7/02/2006

An Economic Quagmire

I was reading an article in last week's local paper concerning a local office furniture manufacturer. They were in a celebratory mood because the price of their stock went up, meaning bonuses for the guys at the top, and a general party atmosphere at the stock holders meeting. And how did they fund this party? Buy cutting manufacturing jobs.
The article then went on to point out one disgruntled stockholder, the victim of what I like to call the employee owner scam. Many corporations offer stock to employees, and encourage them to purchase it to work towards becoming "employee/owners". And so, when the stock prices were high, as in the case cited in the article, $35 a share, the employees bought company stock thinking it was the fast track to job security. I mean, if you're part owner of the company, you can't be fired, can you? Also, as employee/owner, you are more liable to be aware of waste within the company and become vigilant towards preventing waste, right?
Well, then came the stock market "correction", when the stock market bubble of the nineties burst, stock prices fell, and corporations began to look for ways to raise their stock prices, and began cutting manufacturing jobs and outsourcing them. So not only was this gentleman unemployed, the stock he paid $35 a share for was now at $18 a share. The upper echelon of the company, however, didn't feel a thing. Not only did they not lose their job, they got more stock options, and more stock because it was cheaper. Not only that, because of the operational cuts, they got nice bonuses to top it off. All at the expense of the guy who paid too much for his stock because he thought he was doing the right thing.
The US used to have a manufacturing based economy. A company paid a worker a living wage so that they would turn around and put that money back into the economy buying new products for the home, with enough left over to put into a bank account. Banks then could loan out the money to businesses, those looking to start a new business, or those looking to expand an established one. The more capital a bank had to work with, the lower the interest rates were. A recent study revealed most people don't have much in the way of savings (which is probably good in lieu of the government spying on private banking records)or in the way of a retirement plan.
It used to be what drove the value of a company's stock up was the introduction of a new product. Innovation was the key, develop a product that Americans had to have and your stock price would go up. Now all innovation is in the financing department, find away to cut costs and your stock value will rise. Why? Because most Americans aren't buying new products, as the manufacturing base erodes, so does the market for new products. Right now, we're seeing the automakers dealing with slumping sales, laying off large numbers of their work force because no one's buying new cars. Do the math. A person working in the manufacturing sector making $40,000 a year who loses their job and takes a lower paying job in the service industry making half as much doesn't have the money to run out and buy a new car.
It used to be that the technology field was safe from this as well, but even now those jobs are being outsourced.So in fact what the US has now is two econmies, the upper economy, which is booming, and the lower economy, which is not. Guess which figures the government cites to the people? Recently, a new Wal-Mart opened up in Chicago and 25000 people waited in line to apply for 350 jobs, with low pay and no health benefits. That is not the sign of a booming economy, it is a sign of a desperate one.
We are now engaged in a class war, an unseen war, kept off the front pages of the newspaper, but going on nonetheless. The first volley was fired during the Reagan administration when the government broke PATCO, the air traffic controllers union.Since then, the propagandists in the corporate media, such as Rush Limpballs, have been pushing for tax cuts for the wealthy and an end to all the unions. A freeze on the minimum wage while eliminating the estate tax. And now, after the job market has been flooded with displaced workers, the high priests of expense accounts want to add more workers by allowing illegal immigrants worker status in this country.
But they fail to see the short-sightedness of this. Opening markets in third world countries won't help because the little they are paid doesn't cover the cost of privatized water, food and shelter, let alone a used car. And once a country's workers get, as put so eloquently by former Republican National Party Chair Betsy DeVos,"paid too much money", the company simply closes up shop and moves on to the next country. Meanwhile, our trade deficits keep growing as we have nothing made here to trade to alleviate any of that debt. That is, until we seize the world's oil supply, then we'll have a way out of this economic quagmire.

21 comments:

romunov said...

This has been going on for quite some time now. Which is not a good thing. I guess it will take quite some time before people realise they're being light bulbed.

WeezieLou said...

yes, much better to 'seize the world's oil supply' than to either conserve or work cooperatively....'cooperatively'? did i say that out loud? how very naive...

Lew Scannon said...

You are so right. It is very hard to cooperate with an 'you're with us or against us' attitude

abi said...

Read an interesting stat recently: "The 11 largest companies in the United States earned a combined $865 million over the past two years at the same time as their shareholders lost $640 million."

No doubt we're in a class war, but it isn't PC to notice - and that's one of the reasons the great majority of us are losing this war.

