The biggest export from America? The middle class. The tradeoff for cheap goods and financial cronyism is coming back in a big way.

There is always a tradeoff in economics.  The adage about a free lunch comes to mind to the rise of low wage capitalism in America.  It is a complicated web driven by financial cronyism and a system largely driven by ignoring the plight of the working class.  The story of US manufacturing is probably one tiny example of how we exported our middle class in exchange for cheaper goods and a massive amount of income inequality at the top.  Yet there is a winner here as well.  While the US middle class is shrinking the middle classes of China and India are growing and so is our income inequality.  This trend tends to grow the economies overseas but has placed a large burden on the unskilled and working class in the US.  This is possibly an inevitably given the global nature of our markets.  When you get addicted to low cost goods, you may find yourself in a race to low wage capitalism.  In the US and Europe people would not take on the jobs that pay near wage-slave levels and have terrible working conditions in countries that are now booming.  While the top wage earners in the US are doing fantastic protected by Wall Street and Washington D.C. (many are diversified across the world), those who get paid in US dollars and come from the working and middle class are having a tough time adapting.  The tradeoff has been coming home to roost in a big way.

A low wage bias     

While the recession ended in the summer of 2009, the jobs that have been added since then have largely tended to favor low wage employment.  Hard to export cashiers and food service workers (although the industry is getting closer to automating those jobs as well).  Nothing happens at once.  The gradual erosion of the working and middle class goes back a generation.  So it is no surprise that this recovery has largely been one of low wage employment.  This is why young American workers are in such a tough position with student debt, wages, and being able to purchase a home.

The low wage hiring bias is evident:

Low wage jobs

A large amount of hiring has come in the form of lower paying and temporary work.  You might say this is simply the modern way of things.  Yet the massive financial bailouts during the crisis have protected the financiers of Wall Street to the point that they are fully recovered.  The crisis occurred largely because they systematically gambled America away by creating instruments of debt to implode the economy.  Some hedge funds actually made wealth by betting America’s economy would fail and encouraged the pushing of additional bad mortgage debt to increase their gains when things went bust.

The problem of course is that we have a system where austerity is the new game in town for working and middle class Americans while the financially connected get to fail and put the bill on those who least can afford it.  Take a look at the drop in manufacturing jobs and the growth of our financial sector:

us manufacturing and finance jobs

In 1960 you had roughly 8 manufacturing jobs for each one in finance.  Today this is less than 2 manufacturing jobs per each job in finance.  In the real economy, we still purchase goods that have to be made (i.e., cars, real estate, etc).  Yet we have a giant industry that for the most part, is rent seeking.  Is high frequency trading making things better?  What about the crazy unrestricted derivatives market? With real estate most of the recent sales are going to investors.  In other words, the shifting of current real assets in the world into the hands of fewer people.

Even in the once stable construction field, we see weak job growth in spite of a booming real estate market.

us construction jobs

Why?  Because most of the trading is going to investors looking for deals, not new families pushing for new demand on new homes.  New home sales are still weak.  Of course that should be expected when the typical American worker is making something like $27,000 a year and the median household income is $50,000 a year.  Adjusting for inflation, this is now back to levels last seen in the 1980s:

median household income

The tradeoff has been tough but people like cheap goods.  It is easy to offshore this development and have workers on the other side of the world work for menial wages so people can buy cheap goods. Yet at a certain point, the market hits an equilibrium and the pain comes back home.  Once this happens it can be very quickly as we are seeing now with the middle class being hollowed out.  At least we’ve done a good job exporting our middle class outside of the US.

RSSIf you enjoyed this post click here to subscribe to a complete feed and stay up to date with today’s challenging market!

TAGS: , , ,




5 Comments on this post

Trackbacks

  1. Michael Baron said:

    Without getting into the underlying motives of why this has all happened, this article really does a great job of explaining what did happen and what is happening.

    January 18th, 2014 at 7:21 pm
  2. Dave Mowers said:

    “America!” …”Because Socialism is Awesome for Rich People!”

    January 19th, 2014 at 11:25 am
  3. Ngallendou Dièye said:

    Hey, you skilled middle class workers in USA. Come over here. The globalist bankers have transferred to us your gold, your jobs and your markets. We speak pretty good English and understand ‘Merkan. If you become a citizen, then you will have preference in jobs because of your greater experience and social conscience. Prices are still a lot lower here, so your earnings will go a lot farther. We even tolerate Christians, and we hang the kinds of perverts that recruit in your government schools. The past was yours, the future is ours. Come join with us before the Russians and Chinese finish you off.

    January 19th, 2014 at 11:29 am
  4. Arthur Patriart said:

    At some point, a massive re-redistribution of wealth will be demanded. Maybe by force if necessary. Eventually the pendulum reaches a maximum and reverses.

    January 19th, 2014 at 2:23 pm
  5. Roddy6667 said:

    When America was the only country with the know-how and equipment to manufacture a product, we had the market cornered, for both export and domestic use. As soon as anybody else got the machinery and the operating skils to make something, the game was over.

    January 21st, 2014 at 11:56 pm

LEAVE A COMMENT

Subscribe Form

Subscribe to Blog


Enter your email address to receive updates from My Budget 360:

100% Private & Spam Free.



Popular – All Time

  • 1. How much does the Average American Make? Breaking Down the U.S. Household Income Numbers.

  • 2. Top 1 Percent Control 42 Percent of Financial Wealth in the U.S. – How Average Americans are Lured into Debt Servitude by Promises of Mega Wealth.

  • 3. Is college worth the money and debt? The cost of college has increased by 11x since 1980 while inflation overall has increased by 3x. Diluting education with for-profits. and saddling millions with debt.

  • 4. The Perfect $46,000 Budget: Learning to Live in California for Under $50,000.

  • 5. Family Budget: How to go Broke on $100,000 a year. Why the Middle Class has a hard time Living in Expensive Urban Areas.

  • 6. Lining up at Midnight at Wal-Mart to buy Food is part of the new Recovery. Banks offering Mattress Interest Rates. The Invisible Recovery Outside of Wall Street.

  • 7. You Cannot Afford a $350,000 Home with a $75,000 Household Income!

  • 8. Crisis of generations – younger Americans moving back home in large numbers. Student loan default rates surging largely due to for-profit college expansion.

  • 9. The next massive debt bubble to crush the economy – 10 charts examining the upcoming implosion of the student loan market. $1 trillion in student loans and defaults sharply increasing.

  • 10. Welcome to the new model of retirement. No retirement. In 1983 over 60 percent of American workers had some kind of defined-benefit plan. Today less than 20 percent have access to a plan and the majority of retired Americans largely rely on Social Security as their de facto retirement plan.
  • Categories



    wordpress stats