Wednesday, April 2, 2014
Americans Earn Too Much Money?
I was driving on an interstate last week and doing a bit of radio channel hopping. One little snippet got my attention very quickly. Someone was concluding an interview and the guest said (I paraphrase), “The bottom line is that Americans earn too much money. We have had it too good for too long.” Given the flow of traffic, I had to concentrate on my driving and I did not get the name of the guest, interviewer, or station call letters. The brutal candor of the guest stunned me. He obviously would not be welcome at the dwindling number of union halls across the country. So, I did some digging and found out that the mystery man is not the only one in the U.S. with the same opinion.
You continue to hear a lot today about the top 1% in income or net worth (not always the same people) relative to all the rest of Americans. In past eras such as the Great Depression (circa 1929-1941), the very wealthy tended to lower their voices for fear of alienating people or being targeted by thieves due to ostentatious displays of wealth. Today, there appears to be no sense of discretion.
A few years ago, a Greenwich, Connecticut based hedge fund manager boldly said in an after dinner speech that, “The low skilled American worker is the most overpaid worker in the world.” He is not alone. Others financiers at meetings such as the big wingding at Davos, Switzerland have said things to the effect that if the evolving global economy takes four people in India or Southeast Asia out of grinding poverty and an American or two drops out of the middle class, that is a fair trade.
Part of the argument seems to be return on investment. Private equity investors often talk about how by outsourcing work overseas you get people who work for half of what Americans demand, are extremely motivated and just plain tickled to get the work with an American company. Some executives in India look at such tradeoffs coldly. One was quoted as saying, “You had your golden period: now, we will have ours.” Others say that per capita income of the Western middle class has to decline as the developing world rises. Something to the effect of “we will meet somewhere in the middle” is a thought that I have seen across the board in researching this attitude.
You may read this and say, “So what.” Perhaps we have had it too good for too long and don’t people have a chance to rise if they work hard? I cannot argue with that. But, some things gnaw at me a bit. Americans have not had an increase in median income in nearly 30 years. Does that sound like an overpaid group of people to you?
Also, I have an unusual hobby which sometimes serves me well. I love to read annual reports of publicly traded companies. Each week, I probably break down three or four, crunch the numbers, and am amused by the nonsense that CEO’s often put in their letter to shareholders. This past week, I was reading the Wal-Mart annual report (full disclosure--I am not a shareholder). There was a passage in the report that made me sit bolt upright--
“Our business operations are subject to numerous risks, factors and uncertainties, domestically and internationally, which are outside our control … These factors include changes in the amount of payments made under the Supplement[al] Nutrition Assistance Plan and other public assistance plans, and changes in the eligibility requirements of public assistance plans.”
Wow! This was not picked up much in the mainstream media but some in the blogosphere did jump all over it. BUSINESS INSIDER did weigh in with the following:
“Walmart, for the first time in its annual reports, acknowledges that taxpayer-funded social assistance programs are a significant factor in its revenue and profits. This makes sense, considering that Walmart caters to low-income consumers. But what’s news here is that the company now considers the level of social entitlements given to low-income working and unemployed Americans important enough to underscore it in its cautionary statement.”
Linking this Wal-Mart surprise with the comments of hedge fund managers who sound mysteriously like developing world oligarchs to me, may seem like a bit of a stretch. What the billionaires do not seem to realize is that if Americans earn even less, who will continue to buy the products that made them their billions? A vibrant American middle class is good for business and good for democracy.
Part of this situation has its roots in free trade. As tariffs have been removed and markets have opened up across the globe, companies move their facilities to lands where wages are lower but quality of output is not diminished. I have no argument with that. For the past 200 years, free trade has always caused dislocations in labor but the consumer and participating countries generally benefited. What I cannot understand is why some of the people who have benefited the most from opening markets behave as insensitive louts and attack those who are being hurt in the transition.
If you would like to contact Don Cole directly, you may reach him at firstname.lastname@example.org