I don’t think it is a stretch to believe that there is a link between the historic bloodletting that our manufacturing sector suffered during the first decade of this century and what has been an erosion of the American middle class. I think the two go hand in hand.
Back in April, I wrote about how manufacturing in this country was decimated with the loss of 5.5 million jobs between 2000 and 2010, with an average of 15 manufacturing plants a day closing. (See April 15 blog: A Kick in the Gut: What Really Happened to American Manufacturing — https://deanbarber.wordpress.com/2012/04/15/a-kick-in-the-gut-what-really-happened-with-american-manufacturing/ )
Mind you, manufacturing has made relatively small gains in the past two years in terms of job growth in comparison to what has been lost, and the United States still retains the largest manufacturing sector in the world, but, boy howdy, we have taken it on the chin as has our middle class.
American families’ median net worth fell dramatically between 2007 and 2010, plummeting nearly 40 percent to levels last seen in the early 1990s, according to a report last week by the Federal Reserve.
In its Survey of Consumer Finances, the Fed said the median net worth dropped from $126,000 in 2007 to $77,300 in 2010.
“Although declines in the values of financial assets or business were important factors for some families, the decreases in median net worth appear to have been driven most strongly by a broad collapse in house prices,” the Fed report stated.
As the Washington Post so adeptly put it, “Over a span of three years, Americans watched progress that took almost a generation to accumulate evaporate. The promise of retirement built on the inevitable rise of the stock market proved illusory for most. Home ownership, once heralded as a pathway to wealth, became an albatross.”
I think that pretty well sums it up.
But I would submit that the collapse in housing prices aided and abetted an overall collapse in consumer demand, which largely drives our economy, with the resulting recession and the continued funk that we still find ourselves in. Across America, in the boardrooms of corporate suites and at kitchen tables, there is a nagging uncertainty that is still hanging with us.
And uncertainty is never a friend of capital investment, as I tell my friends in economic development. And it never drives consumer spending.
The wounds of the recession, which history will show was a cataclysmic collapse, have not healed for many families. Indeed, the recession has not ended for millions of Americans who remain unemployed or underemployed. They are still coping in what has been a halting recovery at best.
The middle class, that vast sea which moves consumer demand, has struggled to reverse the damage, while the wealthiest families saw their median net worth actually rise. Without trying to demonize or put to any sort of spin to this, there has been an increased concentration of wealth in our country. That is just a fact.
Two historians, Walter Schiedel and Steven Friesen, contend that income inequality in America is at levels even higher than those in ancient Rome. They say the top 1 percent of earners in ancient Rome controlled 16 percent of the society’s wealth, whereas the top 1 percent in current day America controls 40 percent of the country’s wealth.
Now I cannot absolutely verify that this is so. I cannot say for certain, as has been reported, that the net worth of the bottom 60 percent of Americans is less than that of the Forbes 400 richest Americans or that the six heirs to Wal-Mart had the same net worth in 2007 as the bottom 30 percent of Americans.
But if this is even half true (I think there are more half truths lurking about in this world than 100 percent truths), I don’t think that bodes well for either our economy or for our democracy for that matter. It is no great revelation that money can have corrupting influence on elections and those who govern us. That Supreme Court decision allowing billionaires to pump untold amounts of money into super PACs certainly didn’t help.
Now please understand that I did not go tenting along the old campground with the scruffy Occupy Wall Street crowd, even if I am capable of looking scruffy myself at times. But I do not dismiss their foundational argument that income inequality is a big problem for our country.
Truly, I am no socialist as I will always believe in market-driven economies, and people building successful businesses and getting rich in the process. If you work hard and chase a vision that takes hold, why shouldn’t you be rewarded as an entrepreneur? And if you want to live large and flaunt your money, have at it. I truly have no wealth envy of anyone doing their bling bling.
Every man a king, as Huey Long would say.
But I must admit that I have a great admiration for the seemingly humble way that billionaire Warren Buffet lives and carries himself. Here’s a man that prefers pub food and lives rather modestly in the same house that he bought in Omaha in the 1950s. I mean, how cool is that?
