Ever have the uncomfortable feeling that something's wrong with the economy--terribly wrong--despite the chorus of upbeat pronouncements from Wall Street? Well, you're not alone. In reality Wall Street decoupled itself from Main Street back in the 1980s, but continues to this day to deny the fact. The good news is that every day fewer and fewer people accept this lie.
Back on April 5th, 2006, the NY Times had an article titled The Economics of Henry Ford May Be Passé by David Leonhardt. In it he rolls over the rock and sheds light on some pretty disheartening economic data.
First off, real wages for 80% of Americans have remained stagnant since the mid 1970s.
Meanwhile, the top executives who have driven most of American industry into the ground (e.g., the auto industry) or moved it to China and India have made off like bandits in terms of salaries, benefits, stock options, and golden parachutes. Back in the 1950s and 1960s the disparity between executive and worker pay wasn't anywhere near as extreme as it is today. Back then a typical executive at a large company earned 50 times what a worker did. Today that disparity is typically a multiple of 500 or 1000.
Now here's something really interesting data from Stephen Roach, the Chief Economist at Morgan Stanley in a piece called Globalization's New Underclass, from March 2006. In the article he admits that globalization is benefitting only a few at the very top. For the rest of humanity globalization is basically a euphemism for "race to the bottom."
This includes most Americans.
Let me quote him here:
Billed as the great equalizer between the rich and the poor, globalization has been anything but. An increasingly integrated global economy is facing the strains of widening income disparities - within countries and across countries. This has given rise to a new and rapidly expanding underclass that is redefining the political landscape. The growing risks of protectionism are an outgrowth of this ominous trend.
It wasn't supposed to be this way. Globalization has long been portrayed as the rising tide that lifts all boats. The surprise is in the tide - a rapid surge of IT-enabled connectivity that has pushed the global labor arbitrage quickly up the value chain. Only the elite at the upper end of the occupational hierarchy have been spared the pressures of an increasingly brutal wage compression. The rich are, indeed, getting richer but the rest of the workforce is not. This spells mounting disparities in the income distribution - for developed and developing countries, alike.
The United States and China exemplify the full range of pressures bearing down on the income distribution. With per capita income of $38,000 and $1,700, respectively, the US and China are at opposite ends of the global income spectrum. Yet both countries have extreme disparities in the internal mix of their respective income distributions. This can be seen in their so-called Gini coefficients - a statistical measure of the dispersion of income shares within a country. A Gini Index reading of "0" represents perfect equality, with each segment of the income distribution accounting for a proportionate share of total income. Conversely, a reading of "100" represents perfect inequality, with the bulk of a nation's overall personal income being concentrated at the upper end of the distribution spectrum. In other words, the higher the Gini Index, the more unequal the income distribution. The latest Gini Index readings for the US (41) and China (45) are among the highest of all the major economies in the world - pointing to a much greater incidence of inequality than in economies with more homogeneous distributions of income, such as Japan (25), Europe (32), and even India (33).
Moving along a little further, we read:
What is new is how America's income distribution has become more unequal in a period of rapidly rising productivity growth - a development that has been accompanied by an extraordinary bout of real wage stagnation over the past four years. Economics teaches us that in truly competitive labor markets such as America's, workers are paid in accordance with their marginal productivity contribution. Yet that has not been the case for quite some time in the US. Over the past sixteen quarters, productivity in the nonfarm US business sector has recorded a cumulative increase of 13.3% (or 3.3% per annum) - more than double the 5.9% rise in real compensation per hour (stagnant wages plus rising fringe benefits) over the same period.
I don't think it's a coincidence that the relationship between productivity growth and worker compensation has broken down as the forces of globalization have intensified. First in manufacturing, now in services, the global labor arbitrage has been unrelenting in pushing US pay rates down to international norms.
Yet, day after day, the media carpet bombs us with stories on how great the economy is doing.
Only in America have concentration of capital and gross disparities in income been twisted into something positive by the professional spin doctors. There are sound economic and moral reasons why both Bill Gates and Warren Buffett asked President Bush not to repeal the inheritance tax a few years ago. Without it wealth becomes even more concentrated in the hands of a few leading to a society like 19th century England where the landed gentry owned and controlled everything. The other 90% lived as serfs.
Welcome to the Tapeworm Economy
Over the weekend, I listened to a couple audio seminars by Catherine Austin Fitts on what she calls the "tapeworm economy". The tapeworm is a parasite which injects a hormone into its host which then makes the latter crave whatever the tapeworm needs in order to survive and flourish. This is how big business and big banking work as well. They are tapeworms. The interesting thing about Ms. Fitts is that she doesn't just stop at describing the problem; she provides a practical solution for killing off the tapeworm in our communities through local financial systems.
You can read her description of the tapeworm economy here.
The British have an expression, "I'm alright, Jack" which sums up those who don't care if the neighborhood, country, or world is going to hell, so long as their individual circumstances are tolerable. If you missed the implication, it's a put-down of people who care for no one but themselves.
Back in the early 199os, I was in La Paz, Bolivia on business. I had dinner one evening with one of the wealthiest businessmen in the country. He was involved heavily in supporting a micro-lending program for the poor called BancoSol. When I asked him why he was concerned about the disadvantaged, he told me it because of his two young sons, both under ten back then. He was thinking ahead, you see, and didn't want them living in a world where you had to ride around in an armored Suburban accompanied by armed guards if you had some money.
Well, judging by the Evo Morales victory in Bolivia's recent elections the disparity in wealth became intolerable for the majority in Bolivia, and they threw the tapeworm out.
Jumping back to the NY Times article, David Leonhardt concludes with:
Politically, though, I am not so sure that the current trends are sustainable.
Someday soon even the people in Kansas will finally wake up to what's been happening to them. It will be interesting to see what happens then.