It showed things getting better, but that is not a surprise given the economy has been up. I prefer to look at comparable years, at the same point in the economic cycle. Unfortunately, single-year data for 2007 was not available for NYC on American Factfinder, but I was able to get three-year data for 2006 to 2008 as a proxy. It shows New Yorkers are working more than they had been a decade ago, but they are paid somewhat less. Poverty is down and household income is up, however, because they are packing together, with more workers per household.
Since stock prices had fallen for a few days before a partial recovery on Friday, some might think they are now low. They are not low. They are sky-high, having been inflated to bubble levels by a decade of near zero percent interest rates.
The Federal Reserve has been trying to normalize interest rates, and as a result the 10-Year U.S. Treasury Bond now yields a still-low but closer-to-typical 3.16%. When interest rates were rock bottom, there was a lot of talk about the “Fed Model,” which holds that stocks are fairly valued when the dividend yield – the actual cash return on stocks – equals the yield on a 10-year U.S. Treasury Bond. Well, the dividend yield on the S&P 500, after the recent price declines, was 1.92%. To get that dividend yield up to 3.16% to match the current U.S. Treasury Bond yield, the stock market would have to fall by 39.2% from current levels. But the historic average dividend yield is much higher at 4.35%. To get the dividend yield that high stock prices would have to fall 55.9%.
There was, at one time, an idea that vulnerable and shortsighted people needed to be protected from themselves. Credit card interest was limited by usury laws, to prevent people from borrowing themselves into debt slavery, and to discourage lenders from inducing them to go there. Relatively easy bankruptcy laws further discouraged lending people more than they could pay back. Gambling was confined to lotteries, church bingo games, and Las Vegas – everyone could do it, but they couldn’t do too much of it, because it was inconvenient. And for almost everyone, gambling was cash only. Alcohol was legal, after the failure of Prohibition, but excess consumption was discouraged by temperance measures and restrictions on advertizing. Other recreational drugs remained under prohibition, and the advertisement of prescription drugs was prohibited to discourage unnecessary and ineffective consumption. Pornography was rare, and prostitution kept out of sight.
Over the past few decades, however, more and more of those protections have gone away – even as the social safety net has been cut as well. One argument for this is “freedom” — let people make their own choices, and suffer the consequences, regardless of the advertizing indoctrination and social engineering foisted upon them. A second argument is “harm reduction.” Certain people are going to behave in a shortsighted and self destructive way, but it is better to make this legal and out in the open to limit the damage, rather than leave such people in the clutches of loan sharks, drug dealers, numbers runners and pimps. I believe, however, the main driver of this trend is the desperate search for state and local government revenues. In an anti-tax environment in some states, and with retroactive pension increases and debts causing costs to soar in others, there is a desperate search for someone who could be made to pay the price, without anyone else caring. The shortsighted and vulnerable have thus become the target.
With Labor Day recently having passed, we got the usual round of stories decrying U.S. inequality, and blaming the decline of unions, the advance of technology, and/or the export of jobs to low wage countries for the fact that the average wage continues to lag behind inflation, as it has for decades. Meanwhile, the U.S. current account balance (the trade deficit plus investment and other flows) continues to be deep in deficit, as it has also been for decades, something President Trump blames on unfair international trade agreements and unfair trade by countries such as China, Mexico, and the European Union. As a result, the Trump Administration is launching trade wars with countries all over the globe. The only import he seems fine with is imported oil, which fuels terrorism and increases greenhouse gas emissions but also allows cheap gasoline.
But if U.S. workers are being paid less and less, to whom are businesses selling in order to make profits? Workers and consumers aren’t two different classes of people; they are the same people at different times of day. And if the U.S. has been importing more than it exports for decades, and has for decades had a financial deficit even when U.S. earnings on investments abroad are taken into account, then how have those imports been paid for? The answer to both those questions is the same. By having Americans, individually and collectively through the government, go deeper and deeper into debt and sell off more and more of our individual futures, and our collective future. Rising debts, public and private, are what allows businesses to pay workers less and yet sell them more, and imports to be paid for without exports. Neither could occur if debts were not rising, and if future retirements were adequately saved for.
It’s a financial house of cards disguising a global crisis of demand, one that would have collapsed in 2008 absent massive government intervention to bail out asset prices and the rich. None of the real problems have been solved since, only deferred at a cost of shifting some of the private debt to the government — just as the Baby Boomers have started to retire in large numbers.
I worked in capital budgeting for New York City Transit in the early 2000s, and was shocked to see the price of capital projects soar — despite a recession. The MTA’s construction costs have continue to soar ever since, contributing to the agency’s $41 billion in debt and deteriorating infrastructure, and this has become a political issue since the New York Times series on the decline of the subway late last year. Recently, MTA head Joe Lhota promised to implement reforms to reduce those costs.
“On some projects the MTA has shelled out seven times more money than European transit agencies have paid for similar initiatives. Lhota said the agency is working to reduce red tape and the high risk that causes contractors to inflate their bids on MTA projects or not bid at all. In theory, increased competition would drive down costs.”
Or at least admitted costs, since “reducing contractor risk” means reducing the MTA’s ability to get restitution when the contractors fail to perform.
What I didn’t know back in 2004, but have since learned, is that the MTA’s contractors have been jacking up their bids in large part not to pay for current workers doing current construction, but rather to pay for the underfunded construction union pension plans. This is something the MTA isn’t talking about, because both the construction unions and the real estate industry, two of the most politically powerful interests in New York, each benefit from the shift at that private debt to the public sector in general, and the MTA in particular.
“You have to believe in facts. Without facts there’s no basis for cooperation. If I say this is a podium and you say this is an elephant, it’s going to be hard for us to cooperate.” — Barack Obama
It is amazing the way effect of decades of public policies and economic and social trends, all to the benefit of some generations at the expense of others, stays out of the news. Even as, anything, everything else is blamed for the situation so many people find themselves in. For the most part what you get is silence, and an attempt to change the subject to anything, everything else. People and groups who on the surface are at war with each other, and unable to cooperate, somehow all agree to keep certain facts out of the public discussion.
If you look closely enough, however, some cracks are beginning to appear in the Omerta. The fact that Generation Greed is leaving those coming after so much worse off hasn’t gone viral, but it is beginning to bubble up under the surface. The rest of this post will quote from some examples I’ve come across.
Over the past 25 years some types of Americans have become richer and richer, at the expense of others who have become poorer and poorer – to the point where average life expectancy is starting to fall. One might have imagined that at some point those who have been taking more and more would conclude that enough is enough, feel obligated to do more in return, and become concerned about the circumstances of others who are less well off. But that doesn’t seem to happen. Not among the richest generations in U.S. history, those born from 1930 to 1957, who continue to be completely focused on increasing their own share of the take. Not among the richest people, the top executives who sit on each other’s boards and vote each other higher and higher pay. And who anointed themselves “the makers” and everyone else “the takers” within two years of having been bailed out by the federal government, even as “the takers” saw their standard of living plunge, and then demanded another round of tax cuts that mostly benefit themselves.
And not among New York’s unionized public employees, particularly those working in its public schools, who have become the most politically powerful – and selfish – of all self-interest groups at the state and local level here. Power and selfishness seem to go together in part because no one dares to offend the powerful, by pointing out how much they have taken relative to everyone else, and the connection between others having less and them taking more. So they can continue to feel aggrieved, entitled, resentful, unobligated – and somehow demand even more without embarrassment. There seems to be no end to it. This post uses Census Bureau data to show how far it had gone, as of three years ago.