By John Mauldin
April 2, 2011
I get a lot of email from readers. I recently got an impassioned letter from very-long-time reader Bill K., who asks some very pointed questions about austerity and spending cuts. It is a rather lengthy letter, so I will only quote part of it and use it is the launching pad for this week’s letter, where we look at today’s employment report, but from a little different slant.
This letter will no doubt anger a few other long-time readers. I argue this week for the middle, but do so as a survivalist. While Bill starts out by saying some very nice things about me (thanks), let’s jump to the meat of the letter:
“…. I would like to get something off my chest. I would like to know why you seem to side with those analysts who keep telling us that the only way we can sort out Western economies is by making the average guy suffer through austerity programs… You are a very intelligent guy – obviously.
You can see how things work and what is broken. You can also see through the greed and excesses of Wall Street, and you can read the economic data which clearly shows that the wealthy continue to get more wealthy in America whilst the average Joe continues to see his standard of living going in the opposite direction. Capitalism today only works for the ‘have gots’. It’s been going in that direction for more than 30 years now.
You saw the senseless and stupid greed of the derivative scheme which fueled the housing bubble which led to the meltdown which never melted because Bush/Obama handed out a huge welfare check to financial institutions that should have been allowed to fail. “In the aftermath of all this, politicians in DC, you, and your guest pundits warn us that the world as we know it will end if we don’t somehow reduce the average Joe’s Social Security, pension, Medicare and Medicaid benefits. Oh and let’s not forget the budget, which is being argued in Washington as I type this.
The line is that we have to make drastic reductions to spending on domestic programs, on our schools, on our infrastructure, on unemployment entitlements, on all the things that serve to give working people a chance at a dignified life. You’re a smart guy. You can recognize what is fair and what is greed and excess. When the nation is as troubled as it is today and yet the wealthy are living even better than they did 30 years ago, what does that say about America? I wonder if we really care about our neighbors anymore?
I wonder why such a great country with such great natural resources cannot find a way to be just and generous and a beacon to higher ideals? Ike warned us to be wary of the military-industrial complex. Looks like he was right. We’re a nation constantly at war, spending trillions on defense, whilst at home we enrich the already wealthy and tell the average Joe that he has to pay for it.
I wonder how you manage to rationalize all this away – if indeed you do? “Thanks and with respect, Bill”
We have become a credit-addicted, credit-fueled economy, which works just fine until you have too much credit driving too little real growth. Without government spending, “real” GDP would be at levels it was over ten years ago. And it is real growth that drives wages and creates jobs. You write: “The line is that we have to make drastic reductions to spending on domestic programs, on our schools, on our infrastructure, on unemployment entitlements, on all the things that serve to give working people a chance at a dignified life.”
That is not my line. My book calls for a large increase in funded infrastructure spending through a fuels tax (none of it going to the federal coffers!). I am not against unemployment insurance, but at some point it needs to become job training and a path to employment.
I am a huge proponent of education, having spent a great deal of money on it over the years, with seven kids (and paid even more in taxes!). But does the current system really work? We have double the educational workers per student we had only a few decades ago, but no improvement in outcomes. Yes, we have to make cuts to government programs. A 33% growth in federal discretionary spending (not including stimulus money) the last three years alone is not reasonable, given the size of the deficit. The last recession was not caused by too little government. The Cancer of Debt The problem is that the debt is like a cancer.
The bigger it grows the more threatening it is. Pretty soon it consumes its host (think interest expense). Bill, I am worried about the survival of the country economically. Another crisis caused by the bond market driving up interest rates, because they become concerned about the size of the debt and deficits, will seriously reduce the choices we have – with none of them being good.
Ask Ireland or Greece how it feels. They are in what can only be called a depression, and likely to stay there for some time. You think we have it bad now? Avoid dealing with the debt and see what happens. To think it cannot happen here is to simply ignore reality. Yes, the US can go longer than we might think, but there is a limit. I think that limit will come before the middle of this decade. Perhaps as early as 2013, if the new incoming President and Congress do not deal with the deficit in a realistic manner. Then Bang! , we have our own Greek moment.
I want to avoid that. In my book and on numerous radio and TV shows, I have made the case that we must get the fiscal deficit below the growth rate of nominal GDP. That means we need to cut, over time, about $1 trillion from the current budget deficit. And that means entitlement spending has to be on the table, as well as tax increases. The polls clearly show that people want to keep Medicare and also are against tax increases (close to 70% in both cases). Those are not compatible objectives.
We have to have a national conversation about how much Medicare we want and how we want to pay for it. Writing the words tax and increase in the same sentence is difficult for me. Tax increases taken from private producers do nothing for economic growth, which is where we get new jobs. But I would rather have higher taxes than for deficits to be at a level where they threaten the economic survival of the republic. (And I make the case that if conservatives give in on tax increases, that means there needs to be a complete structural change to the tax system, gearing it more to encouraging growth, real Medicare reform, and even larger spending cuts, etc., that are linked to real, measurable metrics!)
