Thursday, February 24, 2011

Arc of a Diver

Bear with me, because I'm really thinking out loud here; I don't pretend to be parading out expert opinions or fully-formed ideas. There are just some issues I'm seeing in the U.S. that concern me and I wanted to lay them out and let you all kick them around.

Let's start with some of the elements that have been elemental to human life since Sumer, and some others that appear to have become more essential to life in the United States in the early part of the 21st Century.

First, let's begin with the proposition that human well-being comes from a variety of sources, but that the basic principles of Maslow remain sound. Physical needs like adequate food, shelter, and safety come first. If you are starving under a bridge in the February rains it doesn't really make much difference whether you are in a terrific love match. You will be dead soon of exposure, leaving your amorata bereft and looking for a new place to sleep.So securing those fundamental needs is the primary concern of humans everywhere.

For most of us in 21st Century America this means a job; gainful work, work that pays enough to secure that rented flat, food enough to live on, clothing, and the small fripperies that differentiate living from existing.

Let us further assume that political ideals and concerns will always come second to the primary need for security and well-being. Mark Twain called this "cornpone opinions"; tell me where a man gets his cornpone, said Twain, and I'll tell you what his opinions are.

To put it another way, a person fearful of want and hardship, of losing his job, that she will fall into desperate straits, is unlikely to worry much about the abstracts and deeper implications of policies and politics. As hard cases make bad law, frightened people make bad politics. While it would be nice to think that humans respond to desperate times with calculated courage, my experience is that the pressure of fear and want make fools of the hardiest of us. The usual reaction to pressure is panic. The main reason that the Framers of the U.S. Constitution wanted to limit the franchise to men of property is that they feared the "passions of the mob" - by that they meant the impact of the landless and moneyless being led, or driven, by their need to truckle to those whose patronage employed or supported them.And that brings us to the moment, the second Winter of our economic Discontent.

We the People have been assured, reassured, re-reassured that the key to economic strength is through the unshackling of the creative engine of capitalism. That the Market would bring us all prosperity, and that the best way to spread that prosperity was to lift the bonds of taxation and regulation on the Masters of the Universe, the financiers and entrepreneurs and captains of industry.

The rising tide that their flood of wealth creation would break loose would raise all our little boats alongside their yachts. We would lave ourselves in the streams of lucre they would bring forth, like Moses bringing forth water from the rock.

So we helped them, we cut their taxes - lower than anytime since their grandfathers smashed the Republic on the rocks of the Depression - and we waited. We, many of us, demanded the end of public unions, the crushing of deficits, the end of public spending, just as the powerful and wealthy told us would help - and we waited.

And certainly their tide has risen. The stock market is rising, many of the largest companies and corporations are awash with profit.

But for many of us the water is still at low ebb.Employment is still around 10 percent. Worse, many more of us have just stopped looking for work, or are working at menial or part-time jobs that pay little of what we earned before and not enough to live on above the meager minimum.

And here is the worst part of my fears.

I think that this Great Recession may be the harbinger, the slow drawback of the sea that fortells the arrival of the tsunami.

I think we are seeing a great convergence of political, economic, and social changes that spells trouble for those of us ordinary citizens of the Republic.

I think we will find that many of the lost jobs may never return. And I think that this may portend the end of the great "Middle Class Era" of the U.S.

When you think about it, wealth for the ordinary American went through two great periods of expansion. In the late 18th and early 19th Centuries that expansion was literal, physical; the nation prospered as it grew larger, incorporating huge territories into itself. If an American needed or wanted to try and prosper, he or she could move physically to a richer or newer part of the land.

By the end of the 19th and into the 20th Century, the expansion was technological and industrial; people left off farming and started making things, and the things we made became ever more complex and valuable.

But this depended on two things;

First, it depended on resources, and, more importantly, on domestic resources. The iron and coal were mined here, the petroleum drilled and refined here, the cotton grown here and the fabrics woven here. Americans largely used American resources to make American products. That economic power enabled us to purchase resources we couldn't find in North America and still have wealth to spare; our manufactured goods were as much in demand overseas as the resource materials were here.

Second, it depended on tariffs. For much of our nation's history we protected our industries with tariff barriers that made trade within the nation more economical than trade without, despite the relatively high wages we payed each other.In some cases we protected our industries absolutely; in the early 19th Century importing German or British steel would have been cheaper than using steel from Pittsburgh or Cleveland, even though the German and British steelworkers made no less (tho probably little more, and that little enough) than our own. But high tariffs forced Americans to trade with each other.

Well, the resources - especially petroleum - are gone and will not return. And we have chosen to lower the tariffs in the name of free trade and the acquisition of volumes of Cheap Plastic Crap. That has been good in the short run, and for the manufacturers of CPC. Now I think the bill is going to come due.

Because corporations have realized, and, soon, I think the American people are going to find, that many, many formerly living-wage jobs can and will be done by people in places like Brazil, Rangoon, Calcutta, and Guangzhou.These jobs don't take a vast amount of mental acuity, and, what's more, the education the people in Calcutta and Guangzhou is becoming no worse than our own. And their costs are much less than ours. We simply cannot compete with engineers in Mumbai who can design as well as engineers in San Francisco and for a fraction of the price. I think that we will be surprised, and dismayed, by the number and type of jobs that can and will be offshored.

I think that we are going to find ourselves with an indigestible 10 to 20 percent of the population that is going to become "long-term un/under-employed". I think this will have a disastrous effect on U.S. politics.

It's easy to forget that prior to the War on Poverty that roughly a quarter of the U.S. population was poor. Really poor.Shotgun shack, barefoot-hookworm-and-pellagra, bad teeth and rickets poor. What saved us, to a great extent, is that most of those poor were either immigrants living in city slums or the rural poor. The first were too cowed and frightened to be much trouble, the latter were always able to eke out some sort of living, even in bad times.

But the rural poor are pretty much gone; what's left are agribusinesses feeding crap to the poor and lower middle class and the craft farmers feeding slow food to the upper middle class and wealthy. The bulk of the urban poor and suburban poor have lost the skills to farm; the countryside has lost the ability to insulate us from culture shocks. And the likelihood of as much as 20-30 percent of the U.S. becoming poor again, really poor - especially if the recent Republican fervor for dismantling the social safety net takes effect - is likely to remove much of the fear from the urban slums.

In revolution the real devastation begins with the thought "What the hell do I have to lose?"

And the gulf between the rich and the poor is widening again, to an extent unseen since, again, the Depression.It's worth remembering that FDR wasn't some sort of aristocratic Santa Claus. Yes, he had concern for and interest in those suffering from the worst of the Depression. But he was also a cunning politician, a frighteningly bright guy, and an old New York patroon. He could see what was happening as hard times made desperate people make mad and bad choices; the wealthy and then the middle class dead and imprisoned in Russia, fascists springing up in Germany and Italy, class war in Spain, and he didn't want to see it here. His opportunity came when the banksters and the free-marketeers shit the bed in 1929, and he rammed through some arguably unconstitutional measures that bought social peace for the succeeding fifty years.But I think that deal, that New Deal, is falling apart.I honestly have no idea what can be done. I can't see hopes for reviving the U.S. middle class the way it was created after the Depression; by raising the working class into the "middle" by paying them a wage that brought with it middle class expectations, manners, and mores. The competition from foreign workers is just inescapable.

I can't really see the creation of "new industries"; we're at the tag end of a technological cycle.

For example, look at the pace of technological progress, say, between 1910 and 1940 - practically the entire industrialized world changed! An American of 1910 would have had a hard time recognizing the world of 1940.

Another thirty years - from 1940 to 1970 - saw great changes as well. But not was great as the preceding thirty.

Between 1970 and 2000, still more changes. But changes in scale, or type, rather than in method. We went from landlines to "bricks" to cellphones to iPods - but a phone is a phone. We went from mainframes to laptops - but a computer is a computer. The next great technological leap may well be out there...but it seems increasingly like a "black swan". The arc of the present technologies seems predictable and increasingly incremental.

So the U.S. seems presented with the prospect of an increasingly divided society, with a small group of very wealthy at the top, a sullen lump of intractably poor and unemployable at the bottom, divided by a frightened and dependent remnant of the middle class between.Unwilling to tax themselves, the wealthy retreat to their gated enclaves. Unable to pay for themselves, the poor are lost, increasingly nothing more than a mob of votes to be bought and sold. Resented by the proles and ignored by the aristos, the rump of the middle finds themselves chained to the rock of their stagnant mortgage values with the vultures of the rich and poor rending their livers as they dread the day their job is finally outsourced or offshored.Now - don't get me wrong. I don't think that we're crash-diving into some Mad Max apocalypse, or that the U.S. is going to become Afghanistan tomorrow.