Great post.

Elizabeth Branford said...

First, the use of stock options is a way short term to provide a "perk" that supposedly fosters a sense of "buy in". Its a joke, a fucking joke. Just like giving people a t shirt and company picnic will boost morale.

Corporate America needs to realize that we cannot be shoved off so easily. Health care boosts morale! Flex time, to be with family! Job sharing to permit creative work collaborations. ReaL SAFETY STANDARDS.

And how about not having people choose between complaining and being blacklisted. how about actually ENFORCING these bogus safety regulations that give fatally negligent
industrotards a petty slap for ignoring violations?

Abi is right, it is a class issue. And what jumps out also as a class dynamic is the incessant scapegoating which (and I know you guys will yell at me some more!!! I am not an "illegal immigrant apologist", I say again. I am against using diversions when there is a war going on to pit shafted people against one another when we should be screaming about the fatcats!) is evident to me in the immigration debate by the way we target the workers vs. the employers.

tp said...

Scannon- I hear the underlying point though which really relates to the disparity of the top and their disconnect from the workers at the bottom. And how they prey on the desire of workers to have some security.

Economic uncertainty is a major life stressor, a free floating and anxiety producing element that seems absurd in a society with so much.

What good is it, when life still sucks for many people? Not the top though.

Omnipotent Poobah said...

Excellent post Lou.

I used to work with one of those corporate efficiency experts who kept claiming that outsourcing was the way to go.

He was also the same guy who tried to convince me that sweatshops - I swear I'm not making this up - were actually a swell deal for Third World countries because if they didn't have sweat shops, they'd have no jobs at all.

What else do you expect from morons like that?

Lily said...

Thats a common sentiment actually, Poobah. That the poor around the world should be damn happy to get their meager wages!!!!

Lew Scannon said...

The intent of this post was not to scapegoat the illegals, who are being used as a pawn in the ongoing class war, promised a better life in the US, then condemned to live in a barrio with substandard living conditions, which I will admit are slightly better than the ones they leave behind in Mexico. You are right, they are being used by the fatcats (el gato grande!)against the working class to divert there attention from any number of wrongdoings perpetrated by the ruling elite.And there is no feasible plan to deal with those already here or securing the border to prevent even more from crossing. Perhaps the recent election in Mexico will be won by the left wing and they will strive to improve conditions there to entice their citizens to stay there and build a better Mexico.

Lily said...

El Gato grande!!!! I love it! The bastards. I liked your "repiglickins" too.

TQ Menon said...

And of course, if crazy Betsy DeVos's dimwit husband is responsible for moving jobs out of Michigan and into China and claiming that's just good business.. So at least you could say she knows what she's talking about. And let's not forget the time she said Michigan workers are paid too much. God help us all.

Lew Scannon said...

Yes, Betsy's husband, DICK is blaming Gov. Granholm for his decision to move jobs out of China. If he wins, Michigan will be screwed.

podvizhnik said...

Let's see ... inflation running at about 2.5% during June; unemployment at 4.6%, about 1.0% below average; 19 states reporting economic growth of 10% or more, with Georgia reporting 20% ... oh, yeah, the economy's really in the bidet here. So, GM's in trouble? Well, Toyota, Daimler-Chrysler, and Honda are all hiring American autoworkers, in America, like mad. Whatever GM's problems are, it has less to do with a bad economy and more to do with bad product and Cold War labor practices. I happen to be writing from the real world, where there's no pensions and no health plans except what you do for your own sweet self, and you don't get paid for not working--and if you're sick or your kids have a big soccer game, that's too bad, you're out and the next guy's in. In this world, "flex time" means working through your break to catch up to your quota, "daycare" means Grandma, and "vacation" means a week camping out. In this world, lattes, credit cards, broadband, xBox 360's, magazine subscriptions, brand-new clothes from anywhere but Wal-Mart, and eating out in restaurants are all things that will have to wait until next year, and something serious like a new car or home ownership will have to wait until you're 40 or so. That, friends, is old-school American attitude as it was held by the people who built this country. I knew some of them when I was very young, and damn, some musta rubbed off. Imagine having to work hard and be patient for what you want ... guess it's easier to sit back and complain about "class issues," as if Marxism had been proven right rather than wrong by the end of the 20th century.

Lew Scannon said...