I am just as frustrated as you about the bailout of banks, that we still have banks too big to fail, that credit default swaps are not on an exchange, that Fannie and Freddie still even exist in their current forms, and a host of other problems you mention. (Frank-Dodd was a disaster! It almost guarantees another crisis.) I have become all too familiar with cancer of late. It tends to focus the minds of those who are suffering, and their families, on survival. Chemotherapy is nasty. It means putting a toxic drug into your body. That is something you don’t want to do under normal circumstances, but when your survival is the issue, you do it. It is no less than economic survival we are talking about. Oh, the US has been through worse. Civil war, depressions, panics.
We will survive as a nation, but the pain we will endure is simply more than most people can comprehend, Bill. Whole generations of savings and investment will be wiped out. Think the cuts I am talking about are serious? Wait until interest payments are eating up 25-30% of revenues in a 12%+ unemployment world. Think the underfunded pension problems are bad now? Let’s have a REAL bear market, with inflation. I have some friends who think that is what it will take to get government smaller. They relish the thought, as they also think their gold portfolios will go through the roof. I am not in that camp. That is not a world I want for my kids and grandkids, Bill, most of whom are (for now) your average person. (Well, except for my exceptional grandkids.) I want us to find that middle path, to cure the cancer of debt.
Yes, I want smaller government and lower taxes, but survival is now my fixation. The cure for too much debt is not more debt. We can get it under control, but it is going to mean compromises, a word that I hate – but I also hate chemotherapy. I get that we need to do things to make government more efficient. And we need to provide safety nets. We need a lot of things. But most of all we need an adult conversation about what it is that we need, and what we can afford. The American people have to understand that the path back to a sustainable economy will not be easy.
As I have written many times, cutting government spending will mean lower GDP numbers in the short term, but survival in the longer term. This is not a typical business cycle. We cannot simply grow out of our problem. We haven’t really grown, except for government spending, for ten years. Yes, there are numerous steps we can take that will make it better and easier and quicker than if we wait until we are forced by a crisis to act. But there are no “Easy” buttons. Gentle readers, I promise you we get through this, one way or another. The 2020s are going to be a heck of a lot of fun!
Some responses to “The Plight of the Working Class”
Steve in KC Says:
April 2nd, 2011 at 6:27 pm
Beware of the Financial Expert/Economist bearing graphs……..
At the end of July, I’ll have been laid off from my full time job for two years. I’m one of those “highly skilled” people that the PTB say the wretched refuse should aspire to be. Solely thru my reputation locally, I’ve been able to string together 3-4 part time gigs to keep from sinking. At the cost of making 60% of the salary, and expenses doubled, vs. what I was making as a full timer.
And BTW, I was making $75K/year as a full timer, plus I had health insurance, which I don’t have now. The vaunted “free enterprise” system won’t insure me at any price, because I’m over 50, weigh too much, and take blood pressure meds.
Two of my clients are fully capable of paying me full time. But they choose not to. My story is not unique. Seems that if you are 40 or older, your services are still needed, but NOBODY wants to have you on the payroll. I’ve worked in the transportation sector all my adult life. The cramdowns started in the mid eighties, and the 90′s, which were supposedly so great, to us were a decade of yearly 1-2-3% “raises”, when the “real” inflation rate was at least double that.
So, as the years have gone by, and I tried to “live within my means”, I’ve had to throw the following things under the bus. Vacations of any type. Abandon my eight year cycle of replacing my cars, and drive junkers all the time. My tool budget, because they are a “long term investment”. Any savings for retirement, and finally, any savings to help my kids thru college.
That may be a good thing. All of my kids are able to survive working $10-15 jobs, because they don’t have mortgages, and they don’t have $50K worth of school loans hanging over their heads, like most of their co-workers. And more, guys like us need to take an even bigger “cram-down”, in order to “save the Republic”.
Sorry dude, this Republic is so FUBAR, and so utterly owned by the banksters/oligarchs/Top 1%ers, it isn’t worth saving. We’re a Banana Republic, with no bananas.
Yeah, things might be “better” in 2020, or thereabouts. Maybe. Too bad I’ll probably never live to see it.
markp Says:
April 2nd, 2011 at 7:27 pm
Comparing the situation in the US with the one in Greece and Ireland and drawing conclusions with regards to the debt and the deficit kills your credibility. Greece and Ireland are mere users of a very strong currency whereas the US is the monopoly issuer of its currency, the one that its entire debt is denominated and coincidentally the world’s reserve currency. Apples and oranges to say the least.
willid3 Says:
April 2nd, 2011 at 7:34 pm
i think the real observation is this. we give lots of tax cuts to the top 1%, supposedly because they will create jobs. mean while, we are going to cut spending on the lower 99% because we have a deficit problem it would appear that the 99% are paying for that tax cut. and not getting any thing at all, as every tax cut this decade has been sold as creating jobs. only to fail to ever deliver on that promise. ever so either we are keep repeating the same experiment we expecting a different result. or we have really bad Alzheimers. or we are amnesiacs.
