July 11, 2008
www.TruthForUs.com
Martin C. Boire
2008 to 2010: The American Economic Mess
I graduated high school in 1973, having gone to high schools in Daytona Beach and Tampa. I recall the idea was to go out and make something in order to make a living.
Later around the 1980’s American’s were told that the U.S. was brilliantly shifting from a manufacturing-based economy to a service-based economy. Things were going to be manufactured cheaply overseas by poor people and we smart people in the U.S. would make a living in two manner: (a) taking care of each others’ needs and (b) providing the management expertise and coordination needed by the poor people overseas who were going to be making everything for us.
Next I remember millions of mid-level executive jobs being eliminated by “big” businesses. I know a lot of folks in Florida who used to have those jobs, and ended up mowing lawns and such to make a living since they really couldn’t live on a hourly paycheck from a hamburger joint.
Then came the 1990’s when the economy seemed to prove this service-based economy through the dot-com boom. Everything revolved around computers, and the internet, and how easy it was for everyone to make money through internet technology. Video games took off, reinforcing this image. Factory construction boomed overseas, factories closed at home, and behind it all the creeping corrosion of big U.S. businesses outsourcing their manufacturing to cheaper plants overseas rapidly increased.
I recall a lot of news stories wherein the reporter discovered some lone guy or gal who had to retool their life after having been cut from a mid-level position at a company that was outsourcing, and who had struck it rich via the internet in some manner, and therefore anyone could do just that. These stories bred a myth and floated more hope.
The internet’s ability to enable anyone to talk to anyone internationally for free (a first in human history) seemed to reinforce the belief that outsourcing and globalization was a sound method to produce the money to pay the bills at home, and that it would not come to prevent us from making a decent living.
Next, when the dot-coms were all collapsing, came the housing boom which ran from the very late 1990’s until about 2006. And the nation zoomed along on real estate, or at least believed it was.
The housing boom crashed abruptly to a full dead stop in 2006. And now we are beginning to perceive that it is likely no wealth was built at all, either in the structures themselves, or in all of the mortgages funding them, or in what is perhaps just a whole lot of worthless paper related to them which has been traded around by the big boys. It seems like we have way more houses built than we need, more houses than we have people who can pay for them, and a tremendous amount of money sunk into developing millions of vacant subdivision lot inventory that will lay unneeded for years. And they are all worth maybe half of what people thought they were.
People can’t pay and are walking on their loans.. The guilt over the failure to repay ones’ debt is gone the way of most other morals which supported America and have been gradually removed by teachers, professors, media and élites since the 1960s. Everyone has been taught not to care about human life, or the notion of personal responsibility. So why should they care about debt repayment? Like everything else it is not a matter of morality. Besides, it’s not their fault someone else got them into the mortgage on the house they wanted. (In May 2008 I declined to represent a man in a bankruptcy whose mind worked as follows: he thought he should solve his problem by counter-suing the bank in the state court foreclosure case for having lent him the money he wanted — because the bank should have known better. And I’m sure he would have threatened them with age discrimination or some such had they not lent it to him when he wanted it). In modern America, it is now always some else’s fault. Just ask the personal injury lawyers. Which means it is not their responsibility.
Now, it seems to this Average Joe (me) that this is the situation in which we presently find ourselves:
• The average guy is out of money.
• The average guy is out of a good paying job.
• The bulk of the kids 25 and under comprise the point and click generation, precious few of them have practical skills, and most have little tangible practical understanding of where things come from and how to make something someone else will buy. (One cannot fairly complain too loudly that they do not understand producing money, because neither do their teachers in school or the people in the government).
• No elected officials at any level have any useful knowledge of money or a productive society.
• We do not have factories. Only 12% of our GDP is from manufacturing (per Kevin Phillips, infra).
