The Plight of the Working Class
The Plight of the Working Class
By John Mauldin
April 2, 2011
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The Plight of the Working Class
Can You Say Jobless Recovery?
Drowning in Debt but Getting No Growth
The Cancer of Debt
New York, Portland and La Jolla
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Clowns to the left of me, Jokers to the right,
Here I am, stuck in the Muddle Through Middle with you!
–With thanks to Stealers Wheel
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I get a lot of email from readers. I recently got an impassioned letter from very-long-time reader Bill K., who asks some very pointed questions about austerity and spending cuts. It is a rather lengthy letter, so I will only quote part of it and use it is the launching pad for this week’s letter, where we look at today’s employment report, but from a little different slant. This letter will no doubt anger a few other long-time readers. I argue this week for the middle, but do so as a survivalist.
While Bill starts out by saying some very nice things about me (thanks), let’s jump to the meat of the letter:
“…. I would like to get something off my chest. I would like to know why you seem to side with those analysts who keep telling us that the only way we can sort out Western economies is by making the average guy suffer through austerity programs… You are a very intelligent guy – obviously. You can see how things work and what is broken. You can also see through the greed and excesses of Wall Street, and you can read the economic data which clearly shows that the wealthy continue to get more wealthy in America whilst the average Joe continues to see his standard of living going in the opposite direction. Capitalism today only works for the ‘have gots’. It’s been going in that direction for more than 30 years now. You saw the senseless and stupid greed of the derivative scheme which fueled the housing bubble which led to the meltdown which never melted because Bush/Obama handed out a huge welfare check to financial institutions that should have been allowed to fail.
“In the aftermath of all this, politicians in DC, you, and your guest pundits warn us that the world as we know it will end if we don’t somehow reduce the average Joe’s Social Security, pension, Medicare and Medicaid benefits. Oh and let’s not forget the budget, which is being argued in Washington as I type this. The line is that we have to make drastic reductions to spending on domestic programs, on our schools, on our infrastructure, on unemployment entitlements, on all the things that serve to give working people a chance at a dignified life. You’re a smart guy. You can recognize what is fair and what is greed and excess. When the nation is as troubled as it is today and yet the wealthy are living even better than they did 30 years ago, what does that say about America? I wonder if we really care about our neighbors anymore? I wonder why such a great country with such great natural resources cannot find a way to be just and generous and a beacon to higher ideals? Ike warned us to be wary of the military-industrial complex. Looks like he was right. We’re a nation constantly at war, spending trillions on defense, whilst at home we enrich the already wealthy and tell the average Joe that he has to pay for it. I wonder how you manage to rationalize all this away – if indeed you do?
“Thanks and with respect, Bill”
The Plight of the Working Class
Bill, you ask a very complicated question. There is not a simple black and white answer, but I am going to try and address your concerns. Let’s start with today’s employment numbers. We got a decent non-farm payroll number of 216,000, and 240,000 new jobs in the private sector (governments everywhere are still shedding jobs). That means over the last two months the private sector has added almost 500,000 jobs. If you take the household survey, that number looks even better. So why did all the consumer sentiment numbers in March come out so awful?
Looking deeper into the data we find that wages were once again flat, for the 4th time in the last five months. We are certainly not keeping up with inflation. The chart below shows real median household income since 1967. It is published in May of each year by the Census Bureau, so we don’t have the data for 2010, but it will not be good. Real median income, when the new data comes out, if I read the chart right, will not have grown for almost 14 years.
But all this has led to what David Rosenberg calls the “Wageless Recovery.” Wage growth just continues to fall.
And given the rise in food and fuel costs (which are now about 23% of the average person’s income), the recent lack of wage growth is even more frustrating.
Although the economy in the US is now producing more “stuff” than it did at its peak in 2007 (fact), we are doing it with 6.8 million fewer people. That means the productivity of the workforce is much better, which is good for corporate profits, but this has not yet translated into higher wages, although in past cycles higher profits have given way to higher wages (eventually, at least).
Can You Say Jobless Recovery?
The following chart is from the St. Louis Fed. It shows the spectacular fall in jobs in the last recession and the painfully slow recovery.
And note that we have gained 30,000,000 more people in the US over the last decade! And negative job growth!
And this next chart is courtesy of my friend Barry Ritholtz of The Big Picture. It is also from the Fed, but it’s one I have never seen.
That is a graph of the last three recessions, with employment indexed at 100, and it shows what employment did from the beginning of the recession, and then from the end of the recession. As Barry said, we don’t want to think about what the next recession will look like, if this is a trend.
The most recent survey from the National Federation of Independent Business shows that small businesses are indeed once again hiring. “The positive job creation observed in February was repeated again in March [sigh of relief here], confirming that the number of net new jobs reported on Main Street was decidedly positive. The March net increase in jobs per firm was .17 workers, a repeat of the February performance. Employment gains have not been this good since 2007.”
But that still begs the question of why wage growth has been so poor. And why do we now have such structural unemployment? Although the headline unemployment number went down to 8.8%, the only way you can get to that number is by not counting the millions who have dropped out of the employment pool, too discouraged to look, but who will take a job if they can get one. If you go back and take the number of people in the labor force just two years ago, the unemployment picture is back over 10% (back-of-my-napkin math).