and i am not convinced that the bond vigilantes will strike. unless you can show me that the have in Japan. where the deficit is how many times the size of the economy? so if we are really serious about cutting the deficit, why do we give tax cuts to those who won’t do any thing more than they did before we gave them? and why is it that when the top tax bracket was higher than 90% we did much better? and why is that only the 99% of us are in competition with world? and the top 1% get a bye?
just how much longer will the 99% keep supporting the 1% before we are tired of being savaged by them? so much gripes about Social Security, Medicare, and Medicaid. which are the most popular programs because they work for the 99% not the the 1%. and we need them because without them, we have no chance of surviving Winston Munn Says: April 2nd, 2011 at 7:43 pm Keeping Medicare intact without tax increases is simple – eliminate 95% of defense spending.
bv1 Says:
April 2nd, 2011 at 9:17 pm
Very good blog. Brings out a lot of things. Very perceptive. But how could you overlook (and not mention) the growing inequality of wealth and income in this country? The elephant in the room, as I see it, is the absence of higher taxes on the rich.
There is a great deal of data coming out about the size of the affluent tip of our income iceberg, and how much more of the country’s surplus wealth that they are raking in. It is unusual for a country in debt to cut spending but not increase revenues, particularly when the monetary resources are becoming more and more concentrated in the very small tip of our unequal income distribution.
Taxes have been reduced for the last 30 years, and revenues have not increased. I do not anywhere in your post where you mention the increasing inequality of wealth, and the role the lowered and lowering tax rates play in increasing the national debt.
techy Says:
April 2nd, 2011 at 9:35 pm
As far as I know social security is not a free ride yet.
May be same is not true of Medicare due to the exponential rise in the cost of healthcare. Medicaid is in a way, free government health care…..but I am not sure why the religious right is not saying yet “we do not care if those who cannot afford healthcare should die”.
I am sure they have no issues with the bums dying. I am not sure what kind of sick mind thinks that a person making $5 million deserves a much bigger break on his capital gains than the one making $50k working full time. Oh well the nexus of religious right with the greedy rich…can produce weird effects.
ZackAttack Says:
April 2nd, 2011 at 9:42 pm
Nice piece of doublethink… transferring trillions of FIRE debt onto the public balance sheet, then, once that’s done, demanding austerity.
KJ Foehr Says:
April 2nd, 2011 at 10:24 pm
@ techy You wrote, “Instead of what you are saying, what if we do below: 1. inflate our way out of the debt 2. create wage inflation(not happening right now but thats the goal)
This is what is being attempted by every government in the world except the net exporters….and no matter what you all say…this is the only option….” ———–
IMO, you are right, inflation is the preferable path. Inflation benefits debtors, both individuals, like those with a mortgage greater than the value of their home, and the government because its debt would shrink as a percent of an inflating GDP and can be paid back with cheaper dollars. But don’t hold your breath waiting for it.
Ben has been trying at warp speed to generate some inflation since the house of cards began to collapse in 2008. But his goal is only to prevent deflation, not cause significant inflation. Why won’t inflation be our path out of crushing debt? Because rich people hate inflation, and the rich firmly hold the reins of power in this country now. They hate it because it erodes the purchasing power of their savings, and not all their assets will keep pace with inflation, therefore, they will suffer (relatively speaking, of course).
And suffering, as we know, is only for the little people.
So the wealthy will push for tightening very soon, as inflation psychology begins to take hold. Ben and the administration will comply, because, as we know, the banks and corporations pull most of the strings in this country. Then rising interest rates will put us back into recession.
And who will suffer then? Again it will be the poor who are saddled with debt and assets that will further decline in value. The rich will suffer much less, if at all, because they have no debt to worry about and sufficient assets to last a lifetime.
And what about those large corporations that have mountains of debt? Well they are too big to fail, so as we have seen before, they don’t need to worry either; the taxpayer will keep them afloat. (Corporate bailouts are good/necessary, but entitlements for the poor are bad/expendable.) Opposition to the inflationary path also comes from middle and working class libertarians and tea partiers who take the simplistic view that government (and its debt) and the Federal Reserve with its fiat currency are the cause of all our economic woes (and almost every other problem in the country).
They still labor under the delusion that free-market capitalism will save us, even though it was the unfettering of capitalism over the past 30 years that led to the financial collapse in the first place.
We missed the chance to purge this ideology in 2008. What should have happened, that would have changed many minds and squelched the popularity of this ruinous philosophy, is if the economy had been allowed to really collapse in 2008.
If government had not stepped in to save it, then they would have seen the bitter fruits of their seriously flawed beliefs. But the inevitable collapse of unfettered markets was stopped by the very government they now blame. So they did not suffer enough pain to wake them up to the truth. Instead they are still comfortable enough to persist in their delusion and pursue killing that which saved us before and must save us again: the government and the Federal Reserve through stimulus spending and reflation.
