The Backlash Is Coming

Excesses lay the groundwork for reversals. And that’s what we’re going to see in your lifetime, Vera. Perhaps in mine.

We are in the midst of an era of excesses now. An excess of capitalism you might say. It began in earnest around 1980 with the Administration of President Reagan. And it’s been accelerating ever since but for a few stalls here and there — notably, the Great Recession.

Which brings us to where we are today: a massive accumulation of wealth among those at the top, stagnant or falling standards of living for most people (in real, current terms), unconstrained consumerism, extremely high levels of public and private debt (including more than $1.5 trillion of student debt), underfunded pensions, ballooning federal deficits propelled by tax cuts for the rich, massive underinvestment in public infrastructure (both physical and intellectual), etc.

In a rare if not unprecedented development, due to massive tax cuts for the rich our federal government is now adding more than $1 trillion to the federal deficit each year. Just think what will happen when the next recession hits, which it will. It’s then the backlash is likely to happen. It’s then that people will come to realize they’ve been lied to and deceived and will react harshly and probably excessively.

I suspect we will then see a political tidal wave that turns the country sharply to the left. There will be wailing and gnashing of teeth from the wealthy elite. But it will be too late. Years — indeed, decades — of excesses and unconstrained greed will render the reaction inevitable.

The thing to remember is, it is what it is. Today and tomorrow. And whatever it is, you must find ways to navigate it and live in a way that allows room for love, meaningful relationships, and the things that bring joy into your heart.

Often, it seems humankind puts many roadblocks in the way. We make life harder than it needs to be. If not for ourselves, then for others. It doesn’t have to be that way. Or does it? Sometimes I wonder.

In any case, you are likely to live through a period of change unlike I’ve lived through, Vera. On a macro-basis, it’s highly unlikely you’ll have any say in the matter. But on a micro-basis, you will have a say.

Live your life well. With integrity. And compassion. And you’ll be just fine. No matter what the backlash brings.

Dodging the Second Great Depression and Weathering Storms

Ten years ago today Lehman Brothers filed for bankruptcy. The filing didn’t create the conditions that led to the near total collapse of our financial system and made what has become known as the Great Recession the greatest economic calamity since the Great Depression. But it was a monumental event. It transformed a recession into the Great Recession, eventually leading to stock markets losses of around 50 percent, innumerable business failures and business and personal bankruptcies, and massive unemployment (albeit nowhere near the levels of the Great Depression). And we’re still living with the fallout of the Great Recession to this day.

There is no doubt in my mind, Vera, that we were on the cusp of the Second Great Depression in 2008. But for the response of policy makers and regulators — most especially the Fed Chair and Treasury Secretary — the world easily could have slipped into another deep economic depression. All the bad economic consequences that befell us notwithstanding, we dodged the big bullet. This time.

I say this time because there will be other times to come. Economic cycles, including contractions, are unavoidable. Just ask history if you don’t believe me. Credit excesses inevitably build and build until the breaking point. Usually, those breaking points are run-of-the-mill recessions. But, occasionally, they’re bigger than that. Occasionally, they’re depressions.

Depressions and deep recessions are dangerous things. Bankruptcies multiply. Families fracture. Suicides rise. On a grander scale, they can lead to conflict and wars. Social strife. Revolutions. We know they’re bad, but we haven’t figured out a way to avoid them.

I don’t know if I’ll see another Great Recession or a depression in my lifetime. Maybe I will, maybe I won’t. But it’s almost certain you’ll see one. Maybe more than one. Continue reading

When You Look Around, Something Isn’t Right

This post by David McWilliams, an Irish economist who was traveling to Southern California for a conference, got me to thinking:

Evening just arrived in California and I’m always struck by how old people are doing manual/service jobs like waiting on tables at airports in the US. It doesn’t seem right to have really quite old people standing around all day. V harsh system. Does this strike you too?

Yes it does, David.

Surely you’ve noticed it, too: all the older people doing jobs that teenagers and young adults used to do. I notice it in the grocery store. In fast food and casual restaurants. At sitdown restaurants. At coffee shops. At Walmart, Target and Costco. Everywhere you look, older people are working low-skill minimum wage jobs that used to be taken by inexperienced youth.

And yet we’re told everything is good. That unemployment is near historic lows. The stock market is at or near historic highs, not only in nominal terms but also in valuations. Homes prices are high — sky high in some places. In short, the financial and real estate markets tell us things are great. It’s only when you look around that something seems off.

The takeaway here, Vera, is that this economy — and, likely, the economy of the future — values so-called knowledge workers and pretty much treats everyone else like trash. Indeed, some people at the bottom of the labor pyramid — those low-skill workers with ¬†few options — make only the federal minimum wage, which is presently a paltry $7.25 an hour. For a full-time worker (40 hours per week), that’s only an annual income of $14,500, assuming no days off for vacation or illness.

And yet we’re a rich country. Just look around. People live in houses worth millions. Some of our executives make hundreds of millions a year in compensation. New graduates of certain colleges and programs enter the workforce making six-digit incomes. And yet we can afford to pay people only $14,500 a year?

It’s no wonder older people are working these menial jobs. They’ve never had a chance to save or get ahead financially. They’re stuck in a labor rut that has no upward mobility. They lack the smarts and skills that the market is rewarding in this technologically driven era and so they’re treated like trash. It’s unconscionable, yet few seem to be bothered by it.

Given your parentage, it’s likely you’ll end up being a knowledge worker that the market values. It’s unlikely you’ll be stuck working night shifts at Walmart stocking shelved for $11 an hour. But consider this: Is something wrong with a system that rewards some so lavishly while treating so many other hardworking people so harshly?

I think there is. And if we don’t address it, I think we’ll all be worse off because of it.