• Most of our major national corporations are looking out only for themselves, will not refocus to save us, stopped being good corporate citizens over two decades ago, and view the U.S. and all other nations merely as labor pools and raw material sources from which they can hire, fire, and acquire, toward the end of building the corporation. Our major public companies no longer have any particular loyalty to our National Family. As one said when asked point blank in a TV interview, my duty is only to the corporation, to make everything I can for it; my duty is not to the country. [1]
• And we spend all of our time stuck like Dr. Seuss’s east and west bound Loraxes, autisticly bickering and maneuvering about blacks and whites and race while the world moves ahead of us.
And I can’t see where the next big thing is that is going to make everyone a living here in America. Perhaps we’re entering another period of doldrums, just treading water until the next big thing comes along and money starts moving again. Trouble is, it doesn’t seem we even have what it takes to tread water.
• My observation is that most of today’s old people do nothing productive. They live off of the present generation (their descendants) via social security and while away the hours watching TV and the like. Precious few push themselves to do things for others, and absurdly, social security further interferes with their ability to work. My Florida friend Charlie Price and other veterans service people I know like him, such as John Haynes, are the shining exceptions, dedicating endless hours to helping others. What is it about these military folks? They just can’t stop doing good things. More of us ought to follow their example.
• Young kids waste away the hours playing video games, as though beating the next level produces something they can eat or sell.
• Mexican illegals bring no needed skills into the country, displace local citizens, impose the drag of provision of services they do not even receive in Mexico, and send most of their money home.
• The Average Joe is being made to carry the load of the old, the young, the illegals, and one of the current presidential candidates says he wants them to take on the load of medical care for all. [2]
• The major U.S. corporations continue to send production and wealth overseas, apparently gradually transitioning to some form of transnational entities.
• How is the Average Joe or Jane supposed to produce the money to buy anything if every year the amount they can produce shrinks?
On July 4th, 20008, I found myself explaining my thinking to some family members as follows. We were just up the road in Ormond Beach at a small 1,100 square foot block 1940s or so house my brother in law has and has been trying to sell one block off the river. It has no air conditioners and we were sitting on the small back screened porch awaiting the fireworks. My 17 year old nephew Jimmy, sister in law, mother in law, and I were talking. I suggested the porch and the four of us as an economy micro-example. I pay Jimmy to paint the porch. Jimmy pays Nana for food. Nana pays Betsy for medical care. So in a service-based economy all are just passing their money around among themselves. But if we were to manufacture something, say one of the metal folding chairs we were sitting in, or a pie, and pass it out through the screen to the house next door in exchange for money or something else of value that they pass back in through the screen to us on the porch, we have brought something new into the economic mix among us in the closed economy of our porch. And the more times we can make something, pass it out, and draw into the porch more than we took to make it, we are increasing the wealth and well-being of those on the porch. I suggested that applying this example to the larger situation of the nation could provide an example of what gets us ahead and what does not as a National Family.
I am no economist. My wife and I just bring in what money we can and we spend it like everyone else. But for over a decade I have pointed out that I could just not figure out how the poor countries were going to become rich enough fast enough to be able for us here in the U.S. to get our outsourced jobs back via foreign workers having enough increased income from their production in their countries to be able to buy at our prices what we produce here in our country. And now those overseas manufacturers produce not only the low-tech goods but the high-tech goods as well. So what is it that we are to manufacture at our comparatively high wage scales that they at their low pay scales are supposed to buy from us? [3]
I had ignorantly always thought that trade laws and tariffs (trade barriers as some like to pejoratively refer to them) were a method of adjusting things between countries which had different inherent internal costs of production due to their differently developed standards of living. Perhaps I was wrong. I guess even though there are many vast differences among the nations it will just all work out without harm to us. It seems like we argue the effects of internal income taxes to death, but we allow the national ship to be taken into a much larger typhoon over which we have no control. And it seems that has put us in play with large, wholly un-thought-through, external forces, and that what we do internally is now of small result.
I have for over a decade pointed out when asked (which is rare, as I am not a pundit) that America is going to be spent and bankrupt long before the annual income of the average Chinese or Indian hourly wage earner has risen to the point at which they have enough money to buy something we still make here in the U.S., so that we can get our money and jobs back. Money? Oh, that is the money that the huge corporations and banks pool from all the little folks and then take overseas for their corporate benefit.