GDP has recovered, but jobs haven’t. This chart from the NFIB shows the disparity.
Bill, I get it. The average guy is getting squeezed. You can see it in the numbers. For a while, it was masked by growing credit.
Drowning in Debt but Getting No Growth
This is an older chart, but it is relevant. We grew debt in this county in all forms by over 100% of GDP in the last decade. $14 trillion. And what did we get for it? No real job increases, no increase in wages. It was an illusion. In fact, my friend Rob Arnott pointed out to me today that a piece he is working on (which I hope to be able to give you soon!) shows that the only way you can show a positive GDP for the last decade is with government spending.
And that, Bill, is part of the problem. We have become a credit-addicted, credit-fueled economy, which works just fine until you have too much credit driving too little real growth. Without government spending, “real” GDP would be at levels it was over ten years ago. And it is real growth that drives wages and creates jobs.
You write: “The line is that we have to make drastic reductions to spending on domestic programs, on our schools, on our infrastructure, on unemployment entitlements, on all the things that serve to give working people a chance at a dignified life.”
That is not my line. My book calls for a large increase in funded infrastructure spending through a fuels tax (none of it going to the federal coffers!). I am not against unemployment insurance, but at some point it needs to become job training and a path to employment. I am a huge proponent of education, having spent a great deal of money on it over the years, with seven kids (and paid even more in taxes!). But does the current system really work? We have double the educational workers per student we had only a few decades ago, but no improvement in outcomes.
Yes, we have to make cuts to government programs. A 33% growth in federal discretionary spending (not including stimulus money) the last three years alone is not reasonable, given the size of the deficit. The last recession was not caused by too little government.
The Cancer of Debt
The problem is that the debt is like a cancer. The bigger it grows the more threatening it is. Pretty soon it consumes its host (think interest expense).
Bill, I am worried about the survival of the country economically. Another crisis caused by the bond market driving up interest rates, because they become concerned about the size of the debt and deficits, will seriously reduce the choices we have – with none of them being good. Ask Ireland or Greece how it feels. They are in what can only be called a depression, and likely to stay there for some time. You think we have it bad now? Avoid dealing with the debt and see what happens.
To think it cannot happen here is to simply ignore reality. Yes, the US can go longer than we might think, but there is a limit. I think that limit will come before the middle of this decade. Perhaps as early as 2013, if the new incoming President and Congress do not deal with the deficit in a realistic manner. Then Bang! , we have our own Greek moment. I want to avoid that.
In my book and on numerous radio and TV shows, I have made the case that we must get the fiscal deficit below the growth rate of nominal GDP. That means we need to cut, over time, about $1 trillion from the current budget deficit.
And that means entitlement spending has to be on the table, as well as tax increases. The polls clearly show that people want to keep Medicare and also are against tax increases (close to 70% in both cases). Those are not compatible objectives.
We have to have a national conversation about how much Medicare we want and how we want to pay for it. Writing the words tax and increase in the same sentence is difficult for me. Tax increases taken from private producers do nothing for economic growth, which is where we get new jobs. But I would rather have higher taxes than for deficits to be at a level where they threaten the economic survival of the republic. (And I make the case that if conservatives give in on tax increases, that means there needs to be a complete structural change to the tax system, gearing it more to encouraging growth, real Medicare reform, and even larger spending cuts, etc., that are linked to real, measurable metrics!)
I am just as frustrated as you about the bailout of banks, that we still have banks too big to fail, that credit default swaps are not on an exchange, that Fannie and Freddie still even exist in their current forms, and a host of other problems you mention. (Frank-Dodd was a disaster! It almost guarantees another crisis.)
I have become all too familiar with cancer of late. It tends to focus the minds of those who are suffering, and their families, on survival. Chemotherapy is nasty. It means putting a toxic drug into your body. That is something you don’t want to do under normal circumstances, but when your survival is the issue, you do it.
It is no less than economic survival we are talking about. Oh, the US has been through worse. Civil war, depressions, panics. We will survive as a nation, but the pain we will endure is simply more than most people can comprehend, Bill. Whole generations of savings and investment will be wiped out. Think the cuts I am talking about are serious? Wait until interest payments are eating up 25-30% of revenues in a 12%+ unemployment world. Think the underfunded pension problems are bad now? Let’s have a REAL bear market, with inflation.
I have some friends who think that is what it will take to get government smaller. They relish the thought, as they also think their gold portfolios will go through the roof. I am not in that camp. That is not a world I want for my kids and grandkids, Bill, most of whom are (for now) your average person. (Well, except for my exceptional grandkids.)
I want us to find that middle path, to cure the cancer of debt. Yes, I want smaller government and lower taxes, but survival is now my fixation. The cure for too much debt is not more debt. We can get it under control, but it is going to mean compromises, a word that I hate – but I also hate chemotherapy.
I get that we need to do things to make government more efficient. And we need to provide safety nets. We need a lot of things.
