The end of work and the end of mass affluence: welcome to The Last Christmas in America (TLCIA).
As unemployment rose toward 10%, the January 1975 cover of Ramparts magazine blared: The End of Affluence: The Last Christmas in America. (TLCIA)
The government
responded quickly to unemployment, high inflation and rising budget
deficits: it started manipulating data to mask the politically
inconvenient realities of rising inflation, unemployment and deficits by
playing switcheroo with Social Security Trust Funds, inflation data,
etc.--games it continues to play to cloak reality from the media-numbed
public.
The Bear market, and thus the "real" recession, lasted 16 years: from 1966 to 1982.
Now statistics are echoing that last great recession: rising prices for
essentials, systemically high unemployment and stagnant wages.
We all know the
16-year recession/malaise had a "happy ending": huge new oil fields were
discovered in Alaska, the North Sea, West Africa and elsewhere,
ushering in a renewed era of cheap, abundant petroleum. President Reagan
"saved" Social Security for a generation by raising contributions paid
by employer and employees, and he heralded a "lower taxes, higher
permanent deficits" ideology that is now accepted as the norm: deficits
don't matter, even when they reach the trillions, because our good
friends the Gulf Oil Exporters and Asian exporters will buy all our debt
forever and ever, keeping interest low forever and ever.
(And if they drop
the ball, then the Federal Reserve will print money and buy the
Treasury bonds. Sweet! We don't need any external buyers, just the
Federal Reserve.)
Then the U.S.
created and launched two revolutionary technologies which both created
new wealth around the globe: the personal computer (microprocessor and
cheap RAM) and the Internet (TCP/IP, Ethernet, and the commercialization
of Tim Berners-Lee's World Wide Web with free browsers) spawning the
generation-long boom of the 1980s and 90s.
But when the
wheels fell off that boom in 2000, the U.S. did not create a new engine
of wealth: it opted instead for a devilishly insidious simulacrum of
wealth: debt which rose at an exponential rate throughout the economy.
Borrowed money
and phony financial legerdemain (mortgage-backed securities, derivatives
based on the MBS, etc. etc.) from 2000-2007 created what I have termed a
"bogus prosperity": no actual new wealth was created, only a brief and
doomed bubble of debt-based housing valuations was inflated which
followed the classic model set down by the Tulip Craze in Holland
hundreds of years ago: insane boom, crushing bust.
We have to revisit the early 1970s for a reality check.
In post-industrial America circa 1970, a huge surplus of food was grown
by a mere 2% of the workforce. The cornucopia of manufactured goods was
produced by about 20% of the workforce (hence the phrase
"post-industrial"), and other than essential government services like
the Armed Forces, police and the courts, the rest of society's work was
either service-oriented paper-pushing relating to affluence (insurance),
do-good selfless work (Peace Corps, churches) or leisure-related:
entertainment, films, travel, amusement parks, stereos, clubs, etc.
This was not all fantasy.
A friend of mine supported an entire house of hippies in late-60s
Pittsburgh on his union steelworker job, and had plenty of money left to
save for his trip to San Francisco. (As I recall, the rent for the big
old house was less than $200 per month.) Hippies were the first ardent
dumpster-divers/scavengers, driven not by poverty but by the idea that
since that our society generated so much waste and surplus, why bother
working?
As noted here
many times before, the purchasing power of American workers' wages
reached a plateau around 1973 and has been declining ever since.
One key point
which is usually overlooked when comparing "The Last Christmas in
America" circa 1974 and TLCIA circa 2012: the wealth distribution in the
U.S. was much flatter then. CEOs of financial institutions did not
earn $10 million each; there were no hedge funds with chiefs pulling
down $600 million each (yes, that was the average "compensation" for the
top ten fund managers at the hedgies' glorious peak), and even minimum
wage ($1.60/hour in the late 60s, I know because my wage stub recorded
it) bought far more goods (purchasing power) then than minimum wage does
now.
Not only was
gasoline cheap, but housing was far and away cheaper than it is today.
Just about any G.I./Vet could buy a house with his/her V.A. benefits (3%
down), and anyone else could scrimp and save for a few years and then
buy a house for 2 or 3 times their annual wage at an interest rate
around 6%.
Even in the the
most expensive city in the U.S. in terms of cost-of-living, Honolulu, I
was able to rent an old studio apartment in 1973 for $120/month--$525 in
today's dollars. My tuition and student fees at the University of
Hawaii per semester in 1971-75 was $117--$514 in today's dollars. Can
you find an apartment in a high-cost city for $500 and go to a four-year
state university for $500/semester (not including books of course)? No.
Was the state or Federal government running stupendous deficits to
provide this education? No.
Meanwhile, in
TLCIA circa 2012, obscene "compensation packages" are defended as "free
enterprise." Well, what did we have in 1973? Unfree enterprise?