This country has always been tremendously resiliant. We have great reserves of human energy and creativity, and there are always events that can break favorably, unlike the gloomy scenario I've painted.

But combine everything we've talked about with a world that wants, and is getting to the point of being able to demand, what we have kept to ourselves for fifty years; with the increasing possibility that we are producing and consuming petroleum orders of magnitude faster than it can be formed from biomass; with the collapse of the post-WW2 political center into the repolarized politics of the Oughts and Teens...

I wondre if we have the wherewithal - political, social, economic - to reverse this trend and reestablish a broad middle class of the sort that had such a large effect in stabilizing the nation between 1945 and 1980; that is, the nation that most of us grew up in and take for granted.Is it?

One solution could be to "lighten" or "open" the U.S. economy. Until now we've rested like a massive stone wall on agriculture, resource extraction, and manufacturing. Above that foundation are the wood floors, the service industries, from the architects, engineers, and designers to the attorneys and the doctors. Above that are the gingerbready attics; the caterers, beauticians, the financial gamblers, the writers, the graphic artists, and the people who sell kitschy knick-knacks in twee little shops.

Agriculture and mining long ago lost their mass employment potential; most of us now work in the service industries. But there has to be a foundation, and that foundation is increasingly looking rather seedy. But do we need "mass employment"? Can we design a society that uses technology to replace human bodies, relies on creativity and a "nimble" exchange of good and services? One that is based on fewer people, but those people capable of more complex tasks? Could the way out of the dilemma of the un/under-employed be to simply have fewer people to BE unemployed?Or perhaps that next wave discovery occurs and revitalizes the U.S.

Or...or something.

I hope.

Because if not I am worried about my children and the nation that they will grow up in. If not I am worried because of what I see as the political and social state of the nation; I'm not convinced that we are prepared to deal sensibly and effectively with the sort of problems I've discussed.

If not I am worried that my children's lives will be more difficult than mine was, and that is every parent's worry.


  1. Awesome post. Posts like these that give me hope.

    One of the consistent threads I see throughout the interons on the union busting in WI are others in the lower/middle class wanting to drag these workers down to the rest of us. People don't have job security, bargaining power, or benefit X, so fuck those other workers that do.

    I guess the best way to negate real class warfare is to divide and conquer your enemy class.

  2. Go take a look at the Chief's Graphic Firing Table for a very intriguing discussion this same post generated.

  3. @FDChief - No offense, but would you kindly STOP blaming what has happened in our nation on The Free Market. We have not had a goddamn Free Market in this nation in my, your or my grandparent's time (and my paternal grand-daddy was a dough boy on The Western Front). We are in dire straits now because our goddamn currency has been devalued to be the equivalent of $0.02 in purchasing power of the 1913 dollar. This is a direct result of government intervention into the economy.

    Why You are Unemployed Part 2

    Why You are Unemployed Part 4 - Fiat Currency

    I'm sorry, but we have to cut the goddamn budget. You can't just cut taxes and not the budget. You also can't cut the budget and not cut taxes. THIS is a goddamn historical FACT. The Great Depression was NOT ended by FDR. Why do you think people think of the 1950s as a 'golden era'? Because government rapacity under FDR had been slashed (Top end tax rate under FDR was 90%).

    We have a Fascistic system, not a Free Market system. That's why its called Corporatism (Mussolini called it The Third Way).

  4. I would like to think that the very nature of this blog was the first incentive which led to this post, that a whole lot of dialectic (for lack of a better word) and thought went into this post, not something one types out in 20 minutes because one has a deadline . . .

    Hard times call for hard questions . . .

    Hard answers require hard citizens . . .

  5. Chief,

    This is a great, meaty post. There is a lot of it I agree with and a lot to comment on, but as a slow thinker I need to mull things over a bit first.

  6. Re: Brooklyn Red Leg's 1950s golden era:

    The Revenue Act of 1964 reduced individual tax rates, with the top rate dropping from 91% to 70%.

    For some reason, we had that "golden era" of the 1950s, even though it was an age of "government rapacity." How is that, Brooklyn Red Leg?

    And excuse me, Brooklyn Red Leg, although I agree
    we have to cut the budget, and that you can't just cut taxes and not the budget, I'm a little curious as to why you also can't cut the budget and not cut taxes, and how that is a "goddamn historical FACT." Further, one wonders where you were when your man George Bush was pushing that very idea, i.e., cutting taxes and not the budget, to the resounding cheers of your fellow travelers.

    Polemics are fine, but let's see some meat.

    Very nice post, Chief. More later. Just wanted to get some quick questions in to the new "libertarian" on the block.

  7. I will also chime in on BRL's post:

    The prosperity of the 1950's was primarily due to the fact that the rest of the industrial world had been pretty nearly bombed back to the Stone age in WWII.

    To give you some idea of the destructiveness of that war, the British didn't get off of war-time rationing until 1971 and they were the second least affected of the major powers. Japan, France, Italy, and Germany had to be completely rebuilt via the Marshall plan (a government program which greatly, if temporarily, boosted the US economy).

    We could afford it then because we were the ONLY show in town. Things are different now.

    Also, BRL, please show us your data on devaluing the currency. I fear you may be confusing the growth of the money supply (natural and required for a growing economy) with devaluation.

    On the other hand, Publius, I need to stand up for BRL on your statement that George W. was "his man." While you may be right, he hasn't given us any indication his feelings toward the man so don't assign blame where it isn't called for. There are very few true Libertarians who would describe George W. as "their man."

  8. srv: I wish I thought that unionization was part of the solution. Unfortunately I think the issue here is one of coming absolute scarcity of real family-wage work rather than relative scarcity. Having worked some truly shitty non-union jobs I have a great deal of respect for what they do for working people. But what I fear is that we are approaching a period where there just won't BE enough decent work for the people who want to do it.

  9. BRL: 1. I'm not "blaming" anything or anyone, outside of our national decision to effectively abandon tariff protections. What I fear is coming isn't because of someone's evil plans or some sort of horrible decisions of the Market. It's a natural outgrowth of opening markets and commerce between vastly unequal national economies.

    2. Freedom of markets is very relative. We have a freer private economy than many parts of the world, although we have always been more corporatist and oligarchic than we pretend. But, as noted above, the freedom or lack of same of the market is NOT why I fear the political consequences of an economic crisis of the type described.

    3. Re: the "dollar worth $0.02" thing. Horseshit. We went over this when you said it the last time. I'm not going to correct this again. Absolute inflation is meaningless; relative inflation is, and we are in a deflationary period and, if the sort of permanent structural unemployment I am talking about occurs we will be in for a long time.

    4. Cut WHAT budget and how does that affect what I'm talking about? Of course we could cut the budget and there's a whole post - hell, there's a whole BLOG - out there that could be devoted to the details of fiscal policy. But fiscal policy is NOT what I'm concerned about in this post.

    And Publius says everything that needs to be said about budgets and taxes.

    5. You note I didn't say "FDR ended the Depression". Goddam it, man, if you're going to slag off on me, READ the fucking post. I said that FDR USED the Depression to ram through his New Deal, and that helped bring social peace at a time when a hell of a lot of the Western world was torn up by internal revolt and totalitarian takeover.

    The New Deal DID help, but it was really WW2 that pulled the country back into full employment, and the devastation of the industrialized world (or the underdevelopment of the rest) that contributed to the Fat Fifties and the Sweet Sixties.

    6. We don't have a "fascist" system by definition. I won't quibble with "corporatism", but we retain the trappings and some features of a democracy. What I would call us now is a semi-oligarchy, if you want to split governmental hairs.

  10. Andy: I was hoping that you would be here with your usual incisiveness; I await your comments with interest.

  11. Pluto: I think Publius' point is that BRL is all about cutting the budget without discussing taxes and so was Dubya. I do agree that BRL's comments have explicitly denied the Decider in a positively Petrine fashion.

  12. I should try and summarize some of the comments already made re: this post when it was up at GFT.

    Lisa commented that "Less people? Necessary, yes, but how do we arrive at that? We are not China, and lax immigration law and religious dogma pretty much assure no end of replacement or growth of future Coneheads to consume mass quantities of ... tripe.

    En masses, we seem a pretty dissolute culture.

  13. Pluto had two outstanding comments and it's worth going over to GFT to read them. Let me try and bring over some of his highlights. Among other things, he said:

    "You're overly optimistic about the workforce. We've already hit 10-15% structurally unemployed; I expect us to hit 33% structurally unemployable by 2025 at the latest.

