Catchy Titles, The Goose That Laid The Golden Egg – and The Long Road Back


I was advised a bit ago that I needed to make great opening paragraphs, something to catch the attention of those who visit here.  I assume that means headlines, too.  It was good and sound advice.  Thanks, Lloyd.

When the message is grim, what constitutes an attention-grabber, though?. . .

I am not into alarmism, so I won’t go around yelling “The Sky Is Falling!”  Even if it is, what good would yelling do?  Better to just share thoughts and perhaps some of us will find common ground and a way forward.  My two sons are having to try to find work in this rotten economy, and so far it is not pretty.  I am free-lancing in mechanical engineering, and as closely as engineering is tied to manufacturing, that is not a nice place to be, not early in the year 2010.

And so, without further adieu, on with the post. . .

…This morning I found  Who Broke America’s Job Machine? by Barry C. Lynn  and Phillip Longman – at Washington Monthly, one of the Progressive sources I like, even though they go overboard a bit on slamming all things Republican or conservative.

The job machine is broken?  No Duh.  Go figure.

If it took this long for a non-MSM to figure this out, we are in bigger trouble than even the authors think.

But, more important,  there is more to it than the top-down activity the two authors point to.  That, of course, would be the Progressive slant on things: Big is evil.  Bigger is more evil.  Really big is heinous.  I am here to tell the readers/visitors here that it happened at all levels of our manufacturing economy.  The big boys get noticed, but – with 90% of new jobs always being created by small businesses and over 50% of our overall economy being small businesses – the real meat and potatoes of The Great Job Killing was on Main Street, not Wall Street.

Yes, as they point out, many companies were bought up.  I know.  I was working with companies who got bought up.  The buyers I was affected by, though, don’t show up among those the authors list: ITW and Triangle Industries.  Most people have never heard of them.

America’s job machine being broken – that is something that is off the map, as far as the authors are concerned, though, in my own experience and from my own observations, its seeds were planted long ago.  It didn’t start in the robber baron days of Rockefeller and Morgan.  There have been iterations then that separate the present from them.  The only continuity from that time is the mentality (that the authors did note) of the powerful wanting to be even more powerful.  No, the beginning was of its own making, after the war, and it had to do with the rise of the accountants.

Jobs had always been an outgrowth of any economy, yet were a feedback mechanism that – through a form of resonance or chain reaction – had the capacity to take an economy and turn it into a self-sustaining engine.  But the self-sustaining part of that engine was not a given; it could be killed off.  That is what happened, and it wasn’t the actions of a few at the top – although the GOP economic philosophy has certainly contributed to it.

The Beginning of the End

All this was obvious more than 15 years ago.  The direction things were headed then, if not halted, had to end up here, sooner or later.

The arbitragers of the 1980s started it (with groundwork laid by the accountants of the 1970s), thanks to REAGAN and the message he brought.  THAT part the authors got right.  And trickle down was never going to reach down to Main Street; it was all a scam, part of killing the unions, the real engine of the middle class.  It took another 10 years to pretty much have run its course, but it didn’t get noticed until the tech bubble burst.  Overlooked by Lynn and Longman is how important an engine is the American consumer, and the part that the higher union wages played in driving the most prosperous economy the world had ever seen.

Products are only made when there is a market.  A market doesn’t exist unless there is money in the hands of some number of buyers.  One could even arrive at a rule of thumb: The more buyers, the bigger the market.  The tricky part of that rule is the term “buyers.”  There were essentially the same number of people in 1950 as there were in 1938, yet the number of buyers had increased immensely.  Buyers are people with money, looking to spend it.  When there are buyers (money in the hands of people wanting to spend), there is a market.  Buyers seek out sellers, and sellers seek out buyers; where they collide, that is a marketplace.  And America was a marketplace like none, ever.  The world was in awe of America, because of that marketplace where everything could be bought, where everyone seemed to have money to spend.  (Yet it was also a time when a great deal of saving was going on.  Buying and saving – it was an almost perfect blend.  But not forever…)

The Role of the Unions – Perhaps the Worst PR People in History?  One Wonders. . .

One of the things overlooked in all the economic histories of the 20th century is how important a role was played by unions, in terms of putting more money into the hands of more people.  The free-marketeers look at everything from the perspective of the oligarchs and the wealthy.  Their perspective always read into it that unions were (yes, pretty much past tense, now) parasites – takers who gave back as little as possible (hence all the nightmare anecdotes about union workers in plants who wouldn’t lift a screwdriver/hammer/wrench/screw because it was against union rules).

But the real truth of it is that the height of the unions was also the height of American prosperity.  The mean per capita income in 1968 has been in decline ever since.)  Much of that prosperity overflowed into the coffers of the corporate moguls than any time in their lives, including the boom times of the 1920s.  More people having more money meant more sales, and the corporations were expanding hand over fist.   The American consumer was the Goose That Laid The Golden Egg.  The good times were rolling.  But that wasn’t good enough for the oligarchs.  They looked at the wages being paid and saw it as money stolen from them at the point of a government gun.  Beginning in the early 1970s efforts were undertaken to reverse all that, and over the course of the next 40 years those efforts pretty much succeeded.  Number one on their list targets was unions.   Unions drove other wages up, so even non-union plants were paying more and putting more money into the hands of workers.  All of that was good for the overall economy, but the oligarchs couldn’t see that some of that money was coming back around to themselves.  All they could see was the wage differential, which they saw as money they had never had to pay out before.  They wanted that money back in their own pockets, not the pockets of their workers.

One of the other outflows they didn’t like was in benefits packages – primarily in retirement funds.  That will be dealt with farther on in this post. .

The Road to Oblivion

So, how did we get from 1968 to now?  How did we go from American consumers being the engine that drove the world economy to the present, in which the job economy is broken?