Amidst all the ideologically convenient defenses of heavily skewed
"compensation," we have to admit that the dream of affluence combined
with leisure was based on the presumption of society's wealth being
distributed somewhat evenly, not by a Communist central state but by the
"free enterprise" system and modest common-sense government regulation
(limited work hours, overtime, minimum wage, etc.) which protected
employees from the excessive exploitation of the late 19th century and
early 20th century Monopoly Capitalists.
Now we face a future which might well be called the End of Work for up to a third of the current workforce.
Since agriculture employs about 2% of the workforce, industrial/factory
production about 11%, essential transportation and essential government
each a bit more, we have to ask: in an economy in which 70% of GDP is
consumer spending, how many jobs are actually essential? How much actual
wealth is being created/produced in the U.S. and sold overseas? Is
giving people with Medicare coverage 13 costly and often ineffective
medications and endless MRI tests actually creating wealth, or it mostly
squandering it?
We might also
ask: how much of the consumer economy is superfluous if wage-earners
shift values and decide saving is more important than consuming? How
many malls, storefronts, internet retailers, restaurants, fast-food
joints, etc. can a newly-frugal economy support? How many dog-walkers,
derivative salespeople, nail shops, carpenters, financial planners,
realtors, etc. does an economy need if the FIRE economy (finance,
insurance and real estate) is shrinking?
Based on the
tremendous size of the service/FIRE economy and government, I have
estimated that 30 million jobs out of the current 142 million-strong
workforce are superfluous (114 million full-time, 38 million part-time).
Many government positions are essential: police, meat inspectors,
rangers, tax collectors, meter maids, etc., but dozens of agencies could
be eliminated without any visible effect on the economy except to the
wage-earners who lost their jobs.
If 10 million
more jobs disappear, so do all the taxes those wage-earners paid; if the
5 million homes in the pipeline go through foreclosure, the inflated
property taxes the owners once paid will disappear, too. Once businesses
close, it's not just wages which disappear: all the junk-fees
governments levy disappear, too: the business taxes, the licensing fees,
the permits, transaction fees, etc.
Does anyone think
all these taxes and levies can fall and government employment will be
funded by some other source? Yes, the Federal government can borrow
money for a few more years at low interest rates; but soon, the surplus
money which has piled up in exporters' accounts will be gone, and the
endless borrowed trillions will actually start costing real money--money
that will be diverted from government employment to pay the interest on
all that wonderful debt everyone loved when they got a piece of it.
So how does a society deal with the End of Work when it also means The End of Affluence, even for many of those with jobs? How does government deal with declining tax revenues and rising interest rates?
The death
throes of the debt-based consumerist lifestyle are already visible
beneath the glossy propaganda of "rising revenues this Christmas
season."
The Fed is
desperately attempting to re-inflate the debt bubble by lowering
interest and mortgage rates and buying up all sorts of
semi-toxic/impaired debt. What the Fed dreads is the reality we all
feel and see: fear of the future due to diminished wealth and shaky
incomes. If your assets have been slashed, you feel poorer because you
are poorer. Borrowing more at any interest rate will not make anyone
feel wealthier.
People who fear
their income may plummet due to layoffs or their hours being cut are not
in the euphoric mood to borrow more, and banks which cannot dare to
lose more money loaning to people who will default have cut off credit
to millions of previously rabid consumers of debt.
And let's not forget that much of what is purchased in this frenzy is needless, superfluous crap.
My wife saves the most egregiously gift-buying-frenzy advertising
circulars, and one from Bed, Bath & Beyond caught my eye.
There is no difference between this "1001 Best Gifts" from BB&B and a parody of consumerist excess. Hmm, how about an "executive standing valet" rack of wood and plastic for $99.99.
To make this
poor-quality contraption, a forest somewhere in a Third-World
kleptocracy was cut down and precious, irreplaceable oil was burned
shipping the lumber to China and from that factory to the U.S. across
6,000 miles of Pacific Ocean.
We know this
spindly piece of garbage will break in a matter of days, weeks or maybe
if the owner is especially careful, months; then the legs will break
loose of the base, the towel bar will pull out, etc. and the "we cut
down a priceless rain forest to make this" piece of human handiwork will
be put on the curb where a diesel-burning garbage truck will haul it to
the landfill along with all the spoiled food Americans throw out.
The 16-bottle
wine cellar/cooler from China (labeled Cuisinart for your consuming
pleasure) for $199.99 might come in handy storing something once it's
unplugged--but a cardboard box will probably do just as well.
I for one will not mourn the last Christmas in America.
Good riddance to the flaunting of borrowed money and the heedless,
desperate purchase of valueless "goods" as gifts for an insolvent nation
awash in too much of everything but common sense, integrity, gratitude,
accountability and healthy living.
Article Source: ZeroHedge
Article Source: ZeroHedge