    Your comments on the trickle-down theory of economic stimulation are dead-on except that this country, which has benefited from cash-inflows is beginning to see cash fleeing this country.

    If you're a wealthy person, are you going to invest here in the US where you can expect a maximum annual profit increase of 2-3% or are you going to invest in China and India where you can expect 8-12%? It's pretty easy to figure out when put in those terms.

  14. Here's the meat of the second part of Pluto's comment:

    "As a result your suggestion of re-imposing tariffs would backfire. Our poor could not afford high-tariff cheap Chinese crap and couldn't manufacture plastic crap here cheap enough to be able to afford to buy what they make. If it is any consolation, the Chinese are at most 20 years away from falling into the same trap we are in. Likely losing most of their manufacturing jobs to Africa and other places where people will work for less than the rising Chinese standard of living can afford.

    We really aren't at the tag-end of an industrial cycle, we're in the middle of one of the most disruptive technology change-overs in the history of the world. The real question is what we are going to do with all the labor and intellectual capacity (people) that the system doesn't need anymore to sustain itself. The answer will have a huge impact on the history of the world for the next several centuries and I have NO clue as to what the answer will be.

    Your comment about "What the hell do I have to lose?" is very perceptive and the crux of the matter. People WILL find a way to survive regardless of the circumstances but there's survival like 1950's America and there's survival like 1990's Ethiopia.

    I prefer the first but fear we'll get the latter.

    I fully understand the source of Lisa's comment about our dissolute culture but don't think that really matters much.

    The country pretty well knows now that we're in trouble (except Washington but you can't tell them anything) but doesn't fully understand the depth of our problem or the real options. This results in a splintered society that can't really agree on anything and feels decadent (look at late 1920's Berlin for a similar feeling).

    I think we'll have a much better understanding of our options in 5-10 years and will start behaving in a more intelligent fashion (except maybe Washington). The threat of imminent destruction has a marvelous way of focusing the mind..."

  15. Here's my reply to the second part of Pluto's comment:

    "I do think that, while the PACE of innovation in the past 30 years may have been exceptionally high, I think the effects have been incremental, largely because I think the intellectual heavy lifting had been done by the Eighties. For example, high-speed internet and e-commerce has overwhelmed the market in ways we had no notion of in 1980. But...even then (and I was just out of college and joining the Army then) we were seeing the effect of the PC and digital communications, and I knew many people who were looking at careers in the fields of electronics, computing, software design...all the things we take for granted today.

    We can do MORE, a lot more, because of the improvements in both hardware and applications. But the digital revolution is now about changing speed and capacity rather then direction.

    But I think we're going towards the same place (and so are you, Lisa) with our concerns; in whatever the "next" U.S. economy is there are going to be people - I think, a LOT of people - who aren't going to "make it" in a society and an economy where creativity, innovation, intellectual agility, and mental throw-weight are crucial. What the hell do you do with these people? I can see a lot of ways that they will...end badly, if you will. But not to many ideas of how to make things work.

    I wish I could see someone out there with a clue, but our political process is so utterly fucking hosed that you have to be a mendacious whore to even get nominated, let alone elected.

    I think that WASF for the next couple of decades. I hope it's only that long..."

  16. Ael added this: "It is a distribution of wealth problem.

    What happens when you need 5% of the workforce to grow all the food for everyone and 15% to make all the stuff for everyone. What happens to the 80% who do neither?

    The obvious answer is the service economy. However, you need to be able to convince the 20% that they need those services (or you can rob them via taxes) and then pay the rest of the people money so that they can buy the food and stuff from the 20%.

    America has long organized itself as a "scarce labor" economy. It may need to restructure towards a more "plentiful labor" economy.

    This will inevitably involve higher taxes. I expect that the days of tax cuts for high income people are numbered."

  17. To which I replied: "But I think that 80-20 sort of economy - and I tend to agree with you that it's coming (probably not in that extreme a form, but I still wonder if we won't wind up with as much as 20-30% "structural" unemployment for decades) - has got to be unstable even in the medium term.

    So as Lisa points out, the solution may be, for the first time in human history, to engineer a society that actually reduces the number of people in it.

    But she also points out some of the problems inherent to our polity (religion and open borders) and I will point out a third; a really low-density population is at tremendous risk of defeat in war. I'll see your technology and raise you millions of expendable the very notion will be, I think, unobtainable."

  18. One of our findings back in the late 70's - early 80's when I was doing labor market research, was that the more discretionary a given product or service might be, the higher the probability of low wages and lack of stability in that industry's labor market. Using FDChief's 20-80 model, a significant portion of the service sector labor would be high turnover, minimum wage, no upward mobility jobs (Secondary Labor Market), if the labor market followed historic patterns, which there is every reason to believe it will. Basically, a permanent, large underclass, subscribing to the classic Soviet Russian worker's saying, "They pretend to pay us, and we pretend to work.".

    I won't bore you with the structural theory, but it fits what was back then and what is today.

    As we have discussed previously, even some job category formerly considered "professional/technical", such as software design have taken on many aspects of the Secondary Labor Market, as software developers become independent contractors to contractors. The legal and employment relationship between the recipient of the service and the person providing the service has become further than even arm's length. This trend is an intentional step to sever the employer obligation, both explicit and implied, to a direct hire employee. The objective is for labor to be disposable, and without franchise of any sort. "Union busting" is not the only movement in this direction.

    This trend is a form of "free market forces" that seek to avoid any accountability in the conduct of business' labor market affairs, just as the mortgage market avoided reasonable accountability in financial market affairs - at least until it collapsed.

    Thinking that a mature society can exist with over half its population employed in jobs that are very non-essential is a fool's folly. However, in the attempt to get cheaper crap and sever as many employer-employee obligations as possible, we are well down the road to that folly.


  19. "...the more discretionary a given product or service might be, the higher the probability of low wages and lack of stability in that industry's labor market."

    One of the most significant problems inherent in the current return of the Gilded Age income disparity is that for the truly wealthy almst every product and service is "discretionary"; the amount of discretion that degree of wealth provides is truly astounding, to include the discretion to remove that wealth from a polity entirely and transfer it to another.

    So the New Plutocrats don't NEED the East Podunk Fire Department, Police Department, Building Code Enforcement Division, Child Labor fact, they don't really NEED East Podunk.

    Where you see this already is in most of Latin and South America, where there are two nations; the rarified precints of the capital, wherelos dorados (or as they call them in Panama, los rabiblancos, the "white-asses") rule over their private First World, and the rest of the country which often remains as it was in the 16th Century.

    That experience is what has me worried about the direction we seem to be headed. I'm a pessimist by nature, and I can see how it would be very possible for Americans, for all our pretensions of "exceptionalism", to become just as beaten-down, volitile, and democratically-useless (or worse, fodder for whatever demagogue comes along) as the peasants of the southern tier.

    I keep thinking there HAS to be a way back, but then I turn on the news and there's yet another Republican talking about how we HAVE to smash unions, cut budgets, lower taxes, deregulate evertyhing, privatize everything, defer to the wealthy, "share the sacrifice", and more of the usual that seems to mean, boiled down to the essentials, "things that will continue to concentrate the wealth on top and make the U.S. a libertarian dream where wealth and power get more wealth and power and everyone gets to prey on those smaller and poorer than they are."

  20. N.B. this is not to imply that libertarians MEAN that life should be a Hobbesean war of all against all, but just that real people (as opposed to what libertarians seem to think that people are like) are as careless, rapacious and greedy as you'd expect. Why anyone would believe that removing all impediment to a wealthy overclass acting as feckless and incompetently self-destructive as 18th Century French aristocrats would NOT lead to the wealthy overclass...well...acting like fecklessly incompetent self-destructive 18th Century French aristocrats I have no fucking idea.

  21. Note that a person has only one vote no matter how rich they are. Given the internet, it is easier for (relatively) poor people to organize than ever before.

    Therefore, it is theoretically possible for the lower classes to democratically win elections and impose economic and tax policies that tend to level the playing field rather than accentuate them.

  22. FDChief-

    I'm trying to look for the big picture on this one . . . hence my provided slogan above . . . I think your post an excellent primer.

    As Ael notes, in theory the majority should be able to get the policies through (by electing "their representatives") which best address their economic interests. But we don't see that happening do we? In fact after the meltdown of 2008, the electoral response in 2010 was essentially "we want more of the old deal, but even worse . . ." which is what they're getting now.

    I don't think we can assume that the average American is even aware of what their economic interests are. Would be even able to recognize it if it were placed right before their eyes? They seem too easily distracted by what I would call either a pseudo-religious dynamic . . . or on the other hand, the notion that "politics" is somehow simply a corrupt enterprise and not worth their attention. Both attitudes play into the interests of the plutocracy . . .