So who will win the day: those who want to inflate debt down to manageable size or the budget cutters and inflation hawks? Well with the rich and the corporations now aligned with poor and middle class libertarians and tea partiers against the government and the few people able to see the bigger picture here, I don’t think there is much doubt about the outcome.
I predict even tougher times ahead for the poor, not the rich. And raising taxes as an alternative to cutting government spending and reduce the deficit? Forget about it. Too many voters have been brainwashed by the rich into believing lower taxes on the wealthy is the road to prosperity for all, and taxes at any level only feed the evil beast government. (That’s absurd I know, as only the wealthy have really prospered in the 30 years since Reagan first spoke of “trickle down” economics. So, ignorance continues to rule).
As a result of this brainwashing, and the inability of many people to see through it, instead of the wealthy and corporations paying more tax to reduce the deficit, the poor will be forced to take it in the shorts again and again, until they finally wake up, which hopefully won’t be too late to save our country from eventually imploding due to the extreme greed of the rich and the simplemindedness of the “something for nothing crowd”.
MadHemingway Says:
April 2nd, 2011 at 10:48 pm
Thanks John, I always get a chuckle out of your opinions. That reminds me of that column on Israel you wrote months ago. Sometimes the answer really is simple (this time) instead of long-winded and round-about. You really should inoculate yourself from being a Texan and the W-kind of thinking that’s caused this mess. Afterall, Texas is near last in everything. Why, they even have 22 year olds playing high school football.
vader Says:
April 2nd, 2011 at 11:02 pm
Thoughtful, but the same old let the non rich take one for the republic while the rich get the benefits. There have been experiments doing this, the lead up to the French Revolution being one.
OK lets take a possible solution. Lower military spending a lot, raise taxes a lot on the top earners and a bit on everyone else and then look at single payer medical care where either the govermit does it or pays someone else to do it with triage so that 80 year olds don’t get kidney transplants, but most folks get life saving care.
Too many stakeholders to do that. Maybe the republic with make it through, but I have my doubts. Like Liberia and Egypt as well as other countries where those in control, control the resources only masses in the streets change things. In the 1930s and the 1860s, only a powerful and competent president succeeded. Both were accidents of the electoral process.
Could we elect a strong president that will endanger the wealthy elites with a money based electoral process?
Ha CTB Says:
April 2nd, 2011 at 11:40 pm
No mention in this about globalization’s effects on wage stagnation? Or THREE unfunded wars in the Middle East on federal debt? How about Chinese currency manipulation? What about our futile drug war and ethanol subsidies? Also, we have apparently ceased collecting taxes on our corporations, since they have all fled to tax havens.
This article caught my eye, but I had to roll my eyes at the Republican talking points (“adult conversation”) and questionable ideology. Face it, John, you want smaller government as an end in itself. The solution to our wage problem is lower GDP, so we can grow from a lower point. Brilliant.
Barry, I enjoy your blog. It started off promising, but yet again I find John’s column unreadable.
I used to enjoy Mauldin’s pieces, but they have increasingly become GOP talking points. In short, he is a privileged member of an elite social class and he wished to protect that class(and his wealth) at the expense of the great unwashed worker classes.
digistar Says:
April 3rd, 2011 at 12:52 am
Barry, So much of what you do here is great. This article is not. It is an insult to your readers. Please tell us this article is a day-old April Fools joke.
arthur.i Says:
April 3rd, 2011 at 6:50 am
Mr. Mauldin,
I have enjoyed your “folksy, gosh darn it” common sense approach and perspective on finance.
Until now.
When you argued so strongly in favor of extending the Bush tax cuts, costing 400 billion a year, I thought that was odd. You were ever so convinced that with out extending these cuts for the wealthy that it would hurt GDP and unemployment would rise. I did some research and as it turns out, most economists strongly disagree with you.
And now you can see that the budget deficits are really bad for the U.S. WTF!???
You just used your not inconsiderable influence in giving the wealthy a 800 billion dollar gift and NOW you really want to get the deficit in order.
Read this: http://www.vanityfair.com/society/features/2011/05/top-one-percent-201105
It’s no use pretending that what has obviously happened has not in fact happened. The upper 1 percent of Americans are now taking in nearly a quarter of the nation’s income every year. In terms of wealth rather than income, the top 1 percent control 40 percent.
The top 1 percent may complain about the kind of government we have in America, but in truth they like it just fine: too gridlocked to re-distribute, too divided to do anything but lower taxes.
The top 1 percent have the best houses, the best educations, the best doctors, and the best lifestyles, but there is one thing that money doesn’t seem to have bought: an understanding that their fate is bound up with how the other 99 percent live. Throughout history, this is something that the top 1 percent eventually do learn. Too late.
PS: All great comments above, especially: Steve in KC, willid3, Winston Munn, KJ Foehr and vader.
