The Big Reset

When we read history books, there is always this damned thing about what happened on which date. Think about those tests where getting the exact date right was mandatory. Times in history reflect change, some good (July 4, 1776), some bad (September 11, 2001), but whenever there is change, there are winners and losers. The unfortunate part of what is happening now – events that will paralyze some test-taking kid decades from now – is that the post-recession United States (whenever that occurs) will not look a whole lot like what was there before.

Older workers will have been phased out of the job market, a whole host of young people (even with educations) will have limited, if any, prior work experience, solid entry level jobs will remain scarce and pay less, promotions will be slower as older employees stay at work beyond their expected retirement ages to make up for losses in their retirement accounts and there will be a vast uptick in outsourced, contract work, where workers are engaged on a temporary basis without benefits to perform tasks that were once done by regular employees.

With service jobs able to travel to distant lands where serious expertise can be accessed at significantly lower costs, even professionals from patent lawyers to financial analysts will find that their skill-sets are being offered in places like India or the Philippines at a fraction of domestic rates. We’re still more productive than many of the overseas choices, but even with that “corrective factor,” it’s still cheaper to send a great deal of complex transactional analysis and servicing overseas. Over time, these pay anomalies will fade away as currency devaluation will bring the dollar in line with labor rates overseas. A unit of labor value in India will eventually have the same price in the United States, even if that is accomplished by serious currency devaluation.

Factoring in that productivity factor can provide some interesting changes in the cost of overseas expertise. As the Peoples Republic of China keeps wages rising (12% per annum at last count), corrected for productivity, the average cost of Chinese labor will rise to 69% of comparable U.S. wages by 2015. This suggests that in the near future we will resource domestically some of what we currently send away, but it will only because the effective cost of U.S. labor (based on currency values and pay scales) must inevitably fall. As we denigrate our educational institutions compared to what schooling is provided overseas, our wage rates may take an additional hit in future years.

All this points to a society in which the majority of people are making less in terms of buying power and definitely living a notch or two below where their parents resided just a few short decades before. Those at the top of the food chain, not dependent on wages for income, can migrate their capital to wherever in the world their money gets the biggest bang for the buck. The phrase we use for this is, “The rich get richer.”

How about this little tidbit to make the hair stand up on the back of your neck: “Twenty-five of the 100 highest paid U.S. CEOs earned more last year than their companies paid in federal income tax, a pay study said on [August 31^st]… It also found many of the companies spent more on lobbying than they did on taxes.” Huffington Post, August, 31^st. Special interests have the money to shape our society to their needs. Indeed the kind of class polarization that is now typical Britain is a very likely model for post-recession America. We are simply a society that, as a whole, had pretty much better get used to a downsized version of life as we once knew it.

The sad thing about all this is that such pessimism has already merged into the general consciousness. We don’t like to discuss such realities openly, and we think we can elect leaders to undo our past fiscal errors and “make the bad man stop.” Foreclosures and layoffs are a way of life, today, and nobody’s job is safe. Without real growth, unlikely to be significant based on current vectors, the life we knew is relegated to the history books. Americans are feeling the pain, and their expectations have been seriously tempered by the reality of change that just won’t go away, a feeling that will only grow worse as the government moves further into austerity mode. We’re scared.

The writing on the wall couldn’t be clearer: “Consumers’ confidence in August dropped almost 15 points to the lowest level since April 2009 as worries about the economy fueled the wildest stock market swings since the financial meltdown in 2008… At a time when Americans are increasingly worried about a weak job market, higher costs for food and clothing and recent stock market turmoil, the falling confidence numbers raise new concerns about their willingness to spend and jumpstart the economy. That's particularly important since consumer spending accounts for 70 percent of U.S. economic activity.” Huffington Post, August 30^th. For those out of work, the news remains grim: “The average length of time a person is unemployed rose to 40.4 weeks last month, the longest period ever, and an estimated 1.1 million Americans have given up on looking for work entirely.” Washington Post, August 30^th.

With bank loans, home equity and private savings drying up, there has also been a corollary decrease in the unemployed turning around to start their own businesses: “A new study from Challenger, Gray & Christmas shows that only 3.7 percent of laid-off workers launched their own businesses in the first half of this year — an all-time low. By comparison, in 2009, 8.9 percent of the unemployed became entrepreneurs.” MLive.com, August 12^th.

We all know what’s going on, but getting used to the “big reset” is still overwhelmingly difficult for most. If there is anything Washington needs to hear, it’s not how we have to reign in government; it really has to be how government will help its constituency cope with the horrific new economy that irresponsible government helped create.

I’m Peter Dekom, and I hope that American creativity and inventiveness can reverse this nasty trend.