  23. FDChief,

    I agree unions can't save us. Your theme might be somewhat in common with these guys:

    I think what they're saying in different ways is that we aren't really in a recession. We have more of a sea change in economics and society. Bookstaber argues that when you get down to the basics, after Maslow's basics, many Americans sit around doing the same things - consuming cheap digital/virtual entertainment.

    Haque argues there just aren't going to be any jobs out there, other than McJobs.

    What kills me is that we have frittered away all these bailouts and tax cuts and haven't tied them to domestic investment. Our masters who demanded these cut have done nothing with them. It isn't that I want the gov't to have to do the captains of industries jobs for them, but who the hell else will?

    Sadly, we'd all be better off selling the country to the Chinese. At least they believe in growing an economy.

    There will have to be some social collapse to change this - all these FDR bashers scream about economics when it was really about keeping society afloat.

  24. Srv: What kills me is that we have frittered away all these bailouts and tax cuts and haven't tied them to domestic investment.

    What is our track record in "domestic investment"? Does the private sector really have an interest in same? Doesn't the obsession with privatizing public resources and infrastructure tell us something about our view of "the common good"? There is no such thing.

  25. Chief,

    Thanks again for the post. I'm going to start out with taxes mainly because I just finished doing mine so this is what first popped out at me:

    We the People have been assured, reassured, re-reassured that the key to economic strength is through the unshackling of the creative engine of capitalism. That the Market would bring us all prosperity, and that the best way to spread that prosperity was to lift the bonds of taxation and regulation on the Masters of the Universe, the financiers and entrepreneurs and captains of industry.

    If you want to see the figures for my taxes, you can find them here. The long and the short of it is that my effective income tax rate is 3.7%. If you include FICA, it's 11.5%. My family is upper-middle income and that is pretty low - about $240 bucks a month. As I note in my post, most people at or below the median income in this country effectively pay no income tax at all.

    The point here is that taxes weren't just reduced on the Masters of the Universe, they've been reduced across the board. The reason that the folks over at Heritage can complain about how the top 10% of earners fund 70% of government (and the top 25% of earners, which I'm a part of, supply about 87% of income tax revenues) is because taxes were reduced to such an extent that many people pay little to no taxes anymore.

    So I'm not sure I necessarily agree with your characterization of the trickle-down effect. Everyone has seen direct benefit from all these tax reductions but they are hard to see because the tax system is so overly complicated. Until I ran the numbers myself fir the first time last year I never would have guessed by effective tax rate was so low.

    What's even worse is we've used surplus FICA tax revenues to allow us to cut income taxes further than would otherwise be possible. That policy is now coming home to roost because those FICA revenue surpluses are gone (they peaked in 2007 at $190 billion).

    I agree that taxes for the rich probably need to go up, but I also believe that taxes on people like me and on the middle class need to go up to0. I think there are practical and ethical reasons for my position which I won't go into here except to say that I think everyone but the truly poor need to have some "skin in the game" and also a narrow tax base where revenues depend on a small portion of the population is not a sound basis for reliable revenue.

    Secondly, there are a lot of ways to raise tax revenue without raising tax rates. That's why I continually harp on the point that marginal rate comparisons aren't a very good indicator for what people actually pay. Ostensibly I'm in the 25% tax bracket yet my effective tax rate is less than 4%. Clearly there is a lot of room there to increase the amount I pay without touching marginal rates. As another example, in the late 1970's when marginal rates were very high on the rich their effective rates were about 30% - in 2005, after the Bush tax cuts, their effective rates were 27%.


  26. (cont from above)

    On regulation/deregulation & markets I see things a bit differently as well. First, I think terms have become clouded in the current debate. Support for privatization isn't the same thing as support for markets, much less functioning, competitive markets. Just because my city hires Waste Management Inc. to pick up the trash does not mean that trash collection is a market, much less a "free" market. Similarly, the debate surrounding regulation vs deregulation focuses on the amount and scope of regulation and not the quality of regulation. More or less doesn't automatically mean better or worse, but you wouldn't know that from "conservative" and progressive dogma.

    So I really do think that the "market economy" is what brought us prosperity, but that economy doesn't really exist today.

    I don't think one should minimize the negative effects of wrong-headed government intervention in markets. You look at something like the internet and a big reason why it's prospered is because there is so much choice available and government isn't (yet) picking winners and losers. The big players are peddling their efforts to end net neutrality (and they cloak their proposals in "market" terminology), but the result would be less competitive markets. It would be government intervention into a decently-functioning market in order to create winners and provide competitive advantage to specific players at the expense of everyone else.

    Similarly, look at something like the pharmaceutical industry, which uses it's muscle to keep patent protection long after it should have expired. Same for copyrights, which keep getting extended. If we're not careful, the Internet is going to go down that road.

    The point being is that too often in the US the easiest way for business to gain market share is to outlaw or restrict the competition. This isn't limited to the big corporations - it happens all the way down to the local level. Matt Yglesias has done some great writing on the negative effects of bad regulation at the local level.

    For another example, look at the banks. If you're a big bank considered "systemically important" then the government isn't going to let you fail and the government is going to listen to you when it comes to making rules and regulations. But if you're not one of those banks and you fail, you get liquidated. Count them up, there are 23 banks in that latter category this year alone. Is there a free market in banking? Not as free as it should be IMO because some firms are given specific advantages by government that aren't available to other firms. Not coincidentally, it's the big firms that get those advantages.

    Similarly, "regulation" is used not to effectively regulate markets, but erect barriers to competition, barriers to entry into markets by new participants, methods and technology, and cement the primacy of the existing players. Therefore, I think the regulation vs deregulation meme that dominates the political debate is not the proper way to look at that problem - rather the type and nature of regulation is what matters most, not the amount of regulation. We have a lot of bad regulation in this country.


  27. (part 3)

    So the problem as I see it is that in many areas we don't really have fair, functioning and, indeed, "free" markets, or at least markets built and regulated without substantial bias. Look at any industry that is dominated by a few established players who are minimally "competing." Most of those industries are highly regulated - the problem is that they are badly regulated, not over or under-regulated. Is it any surprise there is a revolving door between regulators and the regulated in these industries? So I think we are living in a plutocracy where the plutocrats employ a corrupted free market system to their own advantage. They talk the talk of free and fair markets, but they don't walk the walk. The effect is that America is less competitive globally, less able to maintain adequate gdp growth, less able to foster and exploit innovation, less able to recover from economic crises, etc. At the same time, those who are plugged-in benefit from the system and reap the rewards leading to the income inequality we see today.

    So Chief, I think the market would bring us prosperity if we actually had functioning, rational markets in this country. What I would like to see is a return to a time when government was more independent and fostered genuinely competitive markets instead of the corrupt system we have today. Unfortunately such reform does not appear likely anytime soon - quite the opposite.

  28. I think part 1 of my comment is stuck in the spam queue.

  29. Andy: Re: taxes. First of all, I tend to agree that we're not collecting the taxes we should, given what we seem to want to spend it on. I can't argue the hows, but the overall collections should really go back up or, rather, never have gone down.

    And that's because my second point is that I don't want to tax the Masters of the Universe because I want them to fund Medicare. I want to tax them because I want to take away some of their ability to buy the government. Simply put, their extra income are the idle hands that are the Devil's playground.

  30. Second, regulation.

    I can't really argue that "smart" regulation would be...better? I truly have no idea; I certainly can't argue with the your assessment of the current mashup of government and business as a plutocratic sort of corporatism. But certainly there really IS no such thing - never has been, never will - as a "Free market" for things like power generation, highway projects, or port terminal construction. The recent enthusiasm for "deregulation" of these industries has usually been worse for the ratepayer.

    And in all honesty, if you can find a ..."time when government was more independent and fostered genuinely competitive markets..." I'd be intrigued to hear about it. Between 1932 and 1980 a hell of a lot of industries were regulated all to hell. Prior to 1932 the government was just flat-out in the pocket of the big industrialists and the major industries. So in a sense the government part of the un-freedom of the markets is smaller now that in has ever been. And what is there is usually used, as you point out, by one party or another to quash competition.

    I mean, look at your numbers for the bank liquidation. Twenty-three? 23? The only banks we allowed to fail were less than the number of professional baseball teams that fold in a typical season? In the S&L crisis (remember that one? I'll bet John McCain does!) something like 750 - 750! - S&Ls were liquidated.

    Kinda tells you the degree to which the banksters bought off the federal regulators. That sort of corporatism is everywhere, and the effects are beyond pernicious. Look at the difference between Iceland, where the private investors and the casino-banks were allowed to fail, and Ireland, where the government stepped in to back the banks and is now hammered with the high-rollers debt.

