Posts Tagged ‘Wages’


This morning I had coffee with a friend who’s a CPA, and we talked for over an hour about the economy, and especially about how those of us who work for a living are getting screwed. There are almost innumerable ways — pick an area, any area — but for now we’ll stick to the purely economic. Here are few of the things we talked about:

  • Dividends and capital gains (basically profits from selling stocks and bonds) are only taxed at about half the rate of money earned through work. If you work for a living in the USA, you’re probably paying about twice the amount of income tax (as a percentage of income) as a trust fund kid who’s never worked a day in his life.
  • If you work for a living and have to spend all, or nearly all, of the money you earn, you’ll pay a much higher effective tax rate on the necessities of life than wealthy people. Here’s why (to keep things simple, we’ll only talk about sales taxes here): If you live in an area with an 8% sales tax rate, make $2,000 a month, and spend $1,000 of it on such things as clothing, food, car parts, and beer (mustn’t forget the beer), you’ll end up paying 4% of your income in sales taxes. If you’re a trust funder with an income of $20,000 a month from dividends and capital gains (i.e., income not derived from useful work), and similarly spend $1,000 on clothing etc., your effective tax rate on those necessities will only be .4% of your income — one-tenth the rate of a $2,000-a-month wage earner.
  • If unemployment is low, and wage growth starts to outstrip the rate of inflation, the Federal Reserve Board will raise the prime rate to create more unemployment and keep wages down (as it’s doing at present). How does an increase in the prime rate do this? It “cools the economy” by making it more expensive for businesses to borrow and then spend the borrowed money on new facilities, machinery, or wages for new workers. It also raises the cost of consumer borrowing, especially as regards home mortgages. And the higher the mortgage interest rate, the fewer mortgages are taken out; this puts a damper on new construction and so decreases the number of construction jobs and also jobs in the industries that supply construction firms. Hence “economy cooled” and wages held down.
  • If you work for a living, have little or no savings (as is typical), and have to borrow money for a medical or other emergency, you’ll likely do so on a credit card, on which you’ll be paying sky high interest, probably in the 15% to 20% range, if not higher. If you’re wealthy and decide to borrow money, you’ll likely pay an interest rate in the low to mid single digits.
  • Under Trump’s much vaunted tax cut, 83% of the benefits go to the wealthiest 1% of Americans.  The rest of us get crumbs and will have to pick up the tab in fairly short order, in the form of goods-and-services price inflation and higher interest rates on credit cards and mortgages. In essence, Trump’s tax cut is a massive wealth transfer from those who do useful work to the ultra-rich, who don’t. (Disgustingly, some working class people are happy to scarf up crumbs and lick their masters’ boots and grovel like dogs.) And if you think giving the rich ever more money is somehow a good idea, that’s been de facto federal policy since the time of Reagan; and how has that worked out for you? Yes, it has! Good boy! What a good boy! Lick up those crumbs! Good boy!

I could go on, but won’t.

To put it simply, the economic deck is stacked against those who work do useful work, especially those who do useful work, won’t exploit others, and have some self-respect.

 


Back in the ’80s, a friend told me, “If you really want to know what’s going on, pay more attention to the business pages than the front page.” By and large, he was right. I’ve been following business news for decades, because it’s often refreshingly forthright about what the multinationals and their minions in government are up to, and what they’re planning to do to us.

That’s often so, but not always. Business reporters sometimes use the same types of euphemisms, propaganda terms, and code words as politicians.

Which brings us to the topic at hand: “wage inflation.”

These seem to be the code words of the week on CNBC’s “Nightly Business Report,” where the hosts and correspondents tend to use that ominous sounding term (rather than the more honest “wage growth”) to explain why the Fed is going to raise interests rates — probably more than once — this year.

But what does “wage inflation” actually mean? It means that unemployment is low; that wages are going up faster than the rate of inflation; that it’s relatively easy to find a job or dump a loathsome one and (hopefully) find a better one; that rising wages will increase demand, which in turn will spur creation of new businesses and expansion of existing businesses to meet that increasing demand; and that that growth spurred by increased demand will lead to something approaching full employment and even higher wages.

Sounds pretty good, doesn’t it? Well, it is — for most people.

But not for the multinationals, big banks, their executives, and their shareholders. Why?

In theory, we have an economy based on competition. In many areas that’s no longer the case — think utilities, Internet providers, “defense” suppliers with cost-plus contracts, agribusiness subsidies/”price supports.” These monopolistic entities can simply pass along the cost of wage growth to customers, because customers have little if any choice.