But most of all we need an adult conversation about what it is that we need, and what we can afford. The American people have to understand that the path back to a sustainable economy will not be easy. As I have written many times, cutting government spending will mean lower GDP numbers in the short term, but survival in the longer term. This is not a typical business cycle. We cannot simply grow out of our problem. We haven’t really grown, except for government spending, for ten years. Yes, there are numerous steps we can take that will make it better and easier and quicker than if we wait until we are forced by a crisis to act. But there are no “Easy” buttons.
Gentle readers, I promise you we get through this, one way or another. The 2020s are going to be a heck of a lot of fun!
New York, Portland, and La Jolla
I worry that I may have to go into hiding after this letter, as the middle is a lonely place. Oh well, I leave Sunday for New York. I had to cancel Utah at the last minute to go on a secret mission, but will be doing the media rounds in NYC next week to promote the book. Fast Money on Monday, Bloomberg on Tuesday morning, a guest host spot with the lovely Liz Claman on Fox Business on Wednesday, and videos with Yahoo Tech Ticker, thestreet.com, the Wall Street Journal, and with Steve Forbes himself. Lots of meetings with cool people, so should be a fast and fun week.
Korea has been postponed, which gives me more time at home in May, which I need. I am already starting to work on my presentation for my Strategic Investment Conference, April 28-30. There are only a few spots left. Best speaker line-up of any conference anywhere. You can learn more at https://hedge-fund-conference.com/2011/invitation.aspx?ref=mauldin.
Endgame has now been on the New York Times best-seller list for three weeks. And this week, if you have not yet bought your copy, let me commend you to my friends at Laissez Faire Books. I have been buying books from them for nearly 30 years. They are the best source for Austrian economics and libertarian books, along with the usual offering of investment books current in the market. They have matched the Amazon price for Endgame; but if you are interested, move around their website and pick up a few other things along with my book. http://www.lfb.org/product_info.php?products_id=1014&PromoCode=L401M301
It is time to hit the send button. Daughter Amanda and her husband are in town. I didn’t know it when I gave him permission to marry my daughter, but he is a Red Sox fan, and as they open the year with the Texas Rangers at the Ballpark, he finally decided to bring my daughter back to Dallas for a long overdue visit. At least we won the opener today. I see margaritas and talk of baseball and family for the next few hours, with no mention of the worries of the Endgame and deficits. Have a great week!
Your hoping I don’t lose too many friends with this letter analyst,
John Mauldin
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April 2nd, 2011 at 4:33 pm
John:
Thank you for a fine article. You are correct in your assessment of being in the center; both sides shoot at you. But I think that the important message is that no matter which side you are on the conversation MUST start NOW . We have to address our common problems, because one way or the other we all own a piece of it because it is our country. To ignore our problems is to make the cure much more painful for an ever expanding number of people.
T.C. Kid
April 2nd, 2011 at 6:01 pm
ok lets see, the government needs to cut spending = lay offs and further contraction of the economy.
So you are saying that somehow if we start taking care of the deficit now, things will be fine.
What if we go on the vicious cycle, which starts with govt cutting spending….leading to more layoffs…more asset deflation…more pain for the population…consumer pulls back…we end up with 20% unemployment.
Why will the private sector spend when there is no need for increase in capacity?? they are all sitting on their cash, isnt it?
Instead of what you are saying, what if we do below:
1. inflate our way out of the debt
2. create wage inflation(not happening right now but thats the goal)
This is what is being attempted by every government in the world except the net exporters….and no matter what you all say…this is the only option….I am not saying it will be painless or it will be perfect….but it has worked in the past(just look at the graph of goverment debt for past 50 years.
If I am not wrong Reagan doubled it (dont say that to tea partiers…it is blasphemy), and that is true of bush junior.
http://en.wikipedia.org/wiki/File:USDebt.png
If I earn $100/year, my assets are worth $100 and I owe $400. what if we just inflate such that my assets go up to $200, my wages go to $150 and my debt stays the same??
April 2nd, 2011 at 6:27 pm
Beware of the Financial Expert/Economist bearing graphs……..
At the end of July, I’ll have been laid off from my full time job for two years.
I’m one of those “highly skilled” people that the PTB say the wretched refuse should aspire to be. Solely thru my reputation locally, I’ve been able to string together 3-4 part time gigs to keep from sinking. At the cost of making 60% of the salary, and expenses doubled, vs. what I was making as a full timer.
And BTW, I was making $75K/year as a full timer, plus I had health insurance, which I don’t have now. The vaunted “free enterprise” system won’t insure me at any price, because I’m over 50, weigh too much, and take blood pressure meds.
Two of my clients are fully capable of paying me full time. But they choose not to. My story is not unique. Seems that if you are 40 or older, your services are still needed, but NOBODY wants to have you on the payroll.