April 2, 2011
I get a lot of email from readers. I recently got an impassioned letter from very-long-time reader Bill K., who asks some very pointed questions about austerity and spending cuts. It is a rather lengthy letter, so I will only quote part of it and use it is the launching pad for this week’s letter, where we look at today’s employment report, but from a little different slant.
This letter will no doubt anger a few other long-time readers. I argue this week for the middle, but do so as a survivalist. While Bill starts out by saying some very nice things about me (thanks), let’s jump to the meat of the letter:
“…. I would like to get something off my chest. I would like to know why you seem to side with those analysts who keep telling us that the only way we can sort out Western economies is by making the average guy suffer through austerity programs… You are a very intelligent guy – obviously.
You can see how things work and what is broken. You can also see through the greed and excesses of Wall Street, and you can read the economic data which clearly shows that the wealthy continue to get more wealthy in America whilst the average Joe continues to see his standard of living going in the opposite direction. Capitalism today only works for the ‘have gots’. It’s been going in that direction for more than 30 years now.
You saw the senseless and stupid greed of the derivative scheme which fueled the housing bubble which led to the meltdown which never melted because Bush/Obama handed out a huge welfare check to financial institutions that should have been allowed to fail. “In the aftermath of all this, politicians in DC, you, and your guest pundits warn us that the world as we know it will end if we don’t somehow reduce the average Joe’s Social Security, pension, Medicare and Medicaid benefits. Oh and let’s not forget the budget, which is being argued in Washington as I type this.
The line is that we have to make drastic reductions to spending on domestic programs, on our schools, on our infrastructure, on unemployment entitlements, on all the things that serve to give working people a chance at a dignified life. You’re a smart guy. You can recognize what is fair and what is greed and excess. When the nation is as troubled as it is today and yet the wealthy are living even better than they did 30 years ago, what does that say about America? I wonder if we really care about our neighbors anymore?
I wonder why such a great country with such great natural resources cannot find a way to be just and generous and a beacon to higher ideals? Ike warned us to be wary of the military-industrial complex. Looks like he was right. We’re a nation constantly at war, spending trillions on defense, whilst at home we enrich the already wealthy and tell the average Joe that he has to pay for it.
I wonder how you manage to rationalize all this away – if indeed you do? “Thanks and with respect, Bill”
We have become a credit-addicted, credit-fueled economy, which works just fine until you have too much credit driving too little real growth. Without government spending, “real” GDP would be at levels it was over ten years ago. And it is real growth that drives wages and creates jobs. You write: “The line is that we have to make drastic reductions to spending on domestic programs, on our schools, on our infrastructure, on unemployment entitlements, on all the things that serve to give working people a chance at a dignified life.”
That is not my line. My book calls for a large increase in funded infrastructure spending through a fuels tax (none of it going to the federal coffers!). I am not against unemployment insurance, but at some point it needs to become job training and a path to employment.
I am a huge proponent of education, having spent a great deal of money on it over the years, with seven kids (and paid even more in taxes!). But does the current system really work? We have double the educational workers per student we had only a few decades ago, but no improvement in outcomes. Yes, we have to make cuts to government programs. A 33% growth in federal discretionary spending (not including stimulus money) the last three years alone is not reasonable, given the size of the deficit. The last recession was not caused by too little government. The Cancer of Debt The problem is that the debt is like a cancer.
The bigger it grows the more threatening it is. Pretty soon it consumes its host (think interest expense). Bill, I am worried about the survival of the country economically. Another crisis caused by the bond market driving up interest rates, because they become concerned about the size of the debt and deficits, will seriously reduce the choices we have – with none of them being good.
Ask Ireland or Greece how it feels. They are in what can only be called a depression, and likely to stay there for some time. You think we have it bad now? Avoid dealing with the debt and see what happens. To think it cannot happen here is to simply ignore reality. Yes, the US can go longer than we might think, but there is a limit. I think that limit will come before the middle of this decade. Perhaps as early as 2013, if the new incoming President and Congress do not deal with the deficit in a realistic manner. Then Bang! , we have our own Greek moment.
I want to avoid that. In my book and on numerous radio and TV shows, I have made the case that we must get the fiscal deficit below the growth rate of nominal GDP. That means we need to cut, over time, about $1 trillion from the current budget deficit. And that means entitlement spending has to be on the table, as well as tax increases. The polls clearly show that people want to keep Medicare and also are against tax increases (close to 70% in both cases). Those are not compatible objectives.
We have to have a national conversation about how much Medicare we want and how we want to pay for it. Writing the words tax and increase in the same sentence is difficult for me. Tax increases taken from private producers do nothing for economic growth, which is where we get new jobs. But I would rather have higher taxes than for deficits to be at a level where they threaten the economic survival of the republic. (And I make the case that if conservatives give in on tax increases, that means there needs to be a complete structural change to the tax system, gearing it more to encouraging growth, real Medicare reform, and even larger spending cuts, etc., that are linked to real, measurable metrics!)
