Globalization & the American Dream

With the Beijing Olympic fireworks show over, are we ready for the next big “dog and pony” show at the Democratic Convention in Denver? I swear, sometimes I think I am back in the days of the big Coliseum shows in Rome with the Roman Empire in all its glory. Of course the difference then was that Nero did not pretend that anything serious was about to take place. It was just entertainment. I wonder, is this what we are going to be treated to in both Denver and St. Paul?

The Sunday Magazine of the Times is devoted to Obamanomics. This was an interesting read. Obama went to the University of Chicago. There he was heavily exposed to the Milton Friedman notion that, left alone, the market will eventually take care of everything. Obama seems to be struggling with how much to trust the market, ala Milton Friedman, or are there times when Government intervention is absolutely necessary, as in the time of the Great Depression?

One of the most dramatic changes that influences this debate is the globalization of the economy. I am reminded of a tense negotiation between G.M. and the U.A.W. back in the fifties. G.M. was not budging on the wage issue and Walter Reuther, then President of the U.A.W. said to the President of G.M. something like, “Look, if you want your employees to be able to buy your cars, you got to pay them a living wage.” That notion suggested that, if the system was going to continue between the balance of wages and profits, profits had to be shared with workers. What has happened with that idea since globalization?

I believe it is precisely because manufacturing has been moved out of the U.S. that the wage and profit ratio has gotten completely out of hand. With manufacturing done in very low wage countries, profit ratios for most major companies have gotten out of hand. If these companies were manufacturing in the U.S., the unions would long ago have been able to keep up with their share of the profits. But because the manufacturing is off-shore, the unions lose their power in trying to maintain a wage/profit ratio. That’s why so many economists keep saying that the middle class has not been able to stay even with inflation, no less move ahead. (Somehow over the years the term “middle class” has gotten to include blue collar workers.)

Further evidence for my argument comes from Robert Reich in the New York Times, Feb. 13, 2008: “The underlying problem has been building for decades. America’s median hourly wage is barely higher than it was 35 years ago, adjusted for inflation. The income of a man in his 30s is now 12 percent below that of a man his age three decades ago. Most of what’s been earned in America since then has gone to the richest 5 percent.”

This is at the heart of why the rich have gotten richer while the rest of us just keep treading water to keep from drowning. That is precisely what is happening right now in this economy. The middle class trying to improve themselves, a very noble American tradition, are being swallowed up by debt. Oh sure, one can argue that it’s their fault that they bought houses they can’t possibly pay for on their income. But how about the responsibility of the hustlers who sold them a bill of goods knowing there was no way in God’s world they could pay those mortgages. Now it’s just fine for the Government to jump in and save Bear Stearns and soon Freddie Mac and his cousin Mae, but many of the middle class folks are stuck holding the bag for mortgages they can’t pay. And we all may be paying for Fanny Mae and Freddie Mac to stay afloat.

It is this new configuration that tells me that Obama is absolutely right when he says we have to rescind the tax breaks for the wealthiest people who have been making a huge killing on the Global economy. If Obama proposes to redistribute wealth someone wants to call wealth redistribution via the tax system, that’s just fine. The point is we are living in a Global Economy and the average middle class American has to have a way to get in on the goodies, otherwise the system is in serious trouble.

Finally I do certainly agree with James Carville when he says it’s time for Obama to get mad. Obama needs to show more intensity about the everyday needs of his constituents.

Enjoy the spectacle and we’ll touch base again when it’s over.

Thanks Kate N.H.W.Y.

P.S. As we consider Friedman’s admonition of letting the market work, it might be good to recall President Reagan’s economic stimulus package. He doubled the defense budget, creating millions of good blue-collar jobs.