I’ve worked in the transportation sector all my adult life. The cramdowns started in the mid eighties, and the 90′s, which were supposedly so great, to us were a decade of yearly 1-2-3% “raises”, when the “real” inflation rate was at least double that. So, as the years have gone by, and I tried to “live within my means”, I’ve had to throw the following things under the bus. Vacations of any type. Abandon my eight year cycle of replacing my cars, and drive junkers all the time. My tool budget, because they are a “long term investment”. Any savings for retirement, and finally, any savings to help my kids thru college. That may be a good thing. All of my kids are able to survive working $10-15 jobs, because they don’t have mortgages, and they don’t have $50K worth of school loans hanging over their heads, like most of their co-workers.
And more, guys like us need to take an even bigger “cram-down”, in order to “save the Republic”. Sorry dude, this Republic is so FUBAR, and so utterly owned by the banksters/oligarchs/Top 1%ers, it isn’t worth saving. We’re a Banana Republic, with no bananas.
Yeah, things might be “better” in 2020, or thereabouts. Maybe. Too bad I’ll probably never live to see it.
April 2nd, 2011 at 7:27 pm
Comparing the situation in the US with the one in Greece and Ireland and drawing conclusions with regards to the debt and the deficit kills your credibility. Greece and Ireland are mere users of a very strong currency whereas the US is the monopoly issuer of its currency, the one that its entire debt is denominated and coincidentally the world’s reserve currency. Apples and oranges to say the least.
April 2nd, 2011 at 7:34 pm
i think the real observation is this.
we give lots of tax cuts to the top 1%, supposedly because they will create jobs.
mean while, we are going to cut spending on the lower 99% because we have a deficit problem
it would appear that the 99% are paying for that tax cut.
and not getting any thing at all, as every tax cut this decade has been sold as creating jobs.
only to fail to ever deliver on that promise. ever
so either we are keep repeating the same experiment we expecting a different result. or we have really bad Alzheimers. or we are amnesiacs.
and i am not convinced that the bond vigilantes will strike. unless you can show me that the have in Japan. where the deficit is how many times the size of the economy?
so if we are really serious about cutting the deficit, why do we give tax cuts to those who won’t do any thing more than they did before we gave them? and why is it that when the top tax bracket was higher than 90% we did much better? and why is that only the 99% of us are in competition with world? and the top 1% get a bye? and just how much longer will the 99% keep supporting the 1% before we are tired of being savaged by them?
so much gripes about Social Security, Medicare, and Medicaid. which are the most popular programs because they work for the 99% not the the 1%. and we need them because without them, we have no chance of surviving
April 2nd, 2011 at 7:43 pm
Keeping Medicare intact without tax increases is simple – eliminate 95% of defense spending.
April 2nd, 2011 at 9:17 pm
Very good blog. Brings out a lot of things. Very perceptive. But how could you overlook (and not mention) the growing inequality of wealth and income in this country?
The elephant in the room, as I see it, is the absence of higher taxes on the rich. There is a great deal of data coming out about the size of the affluent tip of our income iceberg, and how much more of the country’s surplus wealth that they are raking in. It is unusual for a country in debt to cut spending but not increase revenues, particularly when the monetary resources are becoming more and more concentrated in the very small tip of our unequal income distribution. Taxes have been reduced for the last 30 years, and revenues have not increased. I do not anywhere in your post where you mention the increasing inequality of wealth, and the role the lowered and lowering tax rates play in increasing the national debt.
April 2nd, 2011 at 9:35 pm
As far as I know social security is not a free ride yet. May be same is not true of Medicare due to the exponential rise in the cost of healthcare.
Medicaid is in a way, free government health care…..but I am not sure why the religious right is not saying yet “we do not care if those who cannot afford healthcare should die”. I am sure they have no issues with the bums dying.
I am not sure what kind of sick mind thinks that a person making $5 million deserves a much bigger break on his capital gains than the one making $50k working full time.
Oh well the nexus of religious right with the greedy rich…can produce weird effects.
April 2nd, 2011 at 9:42 pm
Nice piece of doublethink… transferring trillions of FIRE debt onto the public balance sheet, then, once that’s done, demanding austerity.
April 2nd, 2011 at 10:24 pm
@ techy
You wrote, “Instead of what you are saying, what if we do below:
1. inflate our way out of the debt
2. create wage inflation(not happening right now but thats the goal)
This is what is being attempted by every government in the world except the net exporters….and no matter what you all say…this is the only option….”
———–
IMO, you are right, inflation is the preferable path. Inflation benefits debtors, both individuals, like those with a mortgage greater than the value of their home, and the government because its debt would shrink as a percent of an inflating GDP and can be paid back with cheaper dollars.
But don’t hold your breath waiting for it. Ben has been trying at warp speed to generate some inflation since the house of cards began to collapse in 2008. But his goal is only to prevent deflation, not cause significant inflation.
Why won’t inflation be our path out of crushing debt? Because rich people hate inflation, and the rich firmly hold the reins of power in this country now. They hate it because it erodes the purchasing power of their savings, and not all their assets will keep pace with inflation, therefore, they will suffer (relatively speaking, of course). And suffering, as we know, is only for the little people.
So the wealthy will push for tightening very soon, as inflation psychology begins to take hold. Ben and the administration will comply, because, as we know, the banks and corporations pull most of the strings in this country. Then rising interest rates will put us back into recession. And who will suffer then? Again it will be the poor who are saddled with debt and assets that will further decline in value.