    And the Irish? Good luck with those 'taties, lads; you'll be wanting them when the winter comes...

    But I guess in the big picture I don't see much that the governments can do about this. Oh, they can re-arrange a few deck chairs, loot the pockets of the aristos to try and curb their mischief, try and help keep a few grannies out from under the bridges. But the thing I fear is what srv's guy "Haque argues; there just aren't going to be any jobs out there, other than McJobs."

    And while that's an ARTIFACT of the market when you open your market to a labor force an order of magnitude less costly, the cost that will come due is when the un/underemployed mass becomes a force in U.S. politics.

    I can't imagine that the effects will be good.

  31. C. S. Lewis wrote:
    "I am a democrat [believer in democracy] because I believe in the Fall of Man. I think most people are democrats for the opposite reason. A great deal of democratic enthusiasm descends from the ideas of people like Rousseau, who believed in democracy because they thought mankind so wise and good that every one deserved a share in the government. The danger of defending democracy on those grounds is that they’re not true. . . . I find that they’re not true without looking further than myself. I don’t deserve a share in governing a hen-roost. Much less a nation. . . . The real reason for democracy is just the reverse. Mankind is so fallen that no man can be trusted with unchecked power over his fellows. Aristotle said that some people were only fit to be slaves. I do not contradict him. But I reject slavery because I see no men fit to be masters."


    Choosing which banks are saved and which are liquidated is not "regulation". It's is the workings of a "Death Panel" put in place to deal with the aftermath of poor or non-existent regulation. Regulation occurs before the fact, not after. You are describing "triage", or a binary version of the practice. We just change the rules after the game has been played to make the score look different.

    I have written before that there are no true "Free Market" or "Deregulation" advocates in the US. If there were, we would accept economic crashes as part of the "Market". Rather, we want "self-Interested Market", with the government available to provide a taxpayer funded safety net for the share holders in any industry that fails. Americans are, in the main, risk averse, no matter how much we may claim otherwise. Look at the investment firms that sold high risk securitized mortgages with one hand and then bought insurance against the potential failure with the other. Until the market crashed, that was seen as "Good Business".

    The wife, a retired executive from a major airline, got the laugh of her life when the President of the Air Transport Association to a Congressional panel bitching about all the "fees" not charged, "You have been screaming for deregulation, for the consumer not to be burdened with a proportionate cost of a service that consumer may not wish to use. Of course, at first, it was only in the context of one route not subsidizing another. Now that it has finally been applied to more of the services we offer, you find it objectionable. Well, gentlemen, real deregulation has arrived."

    We, as a culture, are getting what we have really asked for. We just don't realize what it is that we actually were talking about in the first place. Whether it is "unintended consequences" or not, Americans have got to come to grips with the fact that there are always consequences.

  32. When working on an ancient jackup drilling rig in Lake Maricaibo, I asked the state oil company rep to evacuate the platform. About 30 idlers milled about on deck, amusing themselves by critizing the welders. We were getting ready to jack up, which would put their lives at needless risk.

    The company rep refused to order the men to leave. I was angry at the time, but thinking about it later, realized that idle hands were a policy. At least they were employed, pretending to work and not quite pretending to be paid.

    Of course, Americans with their religious belief in market efficiency are horrified by the idea of make-work. But efficiency comes in many flavors. In this case, the state oil company was efficiently promoting social stability by getting men, for whom no real jobs were available, off the street.

    Podunk Paul

  33. Paul-

    It is not just a "religious belief in market efficiency", but the need to minimize cost and maximize profit. Heaven forbid an American business should miss out on a single penny of possible profit in return for tending to a fellow human's needs.

    I have friends here on our little Greek island who keep their cafes and restaurants open in the winter, not to turn a profit, but to provide break even (or at a loss) operations going for their employees' benefit, as well as to simply have something to do. Their actual "living income" is made during tourist season. American friends who visit cannot believe that any "business person in their right mind" would follow such a practice. Before anyone jumps up and says that this is at the root of the "Greek economic crisis", I would quickly point out that these business owners are not incurring debt with this practice. Their "book keeping" is on an annual basis, not day to day. Thus, they provide a place for an occasional coffee or meal, stable employment for loyal employees and the opportunity to visit with friends who stop in. That the summer's profits underwrite the winter is no issue to them. Were they only willing to seek "maximized profits", they would easily shut down for four months or more in the winter. Rather, they seek "acceptable profits", and follow a practice that the average American would find "foolish". I would also note that many of these folks take extended vacations in the slow months, and see the world. During tourist season, they work at a grueling pace, but they know that life is more than work.

  34. Al, here in the Hilton Head area, many businesses operate like your Greek friends. For example, I have yard service, something I never thought I'd do, until I got old and had a large property in a jungle-like area. My yard guy charges me the same amount each month, year-round. He fundamentally loses money during the peak growing times and then recaptures it during the winter. The system is understood between us: he needs to keep his guys busy and to stay in business. Some people try to game the system by getting rid of their service in the fall and trying to resume it in the spring, but I think that's pretty rare. Not only will many yard services refuse such peoples' repeat business, but it seems most people understand how things need to work if we're all going to get along.

    Hate to say it, BTW, but the worst people I've seen in understanding the need for this type of social compact are right-wing immigrants from the north. Southern right-wingers are a little different: they understand that everybody's got to get along. The northerners just want to get a deal; they don't care who they screw.

    Even all the way down here in South Carolina, it's very easy to tell that New York is the center of the financial system and also the home of the most crooked players.

  35. One thing I want to be clear on; I don't think that what I see as a likelihood of coming economic and social hard times is the product either of some sort of skulduggery or of some sort of unusual rapacity on the part of the oligarchs. Yes, the rapacity is there, but it's the "usual" rapacity, no different than at any other period in U.S. history.

    No, what I think is going on is a combination of an odd childlike trust of the organizations, and the people who make up the organizations, that dominate private commerce combined with a really generational change in the fundamentals of the U.S. economy.

    And its the latter that is going to hammer us. Because we're set up socially and politically for the "First Generation" Industrial Revolution, the brick-and-mortar one. So everything from our tax structure to our urban organization is structured around the notion of factories and farms employing local people and being managed by people, if not local, at least within a day's drive or so away. The money moves around a bit but largely stays within the city, usually within the state, always within the country.

    And suddenly - or at least within thirty years, which in social terms is "suddenly" - we have an economy where the work can be done largely by machines, overseen by a tiny workforce managed from Cologne, or London, or Shanghai. Or the work itself is done in Mumbai, or Taipei. And the owners may reside in LA part of the time but their profits from the local business are in the Caimans, or Switzerland, or Nigeria.

    It's not like the setup was designed around the notion of "let's put lots of low-skill-level Americns out of work" - its simply private business doing what private business has always donw - look for the maximum profits - but the effect is the same.

    There will always be nice little businesses that work like yours Al, and Publius. But we're talking global scale here, and on the global scale the businesses have neither a real stake in the local economy nor a concern for and knowledge of the local people.

    That's why I see this as so devastating, and so difficult to avert. It's not small, it's not simple, and it's not "evil"; it's people doing what people do. And that's hard to fix, even if you can and want to...

  36. FDChief-

    We are on the same sheet of music. I was simply giving an example of employers who are not concerned with maximizing profit at the cost of workers and the local community.

    However, corporations, even though the Right Wing of the Supreme Court may think otherwise, have no "soul" nor "conscience", and their leaders see their prime responsibility to their stockholders, few of whom are the worker or the local community. Wall St pays out billions in bonuses, but not for community investment or quality job creation. Simply for profit volume.

    And yes, this is spreading around the globe.

  37. Al: In a sense, it HAS to spread around the globe to work.

    In an economy confined to the U.S., defined around U.S. "first world" mores, constrained by U.S. prices and other economic structures, you can only race so far to the bottom.

    But when you open the U.S. economy so that you and I - with out mortgage on our $300,000 house and our city laid out so that we have to have our two cars and drive 500 miles a week to commute to work - have to compete with Joe in Taipei...well, we're gonna lose.

    I wanted to add that one of the other factors in this mess is the current GOP/Chamber of Commerce/Koch Bros. enthusiasm for defenstrating public employees.

    The only sorts of people willing to go down that road are the truly wealthy - who will always be able to afford their own private services - and the truly stupid who have no fucking idea why public employees get paid middle class wages in the first place.

