Beware of False Hopes on the Economy

One of the key areas of very critically needed reform that our economy seems to be heading towards is the area of income distribution.

In third world banana republics--where the economy is tightly controlled by a few rich oligarchial families and overall economic growth is fairly stagnant--the stereotypical scene is a great big white house of the rich at the top of the hill, below which is a mass of poor peasants holding pitchforks and lighted torches, aboutt ready to storm the hill.

A CORP PRESIDENT'S SALARY USED TO BE 200X AVERAGE WORKERS SALARY

A great strength of America has been the strong, solid middle class. A division of the American workforce used to show that the great majority of Americans made solid middle class incomes. A small percentage of entrepreneurs and talented managers who managed to reach the upper echelons of corporate America earned large incomes equal to perhaps 200 to 300 times the average worker's salary in his company.

So the president of a Fortune 500 company, where the average worker made, say, $40,000/year, the president of the company might make $8-12 million per year. But now the top 10% of our country make obscene incomes.

Right now, top corporate salaries and bonuses far exceed the standard of 200 - 300 the average worker's salarly. Indeed, bonuses are now being given, regularly, to Wall Street traders equal to $100 million and more!

Lawyers regularly charge $500 - $1000/hour. $1000 can buy you a quality plasma TV. Madness.

While half of all Americans are making minimum wage or just slightly more, with insufficient medical insurance and other basic benefits, we have an elite group who need to learn that the era of unconstrained feeding from the cornucopia is over.

A recent Wall Street Journal article pointed out that partners at elite law firms--who made yearly incomes of millions of dollars--were willing to take only a 4% pay cut to protect jobs in their law firms. Faced with either lowering their billing rates to try to increase business or cut back on the hours worked by associates vs taking a larger pay cut, these law partners opted to take only a 4% pay cut. At the same time, they sharply cut back on the hours worked by associates and they curtailed the hiring of new lawyers.

This recession has to teach these lawyers that they are charging and earning too much money, They need to charge less money to try to increase demand of their services. And they need to protect their best associates, since these people are future of the law firm.

And these lawyers have to learn that it is possible to live on less than millions of dollars per year. Why should any lawyer earn more than, say, $1 million per year?

Steve Wang of PA 1:23AM August 27, 2009

Mort Zuckerman's insightful article tells it like it is. But maybe, perversely, if we can get through the next few (10?) years of economic malaise, we will have a booming dynamic economy again.

The economist, Kondratiev, said that every 60 or so years there would be a depression, followed by another 60 years of boom before the next depression.

Basically, Kondratiev said that once every generation there needs to be a depression to vividly teach and ingrain in the next generation the lessons of frugality, saving, and efficiency. By clearing away all the wasteful, inefficient habits that led to the depression, the foundation for the next 60 years of economic expansion is re-built and refreshed.

LESSON OF MY DAD

My Dad was a college student during the Great Depression, graduating at a time when the economy was in tatters and soup kitchens were the only hope for so many Americans to get even one meager meal a day. Going that experience made such a strong impression on my Dad.

Dad incessantly preached frugality, the importance of hard work and prizing a job, and the necessity to save for a rainy day (because when it rains, it can drown you).

I learned that lesson... sort of. My son, who is now a college student, however, has no clue about saving and frugality. And too many of his college friends have only a rudimentary understanding of why it is so important to work very hard and do your very best for your employer.

It may take a much longer lasting recession (but hope it doesn't fall into a depression) to make a strong enough impression on our young people that the virtues of saving, frugality, and hard work (including prizing

your job) will be etched indelibly into their being.

It may take years of recession to teach the next generation of young people these virtues sufficiently, so that the foundation of human capital that developed the greatest economic expansion in modern history can be sufficiently refreshed to develop the next 60 years of economic expansion.

NEED GOV'T SAFETY NET

To do this, the recession may need to last 5 - 10 years, and there will be much suffering. So the government has to be ready to expand America's safety net--health care, unemployment insurance and other programs (like renewing infrastructure projects), etc.--to maintain the population until the current recession runs its course.

Mort Zuckerman's "long haul" could be pretty long, but in the long run, it might be the best thing for the long term of our economy.

Steve Wang of PA 7:30PM August 25, 2009

Could it be that the wealthiest one third of the country is re-concluding that they can "go it alone" to prosperity in their own sphere, just leaving behind the original poor plus the newly broke refugees from the current crisis?

Did you know that, contrary to the lies you were told by Republicans for decades that low taxes on the high end would create (good) jobs, that the reality of the 21st century apparently says something else?

Turns out your high-end and capital gain tax cuts only bought you a boom-bust with a broker-than-broke federal government and layoffs in the millions. Cute trick, wasn't it?

Muser of NM 12:19PM August 25, 2009