The rich will suffer much less, if at all, because they have no debt to worry about and sufficient assets to last a lifetime. And what about those large corporations that have mountains of debt? Well they are too big to fail, so as we have seen before, they don’t need to worry either; the taxpayer will keep them afloat. (Corporate bailouts are good/necessary, but entitlements for the poor are bad/expendable.)
Opposition to the inflationary path also comes from middle and working class libertarians and tea partiers who take the simplistic view that government (and its debt) and the Federal Reserve with its fiat currency are the cause of all our economic woes (and almost every other problem in the country). They still labor under the delusion that free-market capitalism will save us, even though it was the unfettering of capitalism over the past 30 years that led to the financial collapse in the first place.
We missed the chance to purge this ideology in 2008. What should have happened, that would have changed many minds and squelched the popularity of this ruinous philosophy, is if the economy had been allowed to really collapse in 2008. If government had not stepped in to save it, then they would have seen the bitter fruits of their seriously flawed beliefs. But the inevitable collapse of unfettered markets was stopped by the very government they now blame. So they did not suffer enough pain to wake them up to the truth. Instead they are still comfortable enough to persist in their delusion and pursue killing that which saved us before and must save us again: the government and the Federal Reserve through stimulus spending and reflation.
So who will win the day: those who want to inflate debt down to manageable size or the budget cutters and inflation hawks? Well with the rich and the corporations now aligned with poor and middle class libertarians and tea partiers against the government and the few people able to see the bigger picture here, I don’t think there is much doubt about the outcome. I predict even tougher times ahead for the poor, not the rich.
And raising taxes as an alternative to cutting government spending and reduce the deficit? Forget about it. Too many voters have been brainwashed by the rich into believing lower taxes on the wealthy is the road to prosperity for all, and taxes at any level only feed the evil beast government. (That’s absurd I know, as only the wealthy have really prospered in the 30 years since Reagan first spoke of “trickle down” economics. So, ignorance continues to rule). As a result of this brainwashing, and the inability of many people to see through it, instead of the wealthy and corporations paying more tax to reduce the deficit, the poor will be forced to take it in the shorts again and again, until they finally wake up, which hopefully won’t be too late to save our country from eventually imploding due to the extreme greed of the rich and the simplemindedness of the “something for nothing crowd”.
April 2nd, 2011 at 10:48 pm
Thanks John, I always get a chuckle out of your opinions. That reminds me of that column on Israel you wrote months ago.
Sometimes the answer really is simple (this time) instead of long-winded and round-about.
You really should inoculate yourself from being a Texan and the W-kind of thinking that’s caused this mess. Afterall, Texas is near last in everything. Why, they even have 22 year olds playing high school football.
April 2nd, 2011 at 11:02 pm
Thoughtful, but the same old let the non rich take one for the republic while the rich get the benefits.
There have been experiments doing this, the lead up to the French Revolution being one.
OK lets take a possible solution. Lower military spending a lot, raise taxes a lot on the top earners and a bit on everyone else and then look at single payer medical care where either the govermit does it or pays someone else to do it with triage so that 80 year olds don’t get kidney transplants, but most folks get life saving care. Too many stakeholders to do that.
Maybe the republic with make it through, but I have my doubts. Like Liberia and Egypt as well as other countries where those in control, control the resources only masses in the streets change things. In the 1930s and the 1860s, only a powerful and competent president succeeded. Both were accidents of the electoral process. Could we elect a strong president that will endanger the wealthy elites with a money based electoral process? Ha
April 2nd, 2011 at 11:40 pm
No mention in this about globalization’s effects on wage stagnation? Or THREE unfunded wars in the Middle East on federal debt? How about Chinese currency manipulation? What about our futile drug war and ethanol subsidies? Also, we have apparently ceased collecting taxes on our corporations, since they have all fled to tax havens.
This article caught my eye, but I had to roll my eyes at the Republican talking points (“adult conversation”) and questionable ideology. Face it, John, you want smaller government as an end in itself. The solution to our wage problem is lower GDP, so we can grow from a lower point. Brilliant.
Barry, I enjoy your blog. It started off promising, but yet again I find John’s column unreadable.
@KJ Foehr – great comment.
April 2nd, 2011 at 11:53 pm
I used to enjoy Mauldin’s pieces, but they have increasingly become GOP talking points.
In short, he is a privileged member of an elite social class and he wished to protect that class(and his wealth) at the expense of the great unwashed worker classes.
April 3rd, 2011 at 12:52 am
Barry,
So much of what you do here is great.
This article is not. It is an insult to your readers.
Please tell us this article is a day-old April Fools joke.
April 3rd, 2011 at 12:59 am
I read John Mauldin’s weekly pieces with the only goals of increasing my intestinal fortitude and trying to expiate my sins through mental flagellation as redemption.
April 3rd, 2011 at 6:50 am
Mr. Mauldin,
I have enjoyed your “folksy, gosh darn it” common sense approach and perspective on finance. Until now.