While I do not like the National Geographic’s humanistic and atheistic agenda (my opinion, not a statement of fact), their special issue, China, May 2008, Vol. 213, No. 5, is a must-read for everyone about where we in the U.S. are headed, absent some fast and serious restructuring and redirection both internal and vis-à-vis other nations:
(1) China is expected to overtake the U.S. as the world’s largest economy in ten years, that is, 2018. Peter Hessler, China’s Journey, page 62.
(2) In 2005 China will have more cars than the U.S. and 1,000 cars are added each day. [4] Ted Fishman, Great New Walls, page 142.
(3) China’s factories as of 2008 produce the following, and absent radical action will continue into other areas and these percentages will continue rapidly expanding [5] (Brook Larmer, Bitter Waters, National Geographic, May 2008 p170):
-
72% of U.S. shoes
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50% of U.S. kitchen appliances
- 80% of U.S. toys
But Larmer reveals that despite the above, at this point in time a Chinese factory worker would have to work SIX MONTHS to earn the cost of a wooden Thomas the Tank Engine train set.
Nobody I know here in America would spend ½ of their annual income on a wooden train set for the kid. And if it takes them ½ year to earn enough for that, it’s a sure bet the average person in China is decades away from buying anything substantial made in the U.S.A.
For all the foregoing reasons I am of the opinion that a huge economic restructuring is approaching. It may be within the U.S., but it might also be world-wide because of our remaining markets size and it effects. If you are a reader willing to work consideration of something all the way through, it may be that everything is so mangled that at some point the U.S. will announce that it is resolving the problem by canceling its foreign debt. The U.S. could just do so, or it could attempt to justify it on the moral claim of having saved the world a couple of times and a lot of other smaller places in it several times. It could be that the values of everything are just cut by 2/3. It could take the form of cancellation of trade agreements and resurrection of tariffs and the like. [6]
But at this point even if the U.S. reenacted various protectionist laws and reopened all of our factories:
(a) the bulk of our citizens are broke and no longer earn enough to buy their products at twice the price, and
(b) we could not sell to other countries because they can buy the same items for half the price from China and India.
And with our internal and external debt we may not be much of an economic powerhouse. But as I say, I am not an economist.
On July 5, 2008, the night after the family conversation I recounted above, to my surprise I saw a man, Mr. Kevin Phillips, giving a talk on his book Bad Money. Mr. Phillips who, unlike my economically ignorant self, is a brilliant financial man and knows many things I would never know to even think of that are affecting the bigger picture of which I am one small part. I listened to him clearly elucidate many complex factors behind everything I have seen going on as discussed above. We Average Joes have heard generic names for those things here and the in the media, such as “hedge funds”, or “mortgage-backed securities”, but have no inkling of what they have to do with money, or the health of the domestic economic context in which we each must produce a living. I was in college for nine years, earning several degrees. And I learned that one can always tell when someone understands something complex, because they can explain it in simple terms to someone who knows nothing about it. From his discourse one can tell Mr. Phillips understands them well.
I recommend reading his book to see all the past things leading up to the present, but because of it all, Mr. Phillips sees several things clearly that I was seeing only dimly.
1. He cannot see anything that is next to drive our economy.
2. He cannot see anyone in our government who does.
3. He sees energy costs as a trigger to the economic pressure point, the thing that will prevent the problems from hiding any longer.
4. He sees that no one in the national government (elected, appointed or hired) understands the economics of our economy any longer.
5.He sees that the government has removed risk-danger controls by socializing the high-finance economy. By bailing out the risk takers every time their gambling goes too far and gets them into trouble which could drag us all into trouble with them, the government has left the reward with the risk-taker and shifted the absorption of the loses to the average Joe, thereby emboldening the gamblers by entirely removing their risk.[7]
6. He sees that the financiers have constructed the current economy as a house of cross-collateralized cards, about which the productiveness, true worth, and physical nature is wholly unknown. (That is, they were our economy during the real estate boom, and now people are realizing they have no idea what the economy was or what it is now worth).