I am just as frustrated as you about the bailout of banks, that we still have banks too big to fail, that credit default swaps are not on an exchange, that Fannie and Freddie still even exist in their current forms, and a host of other problems you mention. (Frank-Dodd was a disaster! It almost guarantees another crisis.) I have become all too familiar with cancer of late. It tends to focus the minds of those who are suffering, and their families, on survival. Chemotherapy is nasty. It means putting a toxic drug into your body. That is something you don’t want to do under normal circumstances, but when your survival is the issue, you do it. It is no less than economic survival we are talking about. Oh, the US has been through worse. Civil war, depressions, panics.
We will survive as a nation, but the pain we will endure is simply more than most people can comprehend, Bill. Whole generations of savings and investment will be wiped out. Think the cuts I am talking about are serious? Wait until interest payments are eating up 25-30% of revenues in a 12%+ unemployment world. Think the underfunded pension problems are bad now? Let’s have a REAL bear market, with inflation. I have some friends who think that is what it will take to get government smaller. They relish the thought, as they also think their gold portfolios will go through the roof. I am not in that camp. That is not a world I want for my kids and grandkids, Bill, most of whom are (for now) your average person. (Well, except for my exceptional grandkids.) I want us to find that middle path, to cure the cancer of debt.
Yes, I want smaller government and lower taxes, but survival is now my fixation. The cure for too much debt is not more debt. We can get it under control, but it is going to mean compromises, a word that I hate – but I also hate chemotherapy. I get that we need to do things to make government more efficient. And we need to provide safety nets. We need a lot of things. But most of all we need an adult conversation about what it is that we need, and what we can afford. The American people have to understand that the path back to a sustainable economy will not be easy.
As I have written many times, cutting government spending will mean lower GDP numbers in the short term, but survival in the longer term. This is not a typical business cycle. We cannot simply grow out of our problem. We haven’t really grown, except for government spending, for ten years. Yes, there are numerous steps we can take that will make it better and easier and quicker than if we wait until we are forced by a crisis to act. But there are no “Easy” buttons. Gentle readers, I promise you we get through this, one way or another. The 2020s are going to be a heck of a lot of fun!
Some responses to “The Plight of the Working Class”
Steve in KC Says:
April 2nd, 2011 at 6:27 pm
Beware of the Financial Expert/Economist bearing graphs……..
At the end of July, I’ll have been laid off from my full time job for two years. I’m one of those “highly skilled” people that the PTB say the wretched refuse should aspire to be. Solely thru my reputation locally, I’ve been able to string together 3-4 part time gigs to keep from sinking. At the cost of making 60% of the salary, and expenses doubled, vs. what I was making as a full timer.
And BTW, I was making $75K/year as a full timer, plus I had health insurance, which I don’t have now. The vaunted “free enterprise” system won’t insure me at any price, because I’m over 50, weigh too much, and take blood pressure meds.
Two of my clients are fully capable of paying me full time. But they choose not to. My story is not unique. Seems that if you are 40 or older, your services are still needed, but NOBODY wants to have you on the payroll. I’ve worked in the transportation sector all my adult life. The cramdowns started in the mid eighties, and the 90′s, which were supposedly so great, to us were a decade of yearly 1-2-3% “raises”, when the “real” inflation rate was at least double that.
So, as the years have gone by, and I tried to “live within my means”, I’ve had to throw the following things under the bus. Vacations of any type. Abandon my eight year cycle of replacing my cars, and drive junkers all the time. My tool budget, because they are a “long term investment”. Any savings for retirement, and finally, any savings to help my kids thru college.
That may be a good thing. All of my kids are able to survive working $10-15 jobs, because they don’t have mortgages, and they don’t have $50K worth of school loans hanging over their heads, like most of their co-workers. And more, guys like us need to take an even bigger “cram-down”, in order to “save the Republic”.
Sorry dude, this Republic is so FUBAR, and so utterly owned by the banksters/oligarchs/Top 1%ers, it isn’t worth saving. We’re a Banana Republic, with no bananas.
Yeah, things might be “better” in 2020, or thereabouts. Maybe. Too bad I’ll probably never live to see it.
markp Says:
April 2nd, 2011 at 7:27 pm
Comparing the situation in the US with the one in Greece and Ireland and drawing conclusions with regards to the debt and the deficit kills your credibility. Greece and Ireland are mere users of a very strong currency whereas the US is the monopoly issuer of its currency, the one that its entire debt is denominated and coincidentally the world’s reserve currency. Apples and oranges to say the least.
willid3 Says:
April 2nd, 2011 at 7:34 pm
i think the real observation is this. we give lots of tax cuts to the top 1%, supposedly because they will create jobs. mean while, we are going to cut spending on the lower 99% because we have a deficit problem it would appear that the 99% are paying for that tax cut. and not getting any thing at all, as every tax cut this decade has been sold as creating jobs. only to fail to ever deliver on that promise. ever so either we are keep repeating the same experiment we expecting a different result. or we have really bad Alzheimers. or we are amnesiacs.
