Thursday, July 30, 2015

July 30 2015. Feel free to panic. Someone needs to. Besides, screaming is such a release!

THE U.S. ECONOMY—IT IS ALL OF A PICTURE (It so reminds me of Dorian Gray)




I find it extremely disconcerting that more American economists are not expressing extreme concern about the U.S. economy. Here, I largely don’t mean the routine statistics that are trotted out to predictable responses—and largely misunderstood, or ignored, by the general public—but ‘the fundamentals.’

The Federal Reserve is even considering raising interest rates because there are some signs that pay is beginning to increase (a long overdue—and much needed—development). The Fed’s behavior is so dubious that I’ll leave comment on it for another day—but, suffice to say that the Fed, just in itself, is one of the fundamental problems.

You would be wise not to buy a used car from it. It props up a bunch of people who almost certainly should be in prison. It consistently ignores the fact that it is supposed to be as concerned about ensuring full employment as keeping inflation under control. It does what author Edgar Wallace used to call ‘so-and so’ and ‘such-and-such’ in his Sanders of the River books. The implication was of depravity of some kind.

What are the fundamentals? They are the things that really matter. If you were talking about a house, your fundamentals would include the foundation, the walls, and the roof. If your foundation was unsound, and your walls were cracked, it would be said that such a house had structural problems. They might, or might not, be evident. Cracks can be filled in and papered over. Either way, they would be there—and if they continued, the house would fall down.

Houses aren’t supposed to do that. Inconvenient if they fall on top of you.

The U.S. economy, which is run according to ‘The American Business Model,’ has structural problems because some of its fundamentals are flawed, distorted, rigged, corrupted, or otherwise not working correctly.

Let me list a few economic fundamentals to give you the general idea. Some are obvious, some are less so. Judgment comes into the picture. But, here are some examples.

  • A POLITICALLY FAIR, JUST, & EFFECTIVE SYSTEM. An economic system doesn’t function in a vacuum. It is a subset of a political system. Research has demonstrated—and events prove—that the current U.S. political system is dominated by lobbyists, corporate interests, and Big Money and the average American doesn’t have a voice.
  • ADEQUATE DEMAND. People obtain jobs because the goods and services they manufacture, or otherwise supply, are in demand. If demand is inadequate, either there are not enough jobs and/or the pay is inadequate. The U.S. has lacked adequate demand since the Great Recession in late 2007. The obvious solution would be to boost it, but the Republican Party has either blocked or whittled down most attempts. Pay, for many, remains so low that government subsidies are required for them to live. That is not free enterprise. A full-time job should not require a government subsidy. That is corporate welfare on a massive scale.
  • GOOD LABOR RELATIONS. America has just about the worst labor relations of just about any developed country. Worker rights are minimal. The unions in the private sector are nearly crushed. Job security is minimal. Paid vacations are either unavailable or short. Management is largely authoritarian.
  • INCREASING PRODUCTIVITY. It should come as no surprise that U.S. productivity is now increasing minimally—and is declining in some sectors. Combine a de-motivated, badly led workforce with a lack of investment and poor infrastructure—and the consequences are predictable.
  • A WELL EDUCATEDF, TRAINED & LED WORKFORCE. The inadequacies of the U.S. educational system are widely known—as is the reluctance of American managements to invest in training. Leadership, at best, may be described as spotty.
  • FULL EMPLOYMENT AT ADEQUATE PAY. No one is too sure what full employment is these days. It used to be considered 5% but now economists are wondering because worker pay should go up in response to demand at that point—but largely isn’t (because there is still slack in the economy and workers have minimal bargaining power). Add in the fact that far too many people are not being given enough hours, are in the wrong jobs, or have just opted out of the workforce, and it soon becomes clear that the U.S. is not close to full employment at adequate pay.
  • AFFORDABLE GOODS & SERVICES. Just about everything a human being could ever want or dream of is available in the U.S., but much of it is beyond the reach of most Americans. There are serious problems with Healthcare, Education, Car costs and Housing (and a whole lot else). Because so many people cannot afford to live on their pay, they are being driven into debt just to pay for necessities.
  • A COMPETITIVE & EFFECTIVE HEALTHCARE SYSTEM. The U.S. Healthcare System has become a major drag on the U.S. economy to a degree that is hard to overemphasize. It is so much more expensive than that of the competition that it undermines international competitiveness and distorts take-home pay. Worker compensation may increase as healthcare costs go up but take-home pay does not. On top of that, American is not particularly effective and doesn’t rate well internationally.
  • EFFECTIVE COMPETITION. Major corporations have been concentrating for years. Most market sectors are now dominated by only a handful of corporations. De-facto monopolies are now common. Since competition is supposed to police a free market economy, in its absence, there is a serious problem here.
  • A COMPREHENSIVE AND WELL MAINTAINED INFRASTRUCTURE. The U.S. has been failing to invest in its infrastructure for decades and the deficit is now up to several trillion dollars.
  • ADEQUATE CAPITAL FOR SMALL BUSINESS. The banks, despite extraordinary support by the Fed, have actually cut back on lending to Small Businesses since the Great Recession. 