When you argued so strongly in favor of extending the Bush tax cuts, costing 400 billion a year, I thought that was odd. You were ever so convinced that with out extending these cuts for the wealthy that it would hurt GDP and unemployment would rise. I did some research and as it turns out, most economists strongly disagree with you.
And now you can see that the budget deficits are really bad of the U.S. WTF!??? You just used your not inconsiderable influence in giving the wealthy a 800 billion dollar gift and now you really want to get the deficit in order.
Read this: http://www.vanityfair.com/society/features/2011/05/top-one-percent-201105
It’s no use pretending that what has obviously happened has not in fact happened. The upper 1 percent of Americans are now taking in nearly a quarter of the nation’s income every year. In terms of wealth rather than income, the top 1 percent control 40 percent.
The top 1 percent may complain about the kind of government we have in America, but in truth they like it just fine: too gridlocked to re-distribute, too divided to do anything but lower taxes.
The top 1 percent have the best houses, the best educations, the best doctors, and the best lifestyles, but there is one thing that money doesn’t seem to have bought: an understanding that their fate is bound up with how the other 99 percent live. Throughout history, this is something that the top 1 percent eventually do learn. Too late.
PS: All great comments above, especially: Steve in KC, willid3, Winston Munn, KJ Foehr and vader.
April 3rd, 2011 at 7:51 am
Mr. Mauldin certainly showed in his charts how the 99% are doing poorly (while the 1% do fine). I kept looking for his solution to help them but just found the Republican party line. How about getting companies like GE to pay their fair share of the cost of this republic, raise taxes on the 1% and pull out of three wars that we should have not gotten into. We are not the Roman Empire. We need FDR as president but got a community organizer who makes good speeches and poor decisions. A colleague of mine had an interesting chart that showed the length of previous civilizations. Most of the lasted about 200 years. This one is looking long in the tooth.
April 3rd, 2011 at 10:11 am
“eliminate 95% of defense spending” and do what with the factories and the workers?
build consumer goods here again? energy independence R&D?
is it even possible with the advent (invent) of robots to allow humans to live 80 – 100 years and fit them in economically to the scheme of things? speaking politically correct of course.
0-20 learn 20-60 work 60-100 retire .. what happened to that scheme?
April 3rd, 2011 at 10:28 am
@John.
Bill nailed it quite well.
Thanks for putting it out there for us.
Your contribution? BS. Have another nice important trip to somewhere. And be sure to include some pictures. AH.
April 3rd, 2011 at 11:14 am
My problem with proposed cuts and budget rollbacks is that they do not reflect the areas where budget growth came from. We massively grew spending such as military and homeland security, but proposed “rollbacks” magically manage to skip these areas.
The budget problem has become an excuse to go after spending that is long disliked by conservatives, when of course, the problem itself was overwhelmingly caused by conservative led spending.
April 3rd, 2011 at 11:15 am
Mauldin’s stuff has become mere ideology posing as rationality.
April 3rd, 2011 at 11:44 am
The Plan
The right is smarter than the left strategically. The plan, since Reagan, has been to
1. pillage the federal coffers (taxpayers) when possible for increased military spending and to help increase corporate profits,
2. exploit deficit spending to the greatest extent possible to further their agenda, (remember “deficits don’t matter”?)
3. cut taxes to help the rich and to starve the government at the same time,
4. so that there is nothing left for other spending (when they are out of power)
5. and eventually when the debt does become unsustainable and tax increase politically untenable, the only alternative is to cut the size of government, everything but defense of course. (We haven’t reached that point, as others here have pointed out (Japan would come first), but they have convinced the tea partiers and many others that we have.)
It’s a win-win for the right and a lose-lose for the left. Either the left is stupid and can’t see what has happened right under their noses for the past 30 years, or they are unable to develop an effective strategy to counter it. Bottom line: looks like the right has won; game over.
They plundered the federal coffers and exploded debt at every opportunity to further their agenda, usually military spending and those programs that benefit corporations such as Medicare Part D (By the design of the program, the federal government is not permitted to negotiate prices of drugs with the drug companies, as federal agencies do in other programs. Former Congressman Billy Tauzin, R-La., who steered the bill through the House, retired soon after and took a $2 million a year job as president of Pharmaceutical Research and Manufacturers of America (PhRMA), the main industry lobbying group.) http://en.wikipedia.org/wiki/Medicare_Part_D
Then when they are not in power they protest that deficits are too large and sing the praises of balanced budgets to block any spending on social and any other non-military programs. (As they did in the late ‘90s under Clinton.)
The plan has worked beautifully, and to help carry it out the moneyed powers that be have played the American people like an accordion, squeezing them into action when needed. It is not by accident that there were no tea party protests against government spending when the previous administration requested $100s of billions in emergency supplemental appropriation for Afghanistan and Iraq, nor when he sent former Goldman Sachs CEO to Congress to demand $700 billion in bailout funds for the banks. No, it is only under the current administration that soaring deficit spending is a problem that warrants protests on the National Mall. TPTB arranged to get the naïve citizenry fired up and go to the National Mall to protest health care spending and demand smaller government. Why only health care and not military spending in Afghanistan, Iraq, now Libya, S. Korea, etc. ? (below is a list from Wikipedia of the numbers of US troops stationed around the world.)