and i am not convinced that the bond vigilantes will strike. unless you can show me that the have in Japan. where the deficit is how many times the size of the economy? so if we are really serious about cutting the deficit, why do we give tax cuts to those who won’t do any thing more than they did before we gave them? and why is it that when the top tax bracket was higher than 90% we did much better? and why is that only the 99% of us are in competition with world? and the top 1% get a bye?
just how much longer will the 99% keep supporting the 1% before we are tired of being savaged by them? so much gripes about Social Security, Medicare, and Medicaid. which are the most popular programs because they work for the 99% not the the 1%. and we need them because without them, we have no chance of surviving Winston Munn Says: April 2nd, 2011 at 7:43 pm Keeping Medicare intact without tax increases is simple – eliminate 95% of defense spending.
bv1 Says:
April 2nd, 2011 at 9:17 pm
Very good blog. Brings out a lot of things. Very perceptive. But how could you overlook (and not mention) the growing inequality of wealth and income in this country? The elephant in the room, as I see it, is the absence of higher taxes on the rich.
There is a great deal of data coming out about the size of the affluent tip of our income iceberg, and how much more of the country’s surplus wealth that they are raking in. It is unusual for a country in debt to cut spending but not increase revenues, particularly when the monetary resources are becoming more and more concentrated in the very small tip of our unequal income distribution.
Taxes have been reduced for the last 30 years, and revenues have not increased. I do not anywhere in your post where you mention the increasing inequality of wealth, and the role the lowered and lowering tax rates play in increasing the national debt.
techy Says:
April 2nd, 2011 at 9:35 pm
As far as I know social security is not a free ride yet.
May be same is not true of Medicare due to the exponential rise in the cost of healthcare. Medicaid is in a way, free government health care…..but I am not sure why the religious right is not saying yet “we do not care if those who cannot afford healthcare should die”.
I am sure they have no issues with the bums dying. I am not sure what kind of sick mind thinks that a person making $5 million deserves a much bigger break on his capital gains than the one making $50k working full time. Oh well the nexus of religious right with the greedy rich…can produce weird effects.
ZackAttack Says:
April 2nd, 2011 at 9:42 pm
Nice piece of doublethink… transferring trillions of FIRE debt onto the public balance sheet, then, once that’s done, demanding austerity.
KJ Foehr Says:
April 2nd, 2011 at 10:24 pm
@ techy You wrote, “Instead of what you are saying, what if we do below: 1. inflate our way out of the debt 2. create wage inflation(not happening right now but thats the goal)
This is what is being attempted by every government in the world except the net exporters….and no matter what you all say…this is the only option….” ———–
IMO, you are right, inflation is the preferable path. Inflation benefits debtors, both individuals, like those with a mortgage greater than the value of their home, and the government because its debt would shrink as a percent of an inflating GDP and can be paid back with cheaper dollars. But don’t hold your breath waiting for it.
Ben has been trying at warp speed to generate some inflation since the house of cards began to collapse in 2008. But his goal is only to prevent deflation, not cause significant inflation. Why won’t inflation be our path out of crushing debt? Because rich people hate inflation, and the rich firmly hold the reins of power in this country now. They hate it because it erodes the purchasing power of their savings, and not all their assets will keep pace with inflation, therefore, they will suffer (relatively speaking, of course).
And suffering, as we know, is only for the little people.
So the wealthy will push for tightening very soon, as inflation psychology begins to take hold. Ben and the administration will comply, because, as we know, the banks and corporations pull most of the strings in this country. Then rising interest rates will put us back into recession.
And who will suffer then? Again it will be the poor who are saddled with debt and assets that will further decline in value. The rich will suffer much less, if at all, because they have no debt to worry about and sufficient assets to last a lifetime.
And what about those large corporations that have mountains of debt? Well they are too big to fail, so as we have seen before, they don’t need to worry either; the taxpayer will keep them afloat. (Corporate bailouts are good/necessary, but entitlements for the poor are bad/expendable.) Opposition to the inflationary path also comes from middle and working class libertarians and tea partiers who take the simplistic view that government (and its debt) and the Federal Reserve with its fiat currency are the cause of all our economic woes (and almost every other problem in the country).
They still labor under the delusion that free-market capitalism will save us, even though it was the unfettering of capitalism over the past 30 years that led to the financial collapse in the first place.
We missed the chance to purge this ideology in 2008. What should have happened, that would have changed many minds and squelched the popularity of this ruinous philosophy, is if the economy had been allowed to really collapse in 2008.
If government had not stepped in to save it, then they would have seen the bitter fruits of their seriously flawed beliefs. But the inevitable collapse of unfettered markets was stopped by the very government they now blame. So they did not suffer enough pain to wake them up to the truth. Instead they are still comfortable enough to persist in their delusion and pursue killing that which saved us before and must save us again: the government and the Federal Reserve through stimulus spending and reflation.