But there still is competition in some areas of the economy. There, wage growth corresponds to lower profits. Why? When they have choice, customers will generally buy the lowest cost product or service. As well, importantly, there are two primary places where businesses can cut costs to remain competitive: wages and profits. (They can also cut corners, using for example inferior components, but there tends to be blowback from this, sometimes quite quickly and quite severely.)

So, in competitive areas of the economy in times of full or near-full employment and rising wages, there’s only one place where there can be significant cost savings: profits — dividends to stockholders and the now-routine gross overcompensation to executives (which would otherwise go to stockholders).

That’s why there are alarmed cries of “wage inflation” and “the economy might ‘overheat!'” every time it even seems like there might be full employment (or something close to it) and wage growth.

This is why even though the GDP rose at a relatively modest 2.6% last year (slightly lower than expected), business economists and commentators were alarmed: wages rose at 2.9%, a full .3% above GDP growth and (gasp!) a full .8% above the rate of inflation, with the prospect of more wage gains as the economy grows. And we just can’t have that, even though corporate profits are at or near all time highs. (Second quarter 2017 profits were at 9.5% of GDP, with analysts forecasting 11% in 2018.)

So, what to do, what to do? It appears that the usual “remedy” will be applied this year and next: the Federal Reserve Board will likely increase the prime lending rate several times. The purpose of these increases? To slow economic growth.

How do rate increases do this? One way is that it makes the cost of borrowing higher for businesses, making them reluctant (or more reluctant) to spend money on infrastructure, on new physical plant. The other way is that interest rate increases make it more expensive for consumers to borrow money, the two primary places being higher mortgage rates and credit card rates.

Both of these things take money out of the pockets of consumers and put it into the pockets of the big banks and the credit card companies. Since consumers have less money to spend on actual goods and services, this decreases demand. Then, since the monopolistic (or oligopolistic) companies (think your lovely Internet or cable TV provider) are under no constraints not to pass along the interest rate increases, they’ll pass along the entire cost to the consumer, again decreasing the amount consumers have to spend on other goods and services, and again decreasing consumer demand (roughly 70% of the economy).

The end result? Decreasing consumer demand, a slowing economy, higher unemployment, stagnant wages, and continued sky high profit margins for the banks and corporations.

 

 

 


(For the last few months we’ve been running the best posts from years past, posts that will be new to most of our subscribers. This one is from January 2014. We’ll be posting more blasts from the past for the next several months, and will intersperse them with new material.)

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by Chaz Bufe, editor See Sharp Press

Let’s get one thing straight right now: I’m not questioning the good intentions of those who join the U.S. military. The vast majority almost certainly do so for very understandable reasons.

At the same time, respect for the individuals who comprise the military is not the same as worship of the military, which is almost a state religion in the United States. It’s nearly all pervasive, from Fox “News” to liberal pundits  (Rachel Maddow, Stephen Colbert, Michael Moore) to every craven baseball announcer (in other words, almost all of them). The reasons for this military butt kissing are obvious: 1) to create and maintain conformism with its us-versus-them mentality; 2) to confuse military worship with patriotism; and 3)  to make discussion of the size and role of the military taboo, “unpatriotic.”

But what of those who serve in that military? Why do they do so? And are they heroes simply because they do so?

The primary reason that most young people enlist is almost certainly that they’re economic draftees. Real unemployment (counting the “underemployed” and “discouraged workers”) is approximately twice the official rate of 7.0%. On top of that, the black unemployment rate is more than twice the rate of whites, with hispanics falling in between: 6.2% white; 12.5% black; 8.7% hispanic; with teenage unemployment at 20.8% (according to the Bureau of Labor Statistics). And the employment situation is in reality even worse than that: the percentage of adults aged 18 to 65 either working or actively seeking work is at a historic low, only 63%.

Then realize that wages in this country are so low that it’s nearly impossible even for those who have jobs to get ahead. Real hourly wages hit their high point in the U.S. in 1973, and have fallen about 15% since then; productivity per hour worked has doubled over the same period. And during the current “recovery,” a large majority of new jobs are low-wage jobs.