I happen to be writing from the real world, where there's no pensions and no health plans except what you do for your own sweet self, and you don't get paid for not working--and if you're sick or your kids have a big soccer game, that's too bad, you're out and the next guy's in. In this world, "flex time" means working through your break to catch up to your quota, "daycare" means Grandma, and "vacation" means a week camping out. In this world, lattes, credit cards, broadband, xBox 360's, magazine subscriptions, brand-new clothes from anywhere but Wal-Mart, and eating out in restaurants are all things that will have to wait until next year, and something serious like a new car or home ownership will have to wait until you're 40 or so. That, friends, is old-school American attitude as it was held by the people who built this country. Actually, I don't have a credit card, drink lattes, dine out, subscribe to magazines,own an XBox 360 or an iPod. I drive a ten year old car, rent, and buy most of my clothes from Goodwill or garage sales. My parents are both deceased, so I have no grandparents to pawn my kids off on (not that I would)while I'm at work. And gee, if you get sick, that's too bad sounds dispassionately evil to me.As for the unemployment numbers you quote, they merely reflect those receiving benefits, not those whose benefits have run out.
The strong American economy was built on the manufacturing sector, it was because people working in factories were compensated fairly that allowed the economy to grow. Switching over to a service economy will eventually cause the economy to stagnate, as no real growth can come from an economy that doesn't produce goods. Since we are no longer producing in this country, we have nothing to export, to fill in the ever-widening trade deficit.
It is short sightedness to suggest that the worker making $40,000 a year is the problem when that money is spread throughout the community in any manner of businesses, while the executives puling down million dollar salaries are helping the economy, as the trickled on economics only create low paying jobs in the service sector. And since a lot of the American economy is tied to new housing starts, people in the service economy simply can't afford to buy a home, which has in fact create a glut of new houses on the market throughout the country.
I live in Michigan, which is an industrialized state, and I've seen plant after plant shut down, not solely in auto manufacturing, and many of them non-union. The eventual ripple effect of these events will lead to the disappearance of the middle class. The loss of revenue generated by the middle class will only lead to more budget deficits, which have already hit the trillion dollar mark, with out accounting the cost of the war in Iraq.And since the Republicans just gave a hand out tax cut to the wealthy, who will pick up the tab?
This isn't Marxism, it's realism.

Praguetwin said...

Well done, both on the post and the reply.

Give those numbers the guy cited a couple of years and keep in mind the $8.4 Trillion debt. Oh, the piper will come to call. He always does.

podvizhnik said...

You make some good points. It is true that the America we all remember fondly was built on manufacturing, although workers weren't always compensated fairly. Henry Ford caused a furor in 1913 when he proposed to pay his workers a comfortable salary, and such salaries were general in manufacturing only from the 1940s through the 1960s. The era of family-wage manufacturing jobs in American, in other words, was a historical aberration, and ended as soon as politics and globalization allowed it to.

America is never going to recover its manufacturing predominance, and nowhere is manufacturing ever going to support family-wage jobs again, except in special circumstances heavily subsidized by governments. We are living in a service and information economy, and unless Americans can spark off an energy revolution sometime soon, it's going to stay that way.

But my point is that the key to lasting recovery is not found in creating high-wage jobs. My ex has a high-wage job--out-earning me by an order of magnitude--but she is in trouble because she can't control her bills. Millions of Americans are in the same boat. I'm not accusing you of being one of them; I know I'm not; but there are millions of them. It is thanks to that that we have a zero saving rate, so that banks have to look overseas to finance borrowing.

I am a bit sorry to see you flogging the "affordable housing" issue. I don't know how old you are, but I am old enough to remember when "affordable housing" wasn't an issue. It became one when the ENTITLEMENT MENTALITY began to take over. The fact of the matter is that the market would adjust housing prices accordingly if people were able get rid of their debts and start to save money. Nothing that the government can do will make more affordable housing.

Hand-in-hand with that is the "tax cuts for the rich" bit. I have some news here. ALL tax cuts are "for the rich" because it's the "rich" who pay taxes. 96% of all taxes are paid by the top 50% of wage-earners (that is, those who make $29,000 a year or better.) The top 25% of wage-earners pay 84% of all taxes, while the top 1% (those who make $300K a year) pay 34% of all taxes.
You can't cut taxes for the poor, because the poor already don't pay any taxes, except the usual hidden ones like FICA, sales tax, etc., like everyone. I haven't time here to embark on why tax cuts can be good; but I would like to leave with the question why they must always be bad.

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