Sunday, September 8, 2013
No Jam Ever Again II
Again, "The rule is, jam to-morrow and jam yesterday – but never jam to-day." Last time we discussed the expected future of declining wages in terms of Peter D. Schiff's 2012 book The Real Crash.
Now we have another example of the "decline and fall" expectations for the future economy of the United States. The Daily Ticker reports that two economists, Richard Burkhauser of Cornell University and Jeff Larrimore, a staffer on the Congressional Joint Committee on Taxation, say that demographic factors could push incomes down for the next 30 years. See the report at this link. The study will be part of of a Russell Sage Foundation book to be published later this year.
The study draws its conclusion from three major trends. The plateauing of the influx of female workers into the economy, the aging of the workforce (retiring baby boomers), and the growing percentage of minority workers (higher proportion of lower-income workers).
We bring this study up to point out that a future of declining U.S. wages is exactly what employers want to hear. As always, they want to lower their personnel costs. This study tells them that the longer they wait before hiring anyone new, the lower wages will go and the lower their costs will be. Just as monetary deflation encourages people to defer spending (you can buy what you need later for less), wage deflation encourages employers to defer hiring (you can hire the same person later for less).
Do these books and studies predicting lower wages for Americans really mean very much? Are employers really delaying hiring and offering less? Our slow recovery and wage stagnation are certainly consistent with these ideas. At tosoc.org, we think it is likely that the rich are expecting lower U.S. wages in the future and are acting in ways that will bring it about – as a sort of self-fulfilling prophecy.
This is not a conspiracy, in which the rich secretly get together and plot to lower wages. They just tend to react in the same ways to the books and studies they see. They make the same moves because they are all subject to the same economic pressures. In a similar way, the members of animal herds move in the same direction not because the members discuss it among themselves in giant committee meetings, but because individuals see what others are doing and none of them wants to be left behind.
Another point we want to make is that a future of declining average wages at this time is consistent with the view that U.S. economic history has been a series of cycles of wage inflation followed by wage deflation. The idea is that the rich increase the money supply and hire more people when they are anxioius (especially during times of war). They do the opposite when they are confident. General wage stagnation and relative decline right now indicates that the rich are becoming increasingly confident.
Therefore maybe the long-lasting World War II wage inflation period is finally, really, coming to an end. Maybe the wage deflation part of the cycle is taking over. (Reasons for the extension of the WWII wage inflation period are fairly obvious, we think, including the Cold War and its offshoots, plus the rise of international terrorism, which kept the rich anxious for an extended period.)
If the rich no longer feel that they need armies of Americans to defend their wealth ("armies" meant here both figuratively and literally), then we can expect more of what we are already seeing. Downsizing the U.S. military, persistent high unemployment, wage stagnation in a period of inflation, if not a literal fall in wages, and a future of declining economic prospects for the average American.
We do not expect to see this happen suddenly, however, for at least two reasons. First, a sudden decline in U.S. trade due to rapidly falling wages could easily put billions out of work around the world and starve many of them. The decline must be gradual to give other socieities time to adjust their internal demand to take up the slack. Second, a rapid decline would be a bit too obvious and raw to Americans, and could lead to political instability in the U.S.
Tosoc.org asks, however, why we allow these wage inflation/wage deflation cycles at all. Why have we allowed a system to arise that imposes the highest income volatility on those who are least able to protect themselves against it?
Even now, despite our previous posts, some of our readers might believe that we will blame the rich and say that they are evil-minded, dehumanized people who only want to squeeze the most that they can out of everyone else. That is NOT what we believe. The rich are neither saints nor devils. They are just people who are doing the best they can with what they have. They can appear to be monsters, however, because quantity has a quality all its own. The are just doing the best they can with what they have, yes, but they have so much. They unbalance markets simply by participating in them.
Even so, instead of the rich being the source of our problems, we believe that the our problems arise from the single currency and the fact that our markets have become competitively unbalanced. A single currency means that there is only one conduit through which we can attempt to handle a multitude of different problems. The single currency hobbles our policy efforts. It is "too narrow a pipeline." We can only really address one problem at a time, leaving the other problems to fester, if we have not actually made them worse. How can we have a set of monetary and fiscal policies for the U.S. dollar that satisfies, all at the same time, the Chinese, the Japanese, Warren Buffett, George Soros, small business owners of every type in every state, professionals, retirees, white-collar workers, and blue-collar workers? It cannot be done because all these market participants have different needs. One size does not fit all.
This statement of the problem suggests the solution. We need multiple sets of policies where each set is tailored to help a particular group of market participants. That can only really work if each group of market participants has its own currency, and its markets are relatively independent of the markets for the other groups. That way a policy tailored for one group cannot easily "bleed over" into and damage the markets for another group.
Therefore tosoc.org thinks that there really is something we can do to avert the expected impoverishment of the American people. Collectively, with control over our own currencies and markets via officials whose economic fates are entwined with ours, we can make better deals with the economic "800 pound gorillas" of the world. No longer would they be able to whip large segments of the population into submission with the lash of the U.S. dollar. No longer would they be able to divide us against one another and conquer us one-by-one. Multiple exclusive currencies and markets are the answer.
The way capitalism should be.
Socialism for the socialists and capitalism for the capitalists.
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