    I recommend an all-expenses paid vacation to Panama City or Karachi for any teabagger who wants to see what happens when you reduce your public workforce to poorly paid shitheels. After their fourth "traffic ticket" of the day and their third shakedown by the "food service inspector"/"building inspector"/"DMV clerk" or whatever name the patronage-appointed, bribe-fattened grifter calls him or herself they'd understand just EXACTLY why the public employees in this country get paid what they do.


  38. Here's a great example of the sort of thing I'm talking about, from a column by Bob Samuelson ( about the Wisconsin situation and union labor in general. After laying out how working people in the U.S. are basically fucked, Samuelson explains why:

    "That changed in the 1970s and 1980s. Imports and "transplant" factories created new competition in steel and autos. Airlines, trucking and communications (telephones) were deregulated, allowing new low-cost rivals into the market. Digital technology and the Internet transformed communications and threatened many industries, including traditional phone companies and newspapers."


    Let's break that down, shall we?

    "That changed in the 1970s and 1980s. Imports and "transplant" factories created new competition in steel and autos."

    Translation: "...the U.S. market, opened to foreign steel and automakers whose non- or company-unionized U.S. plants or overseas plants (unhampered by niggling rules about pouring shit into rivers or paying workers $1.50/hour) became pure poison for traditional unionized shops that paid living wages..."

    "...Airlines, trucking and communications were deregulated, allowing new low-cost rivals into the market."

    Translation: "...similar changes effected U.S. workers in jobs like airlines, where profit margins drove union airline mechanics out in favor of outsourced maintenance shops, union truckers were undercut by nonunion outfits, and call-centers movedto Mumbai, and, with the changes to the steel and auto industries discussed above, resulted in the now-nonunion workers conniving to make ends meet by depending on things like working wives, unlicensed daycare, government food programs, and using their mortgages as piggy-banks..."

    "Digital technology and the Internet transformed communications and threatened many industries, including traditional phone companies and newspapers."

    Translation: "The digital revolution enabled lazy news organizations to fire staff and rely instead on ignoring local news and reprinting poorly-reported wire service copy for national stories, as communications industries outsourced their tech service and subscription workforces and gained a reputation for jacking up prices facilitated by compliant public utility commissions and poor service.

    In other words; union work is doomed because of:

    1. cheap overseas competition and forced deunionzation that resulted in
    2. a frightened workforce forced to make up the loss of income by resorting to two-income families and a subtle battery of government and charitable assistance programs, not to mention the mortgage ATM program - which has now stopped paying out.

    But the end result seems to be what seems to me a very high liklihood of giving us a hell of a lot of people who are REALLY wage-slaves if they have work at all. How this translates into a strong democracy I have no idea. Sounds more like Egypt-in-the-making, to me.

  39. This summarizes the problem with public employee compensation. The problem with state and local budgets are much the same, as well as entitlements at the federal level. All the howling on the right about the evils of unions and the howling on the left about how necessary and justified public employee compensation is doesn't change the basic math which shows the status quo cannot continue.

    More a bit later.

  40. Andy: Okay, I'll see your Schuler and raise you a Krugman: (

    I'll agree that the status quo can't continue, but IMO has as much or more to do with the way we choose to tax ourselves and distribute the gains of our economy rather than some sort of pension grab by the public employees.

    As noted above, you're free to knock your cops, garbage collectors, health and safety inspectors, DMV clerks and all down out of the middle class.

    But you might not like the result.

  41. And I can speak with a trace of authority on the whole pension issue, since I am magnificently vested in the Oregon PERS (Public Employee Retirement System). Now as a "Tier II" employee I don't get the "full pickup" - the devil's bargain that Oregon struck with their State employees back in the Seventies when the state was busted and gave their workers pensions down the road rather than cash up front. In fact, my pension (which came out of my salary for the year I worked as a teacher) was matched about 50% by public funding.

    Or not; the funding depended on the state of the State's PERS investment fund, which until this fall was in the negative numbers. If the PERS Fund had continued to lose money, I would have received bupkis from the current General Fund.

    So most public employees aren't exactly rolling in cash. Are they doing OK? About the same as most private employees, is my take. The EPI study agrees:
    ( But, like I we really want to seriously consider cramming down public employee pay? When these same people will continue to have access to the levers of power? Do you WANT your local cop, firefighter, inspector, plans reviewer to be in the position of worrying so much about making ends meet (as quite a few of the people I know employed in private business do) that the opportunity for graft or corruption looks appealing? I mean, remember why there's civil service protections in the first place (

    Health care? I'll buy that health care costs are kicking us in the ass; health care costs are kicking us ALL in the ass - you should hear my employer complain. But how does it benefit all of us to ensure that public employees get the same shitty medical coverage the rest of us do, or at least without haveing an honest conversation about the possibility of a public option?

    And I guess I don't want to get sidetracked into debating public employee pay; how does any of this help when we may be looking at a pretty enormous slug of Americans who just can't pay the bills anymore, not due to any fiscal or governmental hijinks but just stone cold business realities?

  42. FDChief-

    "Yes, the rapacity is there, but it's the "usual" rapacity, no different than at any other period in U.S. history."

    Disagree. I think you far too complacent. What we are seeing now/have been seeing for some time is a sea change. The Radical Right is attempting to implement radical changes including the end of collective bargaining by public service unions. This thread takes place during the controversies in Wisconsin, which cannot be ignored imo. These will have a profound effect in the country.

    From a conservative perspective, the idea of rolling back 80 years of labor rights legislation as a result of a single election cycle (when this issue was not even proposed in this form, if I am right), is radical to the extreme!

  43. I think the rapacity has always been there. But it has found an ally (or a stooge, hard to tell the difference) in the TeaBag Right. All this stuff, from the antilabor actions in Wisconsin to goofballs trying to investigate miscarriages and outlaw driver's hard to tell which is cause and which is effect.

    But its the political enabling that the difference; the greed was there in 1929 and its the same greed in 2011. We learned the hard way in '29 and muzzled the greedy bastards for fifty years. But they were always there, and now they've found a foolish guard that believes them when they say that they only want to LOOK at the shotgun...

    What IS radical (at least in my view) is the social conservatist side of these Tea Crackers. I think that most Americans thought that some things were "generally accepted", like access to contraception, the desirability of integration, and the distancing of religion from politics. There's an assload of these people who would like a freaking Republic of Gilead. No shit, really.

    THAT's radical, in my mind.

    Repealing the 20th Century is just the same-old, same-old for the Masters of the Universe; seventy years ago they were going Trans-Lux to hiss Roosevelt.

  44. Chief,

    The main problem with Krugman's chart is that most pensions assume an annual rate of return of around 8%, not 4.5%. Sure, pensions could invest in treasuries and maybe get 4.5% (the current rate is about 1% - less than inflation) but the effect of a much lower rate of return would mean that contributions into the funds would have to go up - way, way up - which would mean that in order to meet future obligations, the funds would have to collect a lot more in terms of contributions. Those contributions have to come from somewhere. For public pensions they would either have to come out of employee's pay or other current compensation or they'd have to come from increased taxes or government cuts elsewhere. It's not surprise that pensions try to maximize return in order to keep contributions low.

    But really the whole point is that this problem isn't a problem with unions, or union compensation or even non-union compensation (non union pensions and retiree health care have the same problems - for that matter so do military pensions and health care). Once again, it's a problem of cost growth exceeding revenue growth. It's unsustainable. I don't want to see public employees worry about making ends meet anymore than you do, but one can't simply wish the math away. We've been doing that for far too long already. The defined benefit system of pension and health care cannot survive in these circumstances which is why almost all of them are in trouble or already in default.

  45. Two of the strongest guilds are those of the doctors and lawyers. Neither one contributes materially to economic well being (Good food and clean water account for almost all public health benefits, and lawyers, well, that sort of speaks for itself).

    These two guilds (and their associated hangers-on) account for a non-trivial portion of the overall economy.

    It is proof that a service economy does not have to be composed of McJobs.

  46. Getting back to the original post, I have wondered if we are entering a period where our production is so efficient that there simply won't be enough work for a growing population. I don't know what to think about that - certainly in time past new jobs and industries have risen up as others declined and that transition was always messy and violent. I don't know if we are in a similar transition today where we'll eventually come out on the other side with an improved standard of living and entirely new patterns of specialization and trade, or if we're headed to a Blade Runner dystopia.

    Regarding globalization, I don't think it's possible to close that Pandora's box. I have some experience with competing on a global level - when I got off of active duty in 2000 I spent almost two years trying to start a web design business. The timing was bad since the internet bubble burst shortly afterward, but the real kicker was when I started trying to get business on the freelancing websites. I saw there who I was competing with - teams of designers and programmers from India who could build a complete solution in a day for what I would charge just for the page design. They would do the page design, a backend database, all the scripting, ecommerce, etc.