The data may not be either well or adequately covered, as far as the general public is concerned, but you would think an economist would do his or her own homework, and have reached certain inevitable conclusions. The information may be badly communicated, but the facts are out there.

But they don’t. Either they will comment on a specific set of figures—which is normally all they are asked about—or they will stay silent.

Either they genuinely don’t see what is going on—in which case you would have to worry about their competence—or they are too gutless to speak out—even in the National Interest. Frankly, I suspect the latter. Careerism is rife these days, and such a pattern of behavior does not include doing the right thing. In fact, it precludes moral courage to a distressing degree.

My interpretation of the data over a decade now—I started seriously in 2004—has led me to the following conclusions (amongst others). It seems to me they are sel-evident, but that doesn’t seem to be the opinion of most U.S. Economists and the Fed.

I am an outcast (but right).

  • FLAWED AMERICAN BUSINESS MODEL. The American Business Model is structurally flawed, and needs to be changed drastically before the U.S. economy will thrive again (not to be confused with appearing to thrive because of some unsustainable ingredient such as debt).
  • GREED DRIVEN MANAGEMENT PHILOSOPHY.A management that focuses solely on maximizing shareholder value, invests obsessively in share-buybacks, rewards CEOs and senior executives to excess—and ignores the wellbeing of its workers, suppliers, customers, community, and the National Interest—cannot succeed over the longer-term. Far from all firms are like this, but it seems to be the prevailing ethos.
  • FINANCIALIZED ECONOMY. Currently, financialization has an excessive grip on the economy and is hindering growth, economic wellbeing, and the American Way of life in general. It’s a disaster.
  • DISTURBING PAY, PRODUCTIVITY, & DEBT ISSUES. An economy based upon virtually static pay, declining productivity increases, rising debt, rising corporate profits, a booming stock market and ever increasing levels of income inequality is unsustainable—and must eventually lead to social unrest.
  • NO LONGER A DEMOCRACY. A representative democracy where only those who fund politicians are listened to is no longer a democracy. If only the rich have clout—and run matters exclusively to suit themselves—it’s  a plutocracy.
  • CHRONIC UNDERINVESTMENT. A nation that under-invests in training, R&D, plant and equipment—and infrastructure—year after year won’t remain internationally competitive for long, and must decline.
  • FEDERAL RESERVE OFF TRACK. The Federal Reserve—which, in the final analysis—supports the Big Banks and the financial sector despite the most appalling behavior—needs re-thinking.
  • NO ANSWERS BEING OFFERED. No adequate answers are, as yet, being presented by either political parties, or, presidential candidates, to the point where it is far from clear they accept there is a problem—let alone a whole series of inter-connected problems which add up to an existential threat. Bernie Sanders and Elizabeth Warren are on the right track—but even they don’t seem to have come to grips with the sheer scale of the issues.

Since I seem to be somewhat isolated in expressing my concerns, have I given any though to the possibility I may be madly, deeply, and absolutely wrong?

Of course, I have. We writers are are mass of angst, self-doubt, and insecurity. Fascinating people, but hell to live with, so they say! Why do you think we work alone?

It would be great to one of the guys—and not be bullied on the playground.

But, then there is the small matter of the evidence. It increases by the day—and its conclusions are ever stark. Go pick a key economic figure—and then evaluate it in context—and you will see for yourself. The great mistake—which is made constantly—is to look at economic figures in isolation.

You need the whole jigsaw (or a big piece of it). The piece below demonstrates that U.S. consumers are reverting to their debt driven ways—except his time with the added bonus of educational loan debt.

The Great Recession Part 2 would seem to be in preparation. It looks like having a similar cast. Little has changed since The Great Recession Part 1. 

4-13-15-CreditCardBalanceBarChart (1)

credit card debt


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