Now, for someone to work their way out of a debtor-creditor mess they have to have a job and something to work with. To have a job they have to:
(a) make something that people want to buy,
(b) perform a service for which someone will pay, or
(c) have a government job paid with money taxed (taken) from others. [8]
As between most people within the U.S., having something to work with is already a problem. And as between the U.S. and other nations, what of marketable value do we have to sell or offer? Just as the value of a company stock declines while the company is in trouble, our mess has caused U.S. currency to lose value steadily at the international level.
We cannot manufacture things more cheaply than China or India [9], so who will buy from us? We need our oil and cannot export it and sell it to them. Sell of our natural resources to the foreign manufacturers? Are we to export military protection? Like a rent-a-cop or mercenary? That is certainly not in our character. That is not what we have ever been about and would demean and ultimately ruin us. Perhaps we can put the essential substance of food on par with the essential substance of oil. [10] But in our current culture of corporate globalization and greed I can see the big corporations getting involved and ruining this like they have everything else.
The government and politicians are in the business of keeping things calm and avoiding civil unrest. They are not in the business of alarming people. Even dictators do not strike alarm or panic, instead rallying people behind them against perceived or created threats.
1. Our government will not likely step to the microphone and announce we have a major problem. They can’t even be honest about things which are small in comparison like social security, Medicare and Medicaid.
2. They do not much understand the current economic complexities. Just look at where we are.
3. Competing political interests of a now diverse and competing population will militate against an honest discussion of the problem and the process of honest solutions to it. It will become lost in demographic slicing, dicing, and division.
4. All of this happens in a context where there is a large block of educators, media, and others who want America dethroned, and will work against the actions and people trying to stop that from happening. They have worked toward this moment for years, and will work against an honest discussion designed to prevent it.
5. There may not be much the government can do about it anyway. Think of our nation like a company, when another company comes along that can do it cheaper. If we can’t re-tool or find something else to do we’re in trouble.
For 24 years I have been a debtor-credit and bankruptcy attorney. I have noticed that nowadays virtually no home foreclosures can be resolved by a Chapter 13 bankruptcy (in which people can reschedule their home mortgage when they are behind). It used to be that people fell behind on a mortgage because of a death, or temporary unemployment. Now the principal causes of mortgage defaults are (a) their job has been lost or their income drastically reduced (fuel prices exacerbate both these causes) or (b) the mortgage payments have increased and people cannot increase their income to keep up.
The house can only be saved if the bank will reduce the debt owed to the true current value of the house and re-amortize the payment to the resultant lower level. Which the banks will not do. One reason is that they are dense and are still thinking like the “old days” when it would be the only foreclosure on the block, soon to be resold to the next buyer. Another reason is that doing so would instantly create huge losses on their books and reductions of their worth. Therefore the banks are sitting on the whole big mess and keeping it booked as value, as though it had some.
It is often said that you can’t get blood out of a turnip. Given everything discussed herein, and the overall economic mess in which it no longer appears realistically possible that the Average people who in the end will have to support this place can in fact go out and earn or produce more, it may be that some will suggest that there is only the solution of a massive revaluation of property, massive elimination of debt (leaving it with those who took the risk for the hoped-for profits they would have kept to themselves), revaluation of the property and the currency, or the drawing of a line across the books, and a starting over.
For me, my plan is to try and move from my current small-lot subdivision and to a reasonably sized rural parcel just outside a metropolitan area. A parcel upon which we would have some space and if need be provide for ourselves a bit more of what we need. My father was a child during the great depression. He lived in Moors New York, which is near Plattsburgh on the Canadian border. He says that other than gas rationing they had it fairly easy because it was rural and everyone could produce most of what they needed and trade it around. City people were dependant on food being dished out to them through all of the obvious attendant complexities and obediences when money and economics are in disarray.
