Why the stock market and the economy won’t be recovering.

    I have been studying this problem for some time and finally came up with the following data regarding this.  I have found the basic factors that make for a growing thriving economy. There are only three. You need businesses that can produce goods and services that people need and want to buy, we will call that “Trade.” You need people with money to buy those goods and services, will call that  “Consumers.”  And you need money as a method of making those trades easily negotiated, will call that Money.
     These three factors make up an economic triangle. If you raise one leg of the triangle the other two will rise. If you lower any corner the others will fall. You can then see for yourself whether any of the “solutions” the great economists come up with will actually work or just make things worse.
     Let’s take a look at money first. We are talking here about the “value” of money, not the quantity of it. Money is really valuable only to the degree that it is backed by confidence. Since it is no longer backed by something inherently valuable, like gold. So, the confidence the world and public has in a particular government who prints the money is the main factor here.  If the government simply prints more money, that would not be an increase in M but actually a decrease as the “value” of the money goes down, not up. So the only way to increase this corner is to insure the money is backed by confidence, or lacking that, gold or some other valuable item.
     Now, by consumers, we mean people with “expendable” income. Not just people with enough money to get by, but people that are well paid. So, the more “expendable income” they have the more they can buy. The more goods and services they can buy the better the economy will be. This of course could be over done causing the price of a product to skyrocket due to the high price of making it. This of course would hurt one leg of the triangle, Trade, as the product or service would not be viable or affordable.
     Now “Trade” assumes that a company is making a product or service that people would need and want. It is also assumed they can make it in quantity without polluting the environment and killing off their consumers, or the cows. They would also need the people and resources to produce the product in abundance at a price that was viable.
     So we see that for an economy to do well there must exist a balance between the companies and its employees. If the company does not pay enough to their employees, they will not have enough money to buy other companies products. The companies, over all, will then have less money, as we see happening now.
And that leads us to the heart of our current situation. Our corporations, through NAFTA (North America Free Trade Agreement) and other trade agreements, have been making sure the US consumer makes less and less money by shipping jobs out of the country and paying those left less and less.  This practice set in motion a dwindling spiral.
     Some say that it was not fair for a 20,000 per year insurance salesman to have to pay more for a car because an autoworker makes 50,000 a year (Never mind that the price of cars has not dropped since most of the manufacturing of cars left the US). But, that 50,000 autoworker supported many businesses below him. Since he was a “consumer with expendable income” he was able to buy cars, houses, lawnmowers, garden furniture, put his kids in private school, and could afford to buy insurance. He also helped support the government by paying lots of taxes from income and sales tax.  In other words the money did trickled down. All one has to do is look at Flint Michigan to see that this is true. The auto industry there kept the whole town going. It wasn’t just the autoworkers who lost their jobs when Ford sent their jobs from Flint to Mexico.
    And why doesn’t Mexico now have a thriving economy since they have all these jobs? Well, they didn’t pay the workers the same high rate of pay. They didn’t create a “consumer with expendable income”.  How many cars do you think an autoworker in Mexico will be buying at .80 cents and hour? I’m not sure even Coka Cola benefited. Would you pay an hours work for a can of Coke?
     Now the proponents of NAFT said that they were building markets in other countries. But the indicator of this is the Trade deficit, which continues to rise showing that they did not accomplish this either. The trade deficit shows that we are now a nation that imports, not exports. The only thing they successfully exported, was lots of jobs.
They also said that we were not to be a manufacturing country anymore. We would be a sales and service country. Well, according to a recent article in the wall street journal, in the last ten years over 50% of the companies that serviced things like, TV’s, cameras, lawnmowers, washers and dryers etc, were forced out of business due to low prices of the items they were repairing. Creating more consumer’s with less expendable income
     Now on the surface this seems great. There have been lower prices on “some” things, like TV’s, VCR’s, Camcorders, microwaves, washers, dryer’s etc. But along with that decrease in price also came a decrease in quality and the longevity of the product too.  Most products are now made to last only two years So if you factor this in you will be repairing or replacing the item sooner. So, it is questionable if the consumer has gained anything in this area either. According to this same wall street article, even if you want to repair something it is getting harder to find someone left to repair it. And don’t forget the cost to the environment, with all those now dumped TV’s, VCRs and air conditioners filling up the dumpsites with toxic waste.  And we have seen recently that they are being shipped and dumped to other countries where they have now polluted their air and ground water.
    The other problem is the cost has gotten so low in these areas that sales are also effected.  A few years before Wards went under they were rated the highest seller of home electronics. How does the highest seller go under? They couldn’t make a profit. We used to make a $50.00 profit on a VCR for example. Now the cheapest machine sells for $50.00. Now your profit is only what, $10.00 at best? Now you have to sell 5 machines to make what you used to make on one. So the number of units you sell may go up but your profit may actually be decreasing. And when people don’t have good high paying jobs there is not as many people able to buy as many of the higher priced units that they still make a good profit on. Even the auto industry is crying that they no longer sell cars, they rent them. They would much rather sell them then rent them, as they have to carry the money for the loan.
    This last year we saw the next rung on the dwindling spiral take effect, many higher paid office managers lost their high paying jobs as companies lost more money. Of course they lost money, they laid off “consumers with expendable income”.  Now these office managers will be buying less, causing the people and businesses they supported to do less trade, forcing another corner of the triangle to sag even lower.
    Now it could have been true, what the proponents of NAFTA were saying. If they had built markets in other countries and sold lots of goods and services it would have raised one leg of the economic triangle here. Or would it have?  Since the factory was actually in another country and the product was made by people in that country the only benefit here would be those office workers and managers who they could not replace over seas or in Mexico. Most of the money would go to the stockholders and the company executives. That would be an increase in income for some people. Put these are people who are already well off and don’t go out and spend all of their income. They just buy more stock with it or houses in the Florida Keys. How would that have trickled down to the autoworker in Flint Michigan though? It won’t. In fact, I think it was noted by someone that if all the wealthy people in the world distributed all of their money the rest of us would get a dollar each.
     Now, how do you correct this? Well, businesses have to realize there is an economic triangle and therefore their income depends on the ability of their customers to have “expendable income.” They have to realize that their own employees are indeed their customers as well. They have to stop being psychotic on this subject.  They have to stop seeing employees as some nuisance that they need to get around somehow.  When AT&T lays off 100,000 workers the executives at Ford probably think, “Their getting lean and trim, go buy some of their stock.” When they should be thinking, “Wholly Christ”, their laying of our customers!
     If their intention is to really build up a market in some other country, and not just abuse that countries citizens, with just more low wages and long hours, then you have to pay them enough to be a “consumer with expendable income.” As citizens we need to point this out to our elected officials, who in their mad scramble to get more campaign money from these same unthinking corporations do everything possible to loss us more jobs. Lacking this the situation will continue to dwindle.
 

Bill Czappa