So who will win the day: those who want to inflate debt down to manageable size or the budget cutters and inflation hawks? Well with the rich and the corporations now aligned with poor and middle class libertarians and tea partiers against the government and the few people able to see the bigger picture here, I don’t think there is much doubt about the outcome.
I predict even tougher times ahead for the poor, not the rich. And raising taxes as an alternative to cutting government spending and reduce the deficit? Forget about it. Too many voters have been brainwashed by the rich into believing lower taxes on the wealthy is the road to prosperity for all, and taxes at any level only feed the evil beast government. (That’s absurd I know, as only the wealthy have really prospered in the 30 years since Reagan first spoke of “trickle down” economics. So, ignorance continues to rule).
As a result of this brainwashing, and the inability of many people to see through it, instead of the wealthy and corporations paying more tax to reduce the deficit, the poor will be forced to take it in the shorts again and again, until they finally wake up, which hopefully won’t be too late to save our country from eventually imploding due to the extreme greed of the rich and the simplemindedness of the “something for nothing crowd”.
MadHemingway Says:
April 2nd, 2011 at 10:48 pm
Thanks John, I always get a chuckle out of your opinions. That reminds me of that column on Israel you wrote months ago. Sometimes the answer really is simple (this time) instead of long-winded and round-about. You really should inoculate yourself from being a Texan and the W-kind of thinking that’s caused this mess. Afterall, Texas is near last in everything. Why, they even have 22 year olds playing high school football.
vader Says:
April 2nd, 2011 at 11:02 pm
Thoughtful, but the same old let the non rich take one for the republic while the rich get the benefits. There have been experiments doing this, the lead up to the French Revolution being one.
OK lets take a possible solution. Lower military spending a lot, raise taxes a lot on the top earners and a bit on everyone else and then look at single payer medical care where either the govermit does it or pays someone else to do it with triage so that 80 year olds don’t get kidney transplants, but most folks get life saving care.
Too many stakeholders to do that. Maybe the republic with make it through, but I have my doubts. Like Liberia and Egypt as well as other countries where those in control, control the resources only masses in the streets change things. In the 1930s and the 1860s, only a powerful and competent president succeeded. Both were accidents of the electoral process.
Could we elect a strong president that will endanger the wealthy elites with a money based electoral process?
Ha CTB Says:
April 2nd, 2011 at 11:40 pm
No mention in this about globalization’s effects on wage stagnation? Or THREE unfunded wars in the Middle East on federal debt? How about Chinese currency manipulation? What about our futile drug war and ethanol subsidies? Also, we have apparently ceased collecting taxes on our corporations, since they have all fled to tax havens.
This article caught my eye, but I had to roll my eyes at the Republican talking points (“adult conversation”) and questionable ideology. Face it, John, you want smaller government as an end in itself. The solution to our wage problem is lower GDP, so we can grow from a lower point. Brilliant.
Barry, I enjoy your blog. It started off promising, but yet again I find John’s column unreadable.
I used to enjoy Mauldin’s pieces, but they have increasingly become GOP talking points. In short, he is a privileged member of an elite social class and he wished to protect that class(and his wealth) at the expense of the great unwashed worker classes.
digistar Says:
April 3rd, 2011 at 12:52 am
Barry, So much of what you do here is great. This article is not. It is an insult to your readers. Please tell us this article is a day-old April Fools joke.
arthur.i Says:
April 3rd, 2011 at 6:50 am
Mr. Mauldin,
I have enjoyed your “folksy, gosh darn it” common sense approach and perspective on finance.
Until now.
When you argued so strongly in favor of extending the Bush tax cuts, costing 400 billion a year, I thought that was odd. You were ever so convinced that with out extending these cuts for the wealthy that it would hurt GDP and unemployment would rise. I did some research and as it turns out, most economists strongly disagree with you.
And now you can see that the budget deficits are really bad for the U.S. WTF!???
You just used your not inconsiderable influence in giving the wealthy a 800 billion dollar gift and NOW you really want to get the deficit in order.
Read this: http://www.vanityfair.com/society/features/2011/05/top-one-percent-201105
It’s no use pretending that what has obviously happened has not in fact happened. The upper 1 percent of Americans are now taking in nearly a quarter of the nation’s income every year. In terms of wealth rather than income, the top 1 percent control 40 percent.
The top 1 percent may complain about the kind of government we have in America, but in truth they like it just fine: too gridlocked to re-distribute, too divided to do anything but lower taxes.
The top 1 percent have the best houses, the best educations, the best doctors, and the best lifestyles, but there is one thing that money doesn’t seem to have bought: an understanding that their fate is bound up with how the other 99 percent live. Throughout history, this is something that the top 1 percent eventually do learn. Too late.
PS: All great comments above, especially: Steve in KC, willid3, Winston Munn, KJ Foehr and vader.
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