    The second nail in the coffin were the "roll your own" web services that were sprouting, Blogger being one of the most famous. Who needs a designer or a pro to code a website when there's a website that can give you an 80% semi-custom solution?

    I might have been able to eak out an income and slowly build a client list by concentrating on personal service and support (people generally prefer doing business face-to-face instead of some unknown team of foreigners) even though I had no hope to compete on price. However, with my wife still active duty, and PCS's every couple of years, building a local client base was impossible.

    Anyway, the business was a failure and I threw in the towel, but I did learn a lot so it wasn't a waste.

    Anyway, the final point I wanted to make is to bring up demographics. I think we tend to underestimate the effects of the various cohorts, especially the boomers. Demographic trends are hugely important factors that need to be considered.

  47. History may not be so rail-bound as many of the comments assume. There are wild cards, not the least of which is oil production.

    For example, Mexico currently exports about a million barrels of oil a day to the U.S. But production has peaked and most people, including the International Energy Agency, think that Mexican oil exports will end around 2015.

    That's bad news for the Mexican economy -- Pemex provides about 40% of the federal budget -- and, short of divine intervention, it also means much higher world oil prices.

    Expensive oil acts as a tariff to inhibit global trade. We may be moving back into the 19th century model of local, small-scale production. It appears that the Chinese understand this and are moving toward domestic development.

    Podunk Paul

  48. Ezra Klein has some good comments on unions. In particular I like this:

    If unions are to not just survive, but to actually flourish again, they need to create an identity beyond being a protection service for people who aren't very good at their jobs. For too long they've been defending individuals at the expense of the collective. Every time an incompetent teacher or overly aggressive cop hides behind a union, unions in general become a bit less attractive to everyone else. Next year, when a slew of beloved and decorated teachers are fired not because they were worse than the teachers who kept their jobs but because they were younger, good people everywhere will find themselves that much less sympathetic toward organized labor.

    Scott Walker's overreach in Wisconsin has done unions a great favor. The public may not hold them in the highest esteem, but it doesn't want to see them destroyed. That is, however, a low bar to clear. The question now is whether unions can persuade the public of something altogether more difficult: that it has reason to want to see them thrive. If in five years the words "education reform" make you think of teachers unions rather than the people who tangle with them, my guess is organized labor will be well on its way to making a comeback.

  49. Andy: I don't think we can put the lid back on the box, either; that's why I'm so pessimistic about this. I think the hammer is coming down, and I think that the resulting smash will end up with a lot of Americans a lot worse off, and I don't think that anyone or anything - unions, government, entrepreneurs - will be able to put Humpty back together again.

    And I think that this will have really ugly political repercussions. I caught this little gem in a comment about the Egyptian revolution:

    "Egypt does have to worry, however, about economic inequality and the severe daily hardships suffered by most of its population. Without providing solutions to these problems, even the most democratic regime can be toppled by massive protests, possibly leading to new forms of dictatorship. A good example of such a failure of democracy was December 2001 in Argentina, when the masses flooded the streets calling for "all politicians to go home" and toppling five presidents in a row.

    This happened only two years after democratic elections swept a broad leftwing front to power, which had promised to bring the country out of its deep economic crisis, but failed. The elected government pursued the policy dictated by the International Monetary Fund (IMF), which protected the interests of foreign investors against those of the local middle and salaried class. The crisis caused all holders of local bank deposits to lose 70 per cent of their money, with the blessing of the IMF.

    Therefore, Egypt must realise that although democracy is essential, any formal constitution or system of government will not solve its economic problems. Immediately after the elections, Egypt's new policymakers will have to switch from the formal liberal discourse of democracy to face and discuss the fundamental questions of Egypt's economic structure. In the process, they are liable to discover that it is far more difficult to uproot a corrupt economic regime than to topple a single dictator."

    I think if we had been thoughtful about the perils of globalization we MIGHT have been able to do some deflection of the social and political ills that its effects on the U.S. middle and working class will have. Probably not. But instead we bought it wholesale, and now I think we're going to have a severe case of buyer's remorse.

  50. Re: unions.

    I would say that Ezra has some GOOD weed.

    Any organization evolves protections for incompetent family members. Do you imagine that the Walton or Koch families don't find some sort of featherbed for their moron relatives? Hell, the "idiot boss's son" is practically a cliche'. So to try and imagine that unions aren't going to do this in some form is a nice fantasy, but you might as well wish for magical ponies while you're at it.

    And the bottom line is that a strong industrial democracy NEEDS some orgainzational counterweight to the power of employers, industrial management, and the immense structural might of the wealthy people at the top. You can argue around the edges of what unions OUGHT to do or could do better, but the bottom line for the U.S. is that you can track the disappearance of economic gains for the working and middle classes pretty nicely with the deunionization of the U.S. economy.

    A lot of that has nothing to do with unions, of course. But the same imperatives that are working to direct wealth to the top, be it through changes in fiscal policies, regulations, or trade and tariffs helps work against unionization.

    I've worked a fair number of shitty industrial and service jobs, and the realization that you have absolutely NO defense against your employer is pretty terrifying. You shut your mouth and earn your cornpone. When your boss says frog, you jump.

    That ain't exactly a hardy Jeffersonian citizen, now, is it?

  51. Ael: True dat. But look at it this way;

    How realistic is a medical career as a way-out-of-economic-serfdom for most people? Leave the academic skills needed just to get accepted into med school, the cost of a medical education are horrific; this prices them out of reach of pretty much anyone except the incredibly bright and the very wealthy.

    And I should add that one of the real monsters at the U.S. economic table right now is health care costs. The AMA has been a player in ensuring that any attempt to rein in physician compensation and fee-for-service medicine has failed. So the docs are, in a sense, part of the problem rather than part of the solution.

    The lawyers have similar educational costs, which in turn (as it does with the docs) forces them to bill insane costs to recover their expenses.

    And in both cases you can't really categorize these as "service" jobs. Professional and technical work tends to be more resiliant than true low-level service to the downward pressure of immigrants and competition - although I have heard some complaints from physicians about outsourcing of stuff like radiology and nuclear medicine where x-rays and scans are sent to a physician in Canada or Taiwan!

    So while the doctor/lawyer professions will help keep their American practitioners in the upper classes, I don't see how they will help "save" those poor doomed bastards at the bottom...

  52. Lots of great comments here. Comments about the unions are particularly interesting. I've never been a union member, but I'm generally pro-union, specifically because I'm very well aware of the nature of unfettered capitalism. Capitalism is great and we all love it, but uncontrolled, it will ultimately doom our society, especially in this modern era of every man for himself. We all get infuriated when we see unions closing ranks to protect those whom we don't believe deserve protection, but from the union standpoint, it's all about the greater good. I like the Chief's family parallel. We always did that in the military, too. And you'd better believe the Wall Street boys join ranks to protect their fuck-ups, too.

    What's most disappointing to me nowadays is the realization that a whole bunch of my fellow citizens are just dumber than dirt. The tea party crowd is especially bad: Most of 'em are not plutocrats by any means—I mean, shit, how can you be a plutocrat if protecting Social Security and Medicare is all that important—but like the lemmings they are, they're racing for that cliff that's been so conveniently placed in their path by those wealthy folks with whom they are now identifying.

    Being an anti-union blue collar worker: priceless. Identifying with a master of the universe. That's stupid squared.

    Welcome to the new order.

  53. First of all, I agree that unions - or at least the threat of unions - are a necessary check on the "structural might of wealthy people at the top" in the private sector. I don't think that's the case with public-sector unions and that is where I see most of the bad behavior that should not, IMO, be excused. It's one thing to close ranks behind a guy who slacks on the job, it's quite another to close ranks behind cops who beat up (and sometimes kill) and falsely arrest people, or guys in very sensitive security positions who chronically commit security violations. Or there's the prison union that lobbied for the three-strikes law in California and for measures to criminalize minor drug crimes. I see very little public interest in maximizing the number of incarcerated people in this country and, by extension, maximizing the number of prison guards, but hey, the union needs to protect and expand its membership!

    In most cases public employee unions are not standing up against the rapacious effects of cost-cutting corporate boards bent on screwing over replaceable workers. Public workers begin in a position that is inherently more secure than a private sector worker and they have inherently greater power than a private sector union since they can lobby for their interests. Just to give an extreme example, in Illinois the public sector union pensions and health care were written into the state Constitution. Paying benefits is therefore a higher priority than providing essential services. That's good for the unions, potentially very bad for the public.

