they would purchase his cars. He would have been better off giving long term employees cars. Put this into context of your family. Would you be better off if you paid your kids a large allowance so that they could pay you for room and board? The best you could do was break even, and only if they spent no money one candy after school.
The truth is Mr. Ford paid high wages because he had to. His assembly line made workers much more efficient but it w curtail to have dedicated workers because each step was so dependent on the next. So because he was so efficient, producing cars with far fewer workers, he could afford to pay workers more AND doing so made his company more money.
This is how society becomes wealthier. Develop a process that produces something with less or cheeper inputs (including labor) frees those resources to do something else.
Is it possible that this formula converges to zero?
i.e. We are at the point where something else=nothing.
Current US situation:
Keynesian economic theory focuses on low consumer demand. It think it is more accurate to think of it as a series of popped bubbles. When the Internet bubble popped the finance industry bubble should also have popped shrinking finance. Instead the bubble kept growing because of low interest rates. The Fed is following the same policy again. This will cause further displacement and slow growth.
Our current business culture is the result of decades of corruption, cronyism, and selfish greed.
Too many of our business leaders have fallen to the temptations of riches and fame, and we are reaping the results of that.
We need to re-introduce the concept of doing the right things, rather than exploiting the situation.
We as Americans need to develop our compassion and empathy for one another. We can unite once again. United, we can conquer any foe!
How this very simple fact escapes those well-paid CEO's and government workers who serve them, is baffling.
Best and brightest, indeed.
When President Eisenhower named Charles Wilson (then President of General Motors) as US Secretary of Defense, he was asked during the nomination hearings, if, as secretary of defense, he could make a decision adverse to the interests of General Motors, Wilson said yes but added that he could not conceive of such a situation "because for years I thought what was good for the country was good for General Motors and vice versa".
It should be noted:
At that time, GM was one of the largest employers in the world – only Soviet state industries employed more people.
In 1955, GM became the first American corporation to pay taxes of over $1 billion.
In the present day, Corporations can still be good for this Country & vice versa. However, in order for the Country to benefit, the Corporations must employ people at a living wage & pay their fair share of taxes.
Mr. Reich eloquently explains what would be taken, in a more rational age, as akin to stating the obvious. Although I believe that a 'perfection of means & confusion of ends' comes into play here as well.
Perfecting the means by which Corporations are able to create profits for themselves has become confused with promoting the general Welfare of the Country. Equally or even more worrisome, this (faith based) belief system is self-perpetuating as opposed to self-sustaining.
Lower-income American people spend more of their income (as %) than upper-income American people. Lowering taxes on those who need to spend nearly all of their income to simply pay their bills, would increase consumer spending.
Money talks and we're already hearing money say they should be taxed more. In the near future the pendulum will swing in the worker's direction again - it's inevitable - and with the anti-Chinese sentiment building up the practice of producing back in the USA will be quickly rewarded.
We had to go through the cycle to get here but once again, money decides and its new decision is clear. Wall Street was Republican until the TPers caused them the current fiasco on principle and no thought to repercussions. I believe we'll see Wall Street start to favor the lesser of the two evils and back the grownups in the room...