So, it’s virtually impossible for young people to work their way through college (if they can find jobs), and their families simply can’t afford to send them. The cost of college tuition rose roughly 300%, three times faster than the cost of living, over the last 35 years–far higher even than the increase in the cost of health care. As a result the percentage of college graduates in the 25 to 34 age group in the U.S. fell to sixteenth in the world in 2012, with the U.S. seeming to fall further behind with every passing year. And those who do graduate from college in the U.S. are often burdened with crushing debt well up into the tens of thousands of dollars–debt which, thanks to the U.S. Congress, they cannot discharge through bankruptcy.

So, is it any wonder that many “volunteers” in the U.S. military enlist simply because they have no good economic or academic alternatives?

The second reason Americans enlist in the military is that a great many believe that they’re “protecting America” or “protecting freedom.” But is this at all realistic?

The first and most obvious question here is “protecting” against what?

The U.S. has been the world’s sole superpower for over two decades, and has a military presence in over 100 countries and on all continents except Antarctica. Since the War of 1812, U.S. territory has been invaded exactly once: two remote Aleutian islands invaded in 1942 by the Japanese–twice if you count Pancho Villa’s border raid on Columbus, New Mexico in 1916. In the same period, to name only instances that immediately come to mind, the U.S. has invaded Mexico (seizing half of its territory), Cuba, the Philippines, Haiti, the Dominican Republic, Nicaragua, Grenada, Panama, Vietnam, Cambodia, Afghanistan, and Iraq. That’s some “defense” there, Bubba.

Who does this benefit? Certainly not the American people. The U.S. spends more on its military than the next ten countries combined; the U.S. military budget was $682 billion in 2013, and that doesn’t count the “black budget” nor veterans benefits nor interest on loans taken out to finance previous military spending. This means that the U.S. government spends over $10,000 on the military annually for every American family of four.

So, again, who does this massive military spending benefit? Certainly not American soldiers. They’re the ones in harm’s way (4500 dead in Iraq, over 2000 so far in Afghanistan–with tens of thousands physically wounded, and quite probably far more bearing psychological wounds: approximately 5,000 current or former members of the U.S. military commit suicide every year). And their wages are often so low that their families end up on food stamps.

The ones who benefit from massive military spending and military intervention are the transnational (not U.S.) corporations that have no loyalty to anyone or anything other than their bottom lines. The U.S. military essentially operates as security, as muscle, for these corporations as they siphon profits from the rest of the world.

The words of former U.S. Marine Corps Commandant, Major General Smedley Butler are still pertinent after eight decades:

I spent thirty-three years and four months in active service in the country’s most agile military force, the Marines. I served in all ranks from second lieutenant to major general. And during that period I spent most of my time being a high-class muscle man for Big Business, for Wall Street and the bankers. In short, I was a racketeer, a gangster for capitalism….

War is a racket, possibly the oldest, easily the most profitable, surely the most vicious… Out of war a few people make huge fortunes, nations acquire additional territory (which is promptly exploited by the few for their own benefit), and the general public shoulders the bill–a bill that renders a horrible accounting of newly placed gravestones, mangled bodies, shattered minds, broken hearts and homes, economic instability, and back-breaking taxation of the many for generations and generations.

How would you describe those whose lives and physical and mental health are sacrificed in such service? Or simply all those who put on the uniform? Heroes? All of them?

Those who indiscriminately use this term cheapen it; they use it as a propaganda term to stifle dissent. If all members of the military are heroes, their acts are also heroic. And who wants (or dares) to protest against those who order “heroic” acts?

Reserve the term “heroes” for those who deserve it–those who commit out-of-the-ordinary, genuinely heroic acts. The term simply doesn’t fit all those who are cynically used and discarded by the government and the corporations it serves.


WAGE LABOR, n. 1) Death on the installment plan; 2) The process by which those who work enrich those who don’t.

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–from the revised and expanded edition of The American Heretic’s Dictionary, the best modern successor to Ambrose Bierce’s Devil’s Dictionary


“[T]here must be human work before any article of wealth can be produced, and, in a natural state of things, the man who toiled honestly and well would be the rich man, and he who did not work would be poor. We have so reversed the order of nature that we are accustomed to think of a working man as a poor man.”

–Henry George, The Crime of Poverty

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Quoted in The Heretic’s Handbook of Quotations

Front cover of "The Heretic's Handbook of Quotations


INVERSE RELATIONSHIP, n. The normal relationship between the usefulness of work and pay for it.

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–from the revised and expanded edition of The American Heretic’s Dictionary, the best modern successor to Ambrose Bierce’s Devil’s Dictionary