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[1] They grow up in our schools, got to our churches, play on our teams, hang out like other kids. Then they go to work for a huge corporation. And it is as though they renege on their Americanism. It is as if there is a hat rack just outside the door of the corporate meeting room, and as they walk in they hang their various hats on it. They take off their hat labeled Christian and hang it up. Their hat of Patriot. Their hats marking them as fathers who want jobs for their kids and their friends when they grow up. Stripped of everything they were taught as America kids, they do anything for profit, to the exclusion of the health of their community and National Family. Or maybe it’s gone the way of most of the other morals which supported America and have been gradually removed by teachers, professors, and élites since the 1960s.
[2] It is fairly easy to see the logic of the Average Joe who now feels that health care ought to be socialized (the kinder non-threatening term is “universalized” or one more notch up the rhetoric scale would be “nationalized”). Through the 50s, 60s, 70s, and 80s, reasonable health care was available through reasonably priced insurance which very often was available as part of a job package. If it wasn’t, private insurance was reasonably affordable. When the large public corporations came to delete jobs to line their pockets with quick short-term gold by sending the jobs overseas, they did way with this. Many jobs that were left came to not be able to afford to provide it, and so eliminated it from the benefit under the jobs that remained. Probably the public sector jobs are the ones that more often provide health insurance now, and the private sector continues to shrink. Coincidentally all of this intersected in time with the miraculous expansion in medical technology and medical ability with the necessary attendant costs in discovering, producing and providing that expansion of miraculous detection tests and treatments. So a lot of average Joes now feel that if American Business doesn’t give a damn about me, is going to send my job overseas, is going to get rich of the taking of my job, produce an economic environment in which I cannot afford to get insurance to care for damn my family, then I am going to want you to pay for that medical care through the govern via your corporate taxes. And given the misconduct of our major corporations, it is a bit difficult to morally argue with that reasoning.
[3] A man named Lou Dobbs is on CNN. Were I ever asked publicly my opinion of him I would say that he is a brilliant thinker who think about ten ahead of everyone else. I have passed through his show period over the years and listed to him warning about the race to the bottom.
[4] They have 4.25 times the people we do. 1,300,000,000 to our 304,531,000. So shutting the U.S. down for the sake of the world environment won’t solve that problem either.
[5] An aside on security. The U.S. prevailed in WW2 by converting its factories to make war materials. And all of Chinas present and coming factories, with their accumulating skills and technology, can also be retooled in like manner. While the U.S. factories and workforce skilled in manufacturing and technical production declines. If push came to shove in a decade or two, guess who be in a position to push harder.
[6] It could be that a new federal level administration which is more predisposed toward socialism as a solution could seek to solve the problem by submitting the U.S. to the U.N. under a world income redistribution in exchange for certain debt and economic guarantees.
[7]The cornerstone of conservative capitalism is that the risk-takers keep their winnings, but also keep their losses. Just like at the dog track. Let the super-rich who invested in huge things like hedge funds and kept their stunning profits during the good years, take their own loses. Let them have to shovel more money into their company to save their investment when it is in trouble. Today’s idiots in Washington do not see the enormous danger of taking from the poor to carry the rich through their temporary crises. These people also own the credit card companies, which charge the average folks exorbitant interest rates on the basis of risky credit ratings, and assess huge penalties for late payment. If the politicians knew how to think like that, instead of bailing out huge funds with favorable rates they would hit them with the same exorbitant rates and penalties that everyone else who does not keep their house in order is hit with. Being able to get into trouble, be bailed out, and not even have to pay a penalty, is socialism, except those at the top keep the rewards, with everyone else servicing it and underwriting it.
[8] Even government jobs are now shrinking, at least at the state level. Florida has twice cut state department budgets by 10% due to shrinking tax revenue resultant of the defaulting value of real estate. Sales tax revenue is also falling.
[9] They do not have our costs. We have built up a standard of living over the years, legislating social security, Medicaid, Medicaid for the older years, and Workman’s Compensation to protect the workers family from accidents during the working years. The cost of compliance with and litigation over sexual discrimination laws, age discrimination laws, product liability laws and damages, race discrimination laws, become part of the production cost of each items produced ad sold by a workplace in the U.S. Most of the countries taking over the manufacturing jobs do not have any of these costs.
[10] Some of these thoughts were passed on to me by my Arizona friend John Wunder.
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