The Woods We’re Not Out Of

On April 14^th, JP Morgan announced its first quarter profits - $2.47 billion, up 54% from a year ago. They love the current environment, and truly want to keep things exactly as they are. The April 14^th Washington Post: “Today, no bank — and no bank leader — is showing more confidence on Wall Street or in Washington, where JPMorgan is aggressively fending off moves to create a consumer protection agency and seeking big exemptions from derivatives rules.” The biggest financial players are more profitable than e ver. And retail sales exceed analysts’ expectations, rising 1.6% in March, the third such increase in a row. The markets soared. Financial institutions were even hiring again.

How does the government view all this wonderful news? Fed Chairman Ben Bernanke was on Capitol Hill on the 14^th to testify before the Joint Economic Committee. Was he cheering wildly based on all this splendor? “‘On balance, the incoming data suggest that growth in private final demand will be sufficient to promote a moderate economic recovery in coming quarters,’ Bernanke said in prepared testimony. He added later that, "if the pace of recovery is moderate, as I expect, a significant amount of time will be required to restore the 8 1/2 million jobs that were lost during the past two years.’… Bernanke also spelled out some of the remaining risks to growth… ‘To be s ure, significant restraints on the pace of the recovery remain, including weakness in both residential and nonresidential construction and the poor fiscal condition of many state and local governments.’”

I reached immediately for my “Government – English, English – Government” dictionary. The translation: “We might see a few positive economic signs in the next year, but please don’t confuse these for a ‘recovery,’ because we are going to have high unemployment for years, real value issues and continuing foreclosures in the real estate market for much longer than anyone could possibly expect, and lots of our cities and states literally are facing bankruptcy.”

What’s going on? The playing field is clearly tilted in favor of the biggest financial institutions and against the average consumer. Recovery is taking place in this sector, and there will undoubtedly be new opportunities in market sectors that benefit directly from governmental incentives, cutting edge technology that solves real world problems in energy, agriculture and medical and pharmacological research. For old world industries facing paradigm shifts – from manufacturing to media/entertainment – the numbers aren’t so good. Encumbered by legacy bureaucracies, unsustainable pension structures, and vested interests in business models that no longer function in the changing world, many industries will not be rehiring those laid off; indeed many of these business will fail or fade out of existence, perhaps picked up f or scrap value in some obscure merger or acquisition.

You can always tell the industries that are teetering; they’re the ones asking for tougher laws against those who threaten their expired business models. Back when cars were beginning to be seen on dirt roads, many cities and towns passed ordinances against cars in downtown – didn’t want back-firing engines to scare the horses. But for displaced Americans, particularly older and less “re-trainable” workers, moving to a new field and knowing you can’t go back to the job you once held, the future is filled with fear. The house they were going to sell to retire on is worth less than the mortgage in many cases, their pension is tanked and their job prospects bleak. They’re hard-working Americans, hardly looking for a handout, but there doesn’t seem to be anywhere to go.

The economic collapse we have experienced and continue to experience is the accelerant of change. It killed unsustainable business models, decimated inflated values, crushed legions of jobs that were being pushed aside by the future and cleared the path for a huge rebuilding effort, one impaired by tight credit and exceptionally high governmental deficits looking for a source of repayment. What is happening is a highly polarized recovery: those with old world skills and old world asset values will be cruelly left behind unless they adapt or are even given a chance to adapt; the future belongs to leaner, meaner businesses, outsourced where appropriate, and workers whose skills are relevant and focused. We are polarized politically, but the big story is the complete reconfiguration of the middle class – many will fall into the lower rungs of the economy with no way out, few from the lower rungs will move up into the new world of technical proficiency (particularly as states and school districts are forced to cut back public education at every level), and those at the top and in the right medium will make more money than ever.

This is the new face of America. The engine of upward mobility – education – doesn’t seem to be poised to do what it has done for generations. Polarization with fewer people really vested in what makes America great seems to be what we will have to live with for the foreseeable future. Only time will tell if we can rediscover that dynamic force that has define us since the birth of our nation. I’d like to think we can do it.

I’m Peter Dekom, and it’s time for us to united again as Americans.