John Key, in yet another triumph of hope over experience, maintains that we’re on an economic roll. There are some minor problems with Mr Key’s super-optimism. Not unlike the now abandoned “catching up with Australia” pledge, or the “Working for Families is communism by stealth” backtrack.
Over 50 years of voting I’ve been a swinging centre-right voter and a supporter of capitalism. I’m a slow learner. I didn’t notice that the system that once worked very well is now absolutely broken.
When Henry Ford invented the production line and started churning out Model T cars in vast numbers, he concluded that if he wanted to create an economic and transport revolution he needed to ensure that his car was affordable. More specifically, he had sufficient insight to realise that success depended upon the people who built the car being able to afford to buy it.
For several decades this was understood by economists, money managers, reserve bankers, and capitalists. For the market to work successfully ordinary workers had to be sufficiently well paid that they were empowered to be consumers. It’s no use producing vast quantities of junk if nobody can afford to buy it. Trouble is, sometime in the last 20 or 30 years they’ve forgotten the basic message. The ratio between the incomes of the top earners and the average worker has increased enormously, but for 10 or 20 years the inflation adjusted wage of the average worker hasn’t increased. The top earners are nevertheless creaming the system more and more with every passing day and they’re apparently oblivious to the fact that they’re strangling the golden goose.
In 2010, the average annual wage for U.S. workers in production operations was $33,770 while the average CEO pay in S&P 500 companies was $11,358,445. CEO pay was 336 times more than the average employee.
The Wall Street crowd and their cronies around the Western World are sucking more blood out of the system than they were before it all turned pear-shaped in 2007-8. Before your money bailed them out. It’s unsustainable.
The left-wing Institute for Policy Studies found that the CEOs of the job-cut companies on average took home nearly $12 million in 2009, above the $8.5 million brought in by the average CEO of an S&P 500 company. The study found that 72% of the announced layoffs came at a time when the company was reporting positive earnings.
“This reflects a broader trend in Great Recession Corporate America: squeezing workers to boost profits and maintain high CEO pay,” said the study.
The growth occurring in the US and elsewhere is a jobless recovery. How does China remain an engine for growth when the people who buy their products have empty wallets? Sure, they can generate some internal consumption from their massive surplus, but that won’t last long when their own individuals and local authorities have been indulging in a borrowing spree which has created a massive real estate bubble. Negative equity is knocking on China’s door too.
For 2 or 3 decades the underpaid workers in the Western World have been borrowing to buy stuff that they previously could afford to buy for cash, or that didn’t exist, or that they chose not to buy. Now those people are pulling up the drawbridge. Countries like China and Germany who have relied on manufactured exports for growth are heading for a train wreck.
Millions of people around the world have lost their jobs and their homes. The rich are getting richer after the system that feeds their greed was bailed out using the taxes of those who’ve been destroyed. A revolution is overdue and I suspect that it’s coming.
From the horses’ mouths
The Wall Street Journal and Forbes Magazine are hardly bastions of Liberalism, nevertheless they can spot a trend when it hits them in the eye.
As you can see from this graph from the WSJ, the rich are doing OK. In 1965 they earned, on average, a mere 24.2 times the average employee’s income. In 2009, long after the recession hit, it was 185.3 times, and if you check this link at Forbes magazine, you’ll see that the thin red line is now on the rise again.
These people just don’t get it.