The Economy Stupid

I believe the year was 1992 when the campaign slogan of the day between every day people was, "its the economy stupid" George Bush senior thought he had enough to win the election based on his wartime success. As we know now he was very wrong and the wretched Clinton presidency began. So todayI wanted to take a minute to share some thoughts and statistics on our economy.
I am by no means an economist. I have taken some classes in college, but I am no expert. Most of the information that I am going to include came from an analysis done by a Harvard professor that was featured on 96.9 FM WTKK. It was on the Jay Severin show which airs from 3pm-7pm Mon-Fri. This is a synopsis of his analysis that I found profound.

The economy can be broken down in two distinct sections. The first being post WW2-1975 and the second being 1976-present. In the first period you had steady wage growth. This meant that the salary that someone retired with would be at least double and then some. Also a middle class family could survive with one income comfortably. The greatest generation also had CEO's that earned on an average 20-40 times more than Joe worker. The stock market grew maybe 2-3 times what it was post WW2 by the end of 1975. This is a stark difference to what happened in the second period. Wages have been stagnant for workers. The stock market has grown about 8 times. The CEO's now earn 250-400 times more than Joe Worker. Today most families need two incomes to survive. Now there are things that stand out today that was not there during the baby boomer years. Today we have a different view on what we need to survive. This drastically alters things within todays families financially.

This was basically the focus of the hour long discussion. Of course this is a greatly shortened version of a very informative dialog. I use this as a basis for what I feel is a major problem within our economy. Which coupled with other factors is a cause of great concern.

Wall street looks at a company, any company. For an example I will use Hewlett Packard. Last year HP earned over 100 billion dollars. Wall Street looks at this and says ok great, you made your numbers. A decent boost in stock price is normally the result. Here comes the question, " What next?" Wall Street then sets the expectation, which is largely unrealistic most of the time. There are those who say, well thats capitalism and free market practices at work. As mentioned though look at the numbers and the data. Has this process been working for the US economy? Can Wall St. always expect growth out of certain companies and certain markets? If the next year HP post numbers that stay the same, what is wrong with that? Well normally there is a negative associated with that, and it usually comes in the form of a stock decrease. This constant pressure always forces companies to cut costs to make up for the stagnant growth. At this point in time the place to cut is here in the US in the form of lost jobs. The labor and now a growing portion of the design is being farmed out to third party companies. Do not get me wrong in order for a company to stay healthy you need to have an eye on expenses and cut when necessary. The data bears out though that we have cut to deep. Wall St. in my opinion has to much influence over the US economy. So much so they are creating the so called bubbles that pop from time to time.The housing bubble is a classic example of this. The current rate cuts are another example of Wall St. ability to influence the FED. According to many economists these practices will only cause more pain in the long wrong. By not letting the cycle complete naturally they introduce unpredictable variables that cause unpredictable consequences. I like to compare this process to a great big ponzi scheme. For some that do not know what it is, let me explain.
A ponzi scheme starts out with a product or service that is sold. The idea is for one person to get three, and those three to get three, etc. etc. to infinity. The problem is mathematically not everyone can make money from this scheme. The growth is unsustainable the more people get involved. The same is true for the economy. The desired growth is unrealistic, and throughout corporate america people are rewarded for the cuts that are made. The biggest cut going to the CEO at the top. As we see there is not that much left at the bottom.

I do not know the best way to approach this problem as I am not an economist. I simply state what the numbers are showing and state what I see. Hopefully we can come to the same sort of conclusions and resolve some of these issue. By no means is this the only problem today.

Tomorrow I will discuss the impact that illegal immigrants are having on the economy. Tomorrow- The Mexican Connection