    Finally, unions need to take some responsibility for the state of unions in this country. Their decline is partially attributable to their own policies. My father-in-law, for example, is a steelworker and lifetime union member. The union has been great for him in his 30+ year career, but he also sees the inherent problem with a seniority-based system. In his plant the youngest guy there is literally 50 years old. In the course of promoting current workers, the union is burning the seed corn.

  54. The US Labor movement made a faithful decision in the 19th Century with rejecting Marxism, which probably was the only choice open to them in any case. The European Labor movements on the other hand became political, linking with the various Socialist/Social Democratic Parties (which were all Marxist at the time) and we see the result today. Unions are alive and well in Europe because they share political power.

    The revolutions of 1989 owed a good bit to the labor movement, especially Solidarity . . .

    My own experience with unions is not particularly positive. The South is "right to work" and union membership is/was rare. Still I did work as a "white hat" (company man) in a steel plant for 8 months right after college and the bargaining unit people were well cared for. The problems were more bad decisions by management, not wage pressure from the union.

    Sure unions should reform, but that's not really what is at stake at present, rather the future of collective bargaining in general. One could argue that state employees should not be able to strike, but these unions as institutions have to be respected imo, they are the result of a long history and cannot simply be brushed out of existence with the stroke of a pen, at least not in a democratic system . . .

    Reading the recent commentary of the Right Wing Radical blogs, their visceral hatred of the (especially teachers') unions, only confirms for this conservative, that the unions are something to be retained. I never trust the Radical Right, who are nihilists imo, and I see soooo much of what is going on as more the nature of just another naked grab for power . . .

    It comes down simply to submit or resist, I will continue to resist in my own way.

  55. Again, I don't want to try and pretend that unionization is an unmixed blessing. Whenever you develop an organization that allows individuals to hide behind a group - whether its a family, a political party, or a union - you're going to get abuse of that organization by shitheels. Human Nature 101.

    But there a big difference from that to deciding that the world would be better off without those organizations, or that those organizations should be forced to become smaller and weaker. And as seydlitz points out, the whole business of demonizing unions is silly and self-destructive.

    One reason that public sector unions are so vicious about job protection, BTW, is that people like GOV Walker are all around, and there's always some gomer who thinks that it'd be a great idea to replace cops, firemen, paramedics, game wardens, prison guards, etc., etc. with contractors.

    Well, here's one of my favorite views of the sort of thing that stuff like "private prisons" can lead to:

    "Ciavarella and another judge, Michael Conahan, shut down the county's juvenile detention center by cutting off public funds. Then they funneled kids to two new detention centers, privately owned by the judges' friends, who had given them nearly $1 million. Ciavarella has steadfastly denied a quid pro quo -- cash for kids. He says the money was a "finder's fee" for putting the jail's owner in touch with a builder. However the arrangement is characterized, the fact remains that he and Conahan, who pleaded guilty last year, took money from the owners of a private prison to which they then sentenced children." (

    Sweet, eh?

    Anyway, guys, I don't really have much more to say on this one.

  56. But there a big difference from that to deciding that the world would be better off without those organizations, or that those organizations should be forced to become smaller and weaker. And as seydlitz points out, the whole business of demonizing unions is silly and self-destructive.

    Well, I pretty much agree. I don't think I've ever suggested that unions of any kind should be disbanded or made illegal. That doesn't mean that I'm not going to look at the actions of unions, particularly public employee unions, with a lot of skepticism and criticize their excesses. They are large, powerful interest groups that have a ton of money and influence. They deserve to be scrutinized and criticized when they cross the line.

  57. Chief:

    The high cost of entry for doctors and lawyers is a feature, not a bug.

    The key attribute for their high wage is legal exclusivity. Their guilds then use various techniques to maintain barriers to entry.

  58. Ael,

    That's exactly right. We graduate about the same number of doctors in this country as we did in the 1950's. If it weren't for the fact that we import a lot of immigrant doctors we'd be in even worse shape than we are since we have, IIRC, the lowest ratio of doctors-to-population of OECD countries.

  59. Andy: I don't think that retaining the right to bargain is "crossing the line", and certainly that seems to be what's driving the latest hysteria.

    The bottom line really is that unions are a lost cause for the non-professional class (as Ael points out) in the U.S.

    When you think back to, say, the Fifties and Sixties, you had three big fighters in the U.S. economy; capital, labor, and the government.

    Where are the latter two today?

    Labor is finished, dead, done. Most people in the U.S. think of and act towards labor as you do. They see it as a mixed blessing at best, an unbound evil at worst.

    The government is now terrified to tax anyone or anything. Its business, commercial, and financial regulations are written by the regulated, their enforcement zeroed-out, its willingness to act against anyone but the most foolish and unconnected of the malefactors of great wealth gone. Isn't it strange, after all that money vanished Madoff was the only one to go to prison?

    How odd.

    Nope; capital is the last man standing.

    If you are a player, a Master of the Universe, then you've won. If not...

    Well, we'll have to see, now, won't we?

    But for the record - I'm not cheering.

    That's it for me; I'm talked out on the subject, and it's just depressing the shit out of me now. I'll be moving along...

  60. Chief,
    "Labor is finished, dead, done."

    You better hope not! I heard a fine analysis on NPR today that pointed out something we hadn't considered that is probably the root-cause of the current Republican attacks on the unions.

    The unions are overwhelmingly pro-Democratic. They provide a fair amount of funds (which could be replaced) but more importantly, they provide manpower for the Democratic get-out-the-vote campaigns (6,000 union members volunteered in the last weeks of the 2010 campaign in California alone) and union members tend to reflexively vote Democrat (with some notable lapses like 1994), which offsets the overwhelming Republican vote in the US military.

    I expected the Republicans to try to outlaw the existence of the Democratic Party and they are doing it!

    Next up: redrawing of congressional districts to comply with the census. The gerrymandering should be extremely "creative" with a side of vicious. If the Republicans play their cards right Obama could be the last non-Republican president for the next 20 years.

  61. Publius 27 feb,
    Why not do your own work? If you can golf, then can't you weed?

  62. Ranger:

    Why don't I do my own yard work? Because I don't want to. And because my wife, who handles the budget, tells me she doesn't want me to do it because I'm an old fart and we can afford it. And because I can afford to pay to have it done, a couple of guys get to feed their families.

    Isn't that kind of how the system is supposed to work? Or are we supposed to eschew restaurants and always cook at home because we know how to cook? To change our own oil because we know how to do it? To not go to newly released movies because we can wait and watch them on TV?

    It's capitalism, Ranger. People are employed because I can afford to engage them to render services or to sell me products.

    IMO, that's a good thing.

  63. FDChief- Nope; capital is the last man standing.

    And Capital investing in, well, More Capital, is the biggest game in town. Publius and our friend, Marina, may invest their modest holdings in providing job stability for a couple of folks, but the big players are more concerned with their vast wealth producing even vaster wealth than producing anything else. The fat cats investing in mortgage backed securities were not looking to create jobs or get people into affordable housing. They were looking to get a monetary return on investment. Had any of the big investors in the mortgage melt down looked past potential ROI, they would have seen that the quantity of mortgages being written was far greater than the number of people who afford a mortgage. Didn't even have to look at the obvious lies and fraud in underwriting practices. Simple demographics would have been a red star cluster. But, money was being invested in money, and the downstream impact was of no concern.

    Capital is king.

  64. 3." Re: the "dollar worth $0.02" thing. Horseshit. We went over this when you said it the last time. I'm not going to correct this again. Absolute inflation is meaningless; relative inflation is, and we are in a deflationary period and, if the sort of permanent structural unemployment I am talking about occurs we will be in for a long time."
    Of course wages have kept up. It of course doesn'thurt savers to the benefit of the prolifigate. Food & energy don't count in the gov't's alternate universe of accounting. Hence, if you don't eat or heat, you'll do just fine. Housing (which most wish would rise, will keep prices down). Nothing to see here folks , just move along.

  65. Forgot to mention, it was Rothchild who said, & i paraphrase, "give me control of a nation"s currency & I care not who makes it"s laws". (1 can interchange regulations with laws). Afterall, most applicable laws here will boil down to "thou shall not steal. Fulfill the terms of your contracts. Also, like how some seem to suggest that during great depression the wise philosopher kings of gov"t were simply keeping society together with make busy work. This all of course led to the ultimate group activity of a world freaking war. Nice.

  66. Publius,
    So capitalism is going to the gym while somebody sweats in your yard working.
    It's ok with me.
    I'm glad that you're a trickle down kinda guy.

  67. Btw, forgot to point out, your concern about cops/inspectors/other gov"t officials becomming more corrupt, your description of 3rd world practices has allready been commonplace here. Don"t know about your community, but know my experience here"s not unique.