* Iraq – Approximately 50,000 US personnel (advisors)[4] as of 19 Aug, 2010.
* Afghanistan – Approximately 98,000 US personnel[4] as of 25 Aug, 2010.
* Djibouti, Africa – 3,500, * Kenya – 42, * Cairo, Egypt – 52, * Sinai Desert, Egypt – Approximately 500 personnel. * South Korea – 28,500, * Japan – 32,803, * Philippines – 95, * Diego Garcia – 311, * Jakarta, Indonesia – 27, * Singapore – 125, * Thailand – 96, * Malaysia – 15, * Australia – 140, * Marshall Islands – 17, * New Zealand – 5, * Germany – 57,080, * Souda Bay, Greece – 386, * Italy – 9,855, * United Kingdom – 9,825, * Spain – 1,286, * Norway – 81, * Sweden – 12, * Belgium – 1,328, * Portugal – 826, * Netherlands – 579, * Greece – 363, * Greenland – 126, * France – 55, * Poland – 100, * Turkey – 1,594, * Kosovo – 830, * Qatar – 8,029, * Bahrain – 1,495, * Kuwait – 10,548,* Oman – 36, * United Arab Emirates – 96, * Antigua – 2, * Colombia – 123, * Saint Helena – 3 , * Guantanamo Bay, Cuba – 932, * Netherlands Antilles – 10,
And there are 1,084,548[2] personnel on active duty in the United States and its territories:
* The contiguous United States – 882,201, * Transients – 52,527, * Hawaii – 34,838, * Guam – 2,836, * Puerto Rico – 137, * Alaska – 19,408
http://en.wikipedia.org/wiki/United_States_military_deployments
Why do we need all these troops everywhere, and how much does it cost? What is the benefit? We still have to pay $105 a barrel for our oil, just like China and every other country does. And China is eating our lunch economically without having troops all over the world or spending a $trillion a year on “defense-related expenditures” (per the President’s proposed 2012 budget). http://en.wikipedia.org/wiki/US_military_budget
.
“If you know which side your bread is buttered on, you know where your interests lie and will act accordingly to protect or further them.” Our bread is not buttered on the corporate side; it is buttered on the government side, and unless the people stand together to demand a reduction of the corporate money and influence in our political process, then we will be doomed to no butter at all and eventually only the corporate crumbs.
The corporations should be afraid of the government and the people, not the government and the people afraid of the corporations.
April 3rd, 2011 at 12:24 pm
Thanks to Medicaid…the poor can get treated without paying anything…else there wont be any discussion today. You cannot feed a family with $6/hour wage and still pay the healthcare cost.
Thanks to food stamps….poor are kept at bay else we would have had a revolution.
thanks to bad schools the poor are not educated enough to know their right just like any other developing country.
But I see on the horizon more unemployment, wage cut…high cost etc….thanks to the religious-right alignment with the elite…they have enough money and votes to have a majority that they can carry out their stupid plans…(I have a feeling they are not that stupid they are doing all this just to derail obama/democrats administration and once they are in power…it will be the same shit..like with GWB and reagan did…grow the deficit and the debt)
70% of the people in this country are christians…and atleast 55% need to be taken for a ride to win the elction. it will happen again and again till the education system improves.
April 3rd, 2011 at 1:38 pm
Why do you give this tea-bagger space on your blog? Next thing you know, he’ll be blaming CRA for the crisis. It’s one thing to be rich and looking out for your own interests. It another thing to be polluting the blogosphere with malicious half-truths.
Here’s some facts for Mr Mauldin. For every dollar of debt, there is a dollar of credit. Don’t believe me? Take a course in high-school bookkeeping. It’s the honest to gosh truth. Has been every since the middle ages when they first started using double-entry bookkeeping. Back before the evil liburls came up with fiat currency and ditched the gold standard and started spouting that evil Keynesian talk about contra-cyclical fiscal policy.
In other words, if the US government and by extension the taxpayers owe a lot, then someone else is owed a lot. That someone consists of the domestic creditor class (the rich) and the foreigner creditors. As long as none of those creditors try to convert those credits into consumption spending, we can keep on piling up debt ad infinitum. If they do try to consume, then our economy will boom, like in the 1990′s, and we can simply pay the debt off by imposing consumption taxes (VAT)
You can’t have it both ways. Either the creditors consume or they don’t. If they consume, we have a boom and the only problem is controlling inflation, which can easily be done by a VAT. If they don’t consume, then BY DEFINITION, they are NOT dumping their debt and there is no possibility of a debt crisis.
The issue of distribution of consumption is another issue. If the economy booms, but all the consumption is by the rich or foreigners rather than the domestic middle-class, then the answer is simple. Confiscate the wealth of the rich and the foreigners (via income and export taxes) so as to leave more consumables for the domestic middle-class.
