The declining scope of the American Dream

Back in the 80’s, I was into sports cars in a big way.

I’m not talking about the average gearhead’s dream of Corvettes, Camaros and Mustangs. I’m talking the real McCoys, the top shelfers: the Lamborghini Countach, the Lotus Esprit Turbo, The Vector W8, and the much-hallowed Ferrari F40. I was a loyal subscriber to Car and Driver and though I didn’t yet know how to drive, my dreams of one day operating such a magnificent piece of machinery would enchant me as I poured over the pages.

Of course, it was all a pipe dream. I knew I’d never have $250,000 to spend on a sports car, and even if I did, what a wasteful purchase it would be. But it was the 80’s, the pinnacle of materialism, affluence, and ridiculous narcissism. It was inspiring to fantasize about the untold spoils that may lie ahead in my lifetime.

I recall my parents’ dreams of that time, their own hopes for the future. Nothing too greedy, and certainly more realistic than my visions of sports cars: worldly travel in later life, a small A-frame on a lake somewhere, spoiling their grandchildren at Christmas, possibly an early retirement. Those expectations hardly seemed to be unrealistic to me or to them. Back then the promise of Reaganomics and supply-side policy seemed destined to be profitable for everyone.

What they didn’t know at the time was that wages had reached their apex

Wealth over work

Laziness. Freeloading. Gaming the system.

That’s what I often hear many conservatives rail against. Nothing gets a blind rightie’s hackles up more than a story about a person who gets paid by the government to sit at home rather than go to work.

Frankly, I don’t blame them. It does suck to hear those stories, stories of someone taking advantage of the way things are in order to do as little as possible. It makes even more sense knowing that anger over such stories usually comes from working, middle-class conservatives who sell over 250 days a year to someone just to make ends meet, especially when no matter what they do, those ends never do seem to come together.

It’s true. You can find cases of a governmental bureaucratic system encouraging laziness. For certain people, in certain situations, it makes more financial sense to not take a job, because they get more money out of the government than they would from an employer.

What amazes me is that the statement above is used as a case against welfare, rather than a case for higher wages.

Force them to innovate

It’s true. We need oil.

In the short-term our entire infrastructure is dependent on oil. Since it is used to make gasoline, diesel, kerosene, natural gas, propane, plastic, heating oil, and industrial fuel, it is obvious that we can’t simply stop using it tomorrow. This is a fact and to ignore it and think otherwise is both ignorant and futile.

However, here is another fact. Oil is finite. Someday we will run out, plain and simple. The length of time before that happens may be disputed, but nonetheless, we will run out one day. And there’s no making more of it. It took hundreds of millions of years to make the batch we’re blowing through. Once it’s gone, it’s gone.

That being said, assuming an extended existence of humankind (a significant assumption, mind you) and therefore its need for energy, one must logically conclude that we will need another source of energy at some point. Personally, I would argue that we need it quickly, now, while we still have oil to burn in the interim. We should be using our quick and easy fossil fuels not for individual and corporate profit but for collective betterment and for producing better ways to harness infinite and renewable sources of energy such as wind, solar, geothermal, and hydroelectric.

Here’s another fact: the world’s need for energy is growing. With the population over 7 billion people, and more and more of those people (and their economies) becoming dependent on oil, it isn’t simply a matter of sustaining our oil production to satiate our current thirst. Rather, we must continue to increase production in order to keep up with the growing demand.

A solution to the wage issue

After thinking quite a bit about my recent post on wages, I may have come up with a fairly reasonable suggestion.

The premise of that post was that in order to get ourselves out of our current economic woes, we need to get more money in the hands of a lot more people; in other words, increasing the buying power of the lower and middle classes.

Now the argument from the right will be, as it always has, “lower their taxes!” But that argument always falls apart when you look at the numbers. The median (average) household income in the US in 2009 was just under $50,000 (Source: US Census Bureau 2010). At that level, the tax rate typically ends up being taxed at the 15% rate (sorry for the Wikipedia reference, I try to avoid it, but the IRS site is simply too complicated – and slanted toward justifying lower taxes for the wealthiest individuals, but I’ll explain that elsewhere). So even if we reduced taxes for this quintile by 1/3 (resulting in a 10% tax rate, which is pretty low), this would translate to a meager $2500 of extra income at that level. Yes, that’s better than nothing, but I suggest a different method. Instead of lowering their taxes, why not get employers to pay them more?

So first, I’ll write an appeal to any and all business owners, corporate executives, and everybody else who might have the power to increase somebody’s wage (that means everybody who can vote too). Please, PLEASE, I beg of you, consider rewarding those who work for you, especially the best and most valuable of them. You won’t regret it. Not only will it entice the best of them to stick around, and work harder, but when people have more money, they will spend it. And if every business owner raised wages, everybody would have more money to spend, which would mean more potential business for your business.

Unfortunately, as a nation, we can’t just ask employers to start paying their people more. Despite it being in their best interest to do so, businesses are just as scared as people right now. So how about an incentive?

Wages, wages, wages!

*Note: I wrote a draft of this post many months ago. Between then and now I caught Robert Reich giving his American Public Media 2-minute address on NPR’s “Marketplace” on June 29, 2011. It was titled “It’s the demand side, stupid!” He addressed this very issue and did it paralleling my own post title which originally was “It’s about wages, stupid!” On one hand, it sucks to be robbed of my assumed originality in these thoughts. On the other, it is reassuring to have one of the world’s leading (and most ignored) economists trumpeting the same cause with many of the same arguments. You can hear Mr. Reich’s commentary here. It is spot on and speaks directly to this issue.

Throughout the recent recession and its aftermath, somehow the national discussion has been usurped by ideologues that seem to gravitate back to one area – job creation; which I agree has a rightful place in the discussion but should not be the focus of our long-term economic strategy.

From the right, we hear that we need to focus (again…still) on supply side policy that will “allow” businesses to create more jobs, as though they were somehow chained and bound from hiring people now. We’ll dig into the fallacies of this argument elsewhere, but for now let’s just identify the base of this argument which is that lack of jobs is the real problem and therefore job creation, of any kind, is good.

From the left we hear that the government must spend a lot of money (money it doesn’t have anymore, and didn’t have under Reagan, Bush I, Clinton’s first term, Bush II, and now Obama – but they ALL spent it anyway) in targeted areas and on government projects, which will increase business revenue, which will, in turn, create more jobs. So again, the base of the argument is that lack of jobs is the real problem.

The argument from the right is then used to support their tired, old, and now 30-years-disproven theory of reducing taxes on big business and the wealthy to spur job growth. The argument from the left is used to defend higher taxation rates, thereby increasing government revenue, and therefore spending, which perpetuates our debt-spending cycle and leaves us in the financial mess that we’re wallowing in.

Don’t misread me, jobs are important. And yes, with roughly 10% of Americans out of work and upwards of 25% un- or underemployed, creating more jobs would certainly help increase consumer spending and tax revenues as well.

But unemployment is not the cause of the recession; it is merely a symptom. Recessions are caused by people not buying things. When people don’t buy things, businesses don’t make/provide things. When businesses don’t make/provide things, they can’t afford to pay people and often go out of business. When businesses cut jobs or stop being businesses…unemployment.

So why aren’t people aren’t buying things? Let’s look at some probable explanations:
1) They’re unemployed – sure, about 10% of the country can say this now.
2) They are working too hard at their job(s) to enjoy things 
- About another 15% of the country can say this.
3) THEY DON’T HAVE ENOUGH FREAKING MONEY! – 90+% of the country can attest to this one.