The programming was step-by-step.  First they had to get us to buy what we hadn’t earned enough to pay for.  Then they had to get rid of the credit limits on cards and loans.  Then they had to have the MSM convince us that union workers were a bunch of parasites.  Then they had to get us to believe that our kids shouldn’t be working with their hands; manual labor, even skilled manual labor,  was dirty.  Underlying it all was the “American Dream” of “everybody should own their own house.”

“The Bean Counters are Going to Be the Ruin of us All”

In business, it all began – certainly by the 1970s – with the idea that accountants could make more money for manufacturing plant owners by manipulating funds, and that taking the long view was pretty stupid.  Many a person in that decade declared that bean counters were going to be the death of us all. Every one of them was right.  Engineers, who had built the American manufacturing juggernaut, were increasingly excluded from companies’ inner circles, because what did engineers have to do with moving money here or there?  (It didn’t matter that most of the Fortune 100 companies were built up to that level by engineers,  investment in R&D, and new products.)

All the consolidation talked about in the article was a later-comer to the picnic.  First it had to be beaten into the American manufacturer that the quick buck was better than the slow grind of actually making their product.  The move in retirement plans from profit sharing and other entitlements (necessary in the 1950s and 1960s just to entice workers, who at that time were the engines of profit) brought on an increased knowledge among owners of the power of large sums of money – the money that was just sitting there, waiting for workers to get old.  Those large entitlements were also money out of the pockets of the owners, so devices had to be invented and popularized, with which the owners could get out of the cradle-to-grave business on behalf of their workers – and to get hold of those massive amounts of funds.  And the accountants were exactly the people to do it, to show them how it could be done.  Retirement plans by the late 1970s and early 1980s were replaced by IRAs, and later on, 401Ks.  And the onus of running those fell not on the businessmen, whose accountants could maximize ROI, but on the individuals, who had no sophistication or knowledge of how to do anything but what their parents had done: Put money away in something “blue chip” and let it do its thing.  And the “smart” thing to do was to diversify.  But since individuals had no expertise in even picking one stock, placing hedge bets was way over their heads; they all needed help.

Enter the money market managers, who found themselves with billions and billions of dollars to play with.  These were more accountants, the ones who really drove the race to the bottom, while stuffing their pockets to bursting.

The excess money that had been sitting in corporate coffers was now freed up to chase whatever higher stock was hot for the moment.  The days of money manipulation began in earnest.  The idea of getting something for nothing (as opposed to producing something people wanted and going through the gymnastics of connecting buyers and product) began to take off.

How the Stock Market Distorts Business – and not in a nice way…

And no one was more affected by that dynamo than business CEOs.  Once money started chasing short-term gain with a vengeance, corporate boards began to hold CEOs accountable for each quarterly report being rosier than the last.  Once that kicked in, CEOs couldn’t take the long view anymore, even if they wanted to, even if it was better for the company in the long term.  Considerations for the workers and the community went right out the window.  The power shifted to stock owners, and they enforced it with a vengeance.

But who were the stock owners?  With money market funds, owners were anonymous, and were anything but Mom and Pop plopping down savings in blue chips.  Blue chips had to contend with start-ups and their rocketing short-term profits, so blue chips became passé.  When money market managers used their increasingly sophisticated programs to decide what to buy – and (most important to the process of killing the American juggernaut) when to sell.  The actual buyers and sellers became not people, but programs.

American business power passed from manufacturing owners to CEOs to accountants to money market managers to stock trading programs.

The programs are not people.  Like the recent SCOTUS decision, people have long been declared to be superfluous.  That decision is actually behind the times.  Effective ownership of all publicly-traded companies is now in the hands of computer programs.  Trigger points have been set – originally by humans, but certainly by now it is now in the hands of the programs themselves, to make decisions on what stocks to buy and sell, and now even to set the buy-and-sell points.  Humans take little part in the process, other than to take credit.

Those trigger points decide where money flows.  And where money flows, CEOs are happy – because “stock owners” are happy.  And money market managers are happy because their creations are making money for their “customers” – supposedly Moms and Pops all across our great land.

But, as Elizabeth Warren has shown us, savings in America is essentially zero percent (down from 11% in about 1970).  So, who owns those stocks then?  Corporations do.  Anyone and any THING (sorry, SCOTUS, but I still insist on calling corporations “things”) can buy into money market funds.

So now we have a situation where corporations are investing in each other, in order to grab quick profits and then get out.  They have cannibalized each other, and they continue to, to this day.

Jobs?  We don’t need no stinkin’ jobs!

The American worker – excess and unwanted baggage (even though our buying was the true engine that drove it all) – is now the bum in the back alley, with skills that aren’t really wanted, skills for jobs that the corporations only begrudgingly offered in the first place.  Jobs are the first things to go, when the money flow heads elsewhere.  “Trimming the fat,” it is called.

Who needs workers, when the salaries and wages can be better spent “investing” in some other sucker company that still hires people?  And since there are so MANY “other companies” in the world, why not invest in those where labor is cheapest, where profits are highest, and things like OSHA and EPA don’t apply (and don’t cut into profits)?

The only thing really understood here is that it will be a long, long time before things are ever really good again.  One could argue that America’s time has come and gone.  One would certainly hope not.  There will be islands of prosperity, in fluff industries mostly, still selling American elan or playing off the American idea of strong individualism with slick ads and hot chicks.

We are still on the road to the bottom.  We will not know when we have gotten there, not until some time after we are on the way back up.  <i>If you have to ask if you’ve reached the bottom, you haven’t gotten there yet.</i>

But the way back up?  That is for another post.  I DO actually have thoughts on that, and I see others out there getting a glimmer of what it will take. . .

Steve


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