Republican liars always want to complicate what is quite simple. Like I said, if the above is mysterious to you, go back and study high-school bookkeeping.
April 3rd, 2011 at 3:23 pm
Mr. Mauldin is channeling Alan Greenspan.
April 3rd, 2011 at 5:17 pm
The last people who should be in charge of our food supply or our social and political life, not to mention the welfare of sick children, are corporate capitalists and Wall Street speculators.
If you have a spare 50 minutes, this will make you think:
http://www.youtube.com/watch?v=bYCvSntOI5s
Will there be a revolution? Can people survive without one?
April 3rd, 2011 at 7:40 pm
Look John,
I know you just can’t REALLY answer Bill’s question. Your clients are wealthy, and if you had to reveal the true answers to his questions, business would start to nose dive.
We get that. We understand you cannot afford to read well documented books like Free Lunch and Perfectly Legal by David Cay Johnston. We sympathize with your plight that prohibit you to take stock of the work of Kevin Philips, or books like Money For Nothing.
Now, here are some riddles that may help Bill understand where is the real source of the problem.
1) Why are most citizens in the richest nation in the history of the world losing good jobs, good wages, and vital public services?
2) The American economy is twice as large as it was in 1980 but hourly wages have barely budged, and public schools and infrastructure are worse. Why?
3) Third riddle: Why are the top 1% taking home twice the share of income and wealth they did 3 decades ago, and at a far lower tax rate?
Isn’t it crystal clear the debt has nothing to do with that? What is clear though is that political and policy decisions were put forth to suck dry the middle class and below and transfer the wealth to the top.
One last word John: it would have been much better for you NOT to answer Bill publicly; it just made more obvious than ever that, when it comes to social matters and economic basic fairness, you are too ideologically blind to fathom these problems.
April 3rd, 2011 at 10:58 pm
#1 – The problem of Medicaid/Medicare, and the entire “health care issue” is COST CONTROL. When a drug cost $93000 dollars, and it extends life by 4 months, it should not be covered by those programs. Also, a company should not be able to jack up price from 10 to 1500 dollars for a medicine that it did not develop, did not patent, did not purchase, but simply got awarded right to manufacture by the corrupt, revolving-door FDA.
#2 – I pay 6.2% of the every dollar I make to SocSec fund. My employer, rather than pay me 7% more, pays another 6.2% to the fund. That’s 12.4% right off the bat. Are you here telling me that saving up 12.4% over 65+ years and compounding (even minute) interest is not enough for my benefits? It would be plenty, if not for the government that has been STEALING my contributions and used them as “general revenue.” And since it has started doing that, the top marginal tax rate has come down from 70 to 36%! And capital gains is at 3-generations low of 15%. The SocSec. taxes from 90% of the population have paid for the tax cuts of the top 1%! Warren Buffett’s tax rate is 17%, while a minimum wage earner pays 15% before he even starts paying income tax! And you’re telling me about austerity?
HANDS OFF My Social Security. It is mine, I have PAID for IT!
#3 – Implement a fair solution: A) eliminate special treatment of capital gains tax, equate it to earned income. B) Raise tax rates to 49% for income above $1million. C) How about doing what Norway does? A “small” tax on the NET WORTH – perhaps 1/2 of the rate of the 10-year bond. After all, that top 1% who disproportionally benefited from tax policies, globalization, and reduced regulations of the last 35 years – shouldn’t they be forced to share some of that wealth??? Norwegians seem to think so, and they’re pretty much the only “developed” nation without a deficit issues…
April 4th, 2011 at 7:54 am
b_thunder…it all makes perfect sense, but the religious right does not care…
as long as you dont promise them zero abortion, no gay marriage and no blacks in america….they are going to continue tea bagging for jesus.
Kind of sad that the people get together to sell each other into slavery to the corporations and the elites.
I have been living in the deep south…..and I know the real issue in this country…its not about small government….its only about religious fight, everything else is a sham.
April 4th, 2011 at 4:15 pm
If you think the US needs to cut down on expenses and increase taxes. Why did you support to extend the Bush’s tax cut to the riches?
I don’t see how the Bush’s tax cut to the riches would help improve the economy. A lot of these rich people would simple use this tax cut money on buying stocks, buying commodities. This creates inflation and create more speculation in the market. The stock is overvalue and it will be overvalue for a lot longer. As long as, the FED keeps pushing QE, which it would, the stock market would not go down while USD going to the drain.
What’s the US gov’t is doing is simply trying to inflate out of the debt cycle. The riches can invest their way into it while the poor can’t even pay off their daily living expenses. That’s why there are more and more poor people in the US while the riches got richer. At the end of the day, if people can no longer live a decent life with dignity, we will see a lot of social unrest and maybe there would be a new revolution.
30 years ago, the CEOs of the world only make about 20x salary of an average joe. Now, it’s more than 100x the salary of an average joe and because they know the insider information, they can squeeze more $ out of their position. They can place risky bets for their companies and if things go well, they would get a lot of money. If things don’t go well, they will keep what they have under contract while waiting for the US gov’t to bailout the firm. This is the reality in the US and has been like this for th past 30 years.