And truly I don’t believe you can call Buffet, one of the most successful investors in our capitalist system, a leftist wingnut, because he might have the audacity to hold the opinion that he should pay a higher tax rate than say his secretary.
But the despite the huge and growing gap between the bolstered rich and the decimated middle class, both groups are of the increasing same opinion that the United States is heading in the wrong direction economically and won’t recover for another two years at the earliest. That is not class warfare, but rather a shared vision of the future. Whether they blame President Obama, well, that’s a whole another question.
Despite the fact that the recession was supposed to have officially ended in June 2009, 39 percent think the downturn won’t end until 2014 or later and 15 percent say the recession will never end. Those are the findings of an April 2012 report called the Mendelsohn Affluent Barometer and as reported by CNBC.
This underlying pessimism does nothing to bolster consumer confidence, which in the end is the big driver for how the economy goes. The fact is that demand worldwide is softening, even in China. And if Europe tanks, as it very well could, it may be a very long haul for the middle class regaining wealth and stability.
To that end, Europe really could be Barack Obama’s Waterloo. I am not predicting that yet. I’m just saying that Europe may hold the key to whether the world economy will grow or languish. Frankly, I’m not sure the whole Eurozone concept can work as it is currently structured.
With no constitution that bounds them together, but rather something more akin to an articles of confederation, the bonds that keep these diverse 17 nations together seem to get weaker every day.
And the truth is that there’s really not much we – our government – can do to influence events as they unfold over there. We can only watch this train wreck happen or be averted, the consequences having huge ramifications on our lives over here.
Already the consumer is pulling back as retail sales in May showed a second consecutive month of decline. Eight of 13 major retail categories showed sales declines last month, according to the Commerce Department.
Now you would think that the recent uptick in factory employment and a return of some production to the U.S. from abroad would help retail sales. But that has largely not been the case because sluggish wages are squeezing workers’ incomes and spending.
Manufacturing workers averaged pay of $19.15 per hour in the U.S. in April, 3.2 percent below their peak in March 2009 and back to where they were, adjusted for inflation, in 2000. The fact is that wages for many manufacturing workers aren’t keeping up with inflation.
The Employment Cost Index shows that manufacturer’s labor costs were 2.7 percent lower in the first quarter of 2012 than in 2005, adjusted for inflation. If wage stagnation has been the story for U.S. manufacturing, that has not been the case for China and Mexico, which may play a contributing role as to why some re-shoring has and will take place.
And while the absence of wage growth may make some manufacturers more likely to hire, it is not a trend that will necessarily encourage young people, most of whom are already skeptical of manufacturing as a viable career choice, to enter the ranks of the factory employed.
And it is somewhat ironic and puzzling that many older (and more experienced and knowledgeable) workers have been purposely shown the door by many companies who seek to cut costs by hiring a younger crop at lower wages (when they can find them). That might make sense from an accounting standpoint, but it can come back to haunt you if you are engaged in age discrimination and/or purging your organization of knowledge.
And on today’s plant floor, knowledge is a valuable commodity. Invariably, the most knowledgeable workers are the most experienced. You learn by doing and the more you have done, the more you have learned. It’s called life, the great trial by fire.
Currently, there more unemployed people in this country than those working in manufacturing. That’s not good. Maybe it’s because I grew in a manufacturing family or have helped manufacturing companies find future plant sites that I have such an affinity for manufacturing.
But I cannot help but believe that our nation’s fate – the fate of our middle class — hinges on the health of our manufacturing sector. It boils down to an investment in human resources, even in the worst of times or maybe especially in the worst of times.
It was the best of times, it was the worst of times. Now where have I heard that before?
Dean Barber is the principal/owner of Barber Business Advisors, LLC., a site selection and economic development consulting firm based in Plano, Texas. He can be reached at 972-767-9518 or at firstname.lastname@example.org Please visit our website at www.barberadvisors.com