Last time we looked at how Americans' unholy obsession with more and bigger everything explains why the nation can no longer provide many basics that it could 40 or 50 years ago. We see this in the $40,000-$60,000 luxury SUVs, Mercedes, Lexus and other high end cars on the road today. Those are no longer the exception, toys of the rich; instead, they're so commonplace as to not even warrant the special attention that such a car would have gotten back in the day. Compare this to 1965, when the average new car cost $2650. Then there are our homes, averaging $355,000 in San Diego today, vs. $20,500 in 1965. Of course, cars, houses, and most everything else have better features now than they did in 1965, but still - people paying 18 times as much for cars and 17 times as much for homes, when overall prices are only 7 times higher today than back then? Hmmm......
I'm going to let others calculate how much we've got tied up in housing, cars, electronics, etc. today, vs. back in the 1960s. But can we just agree that it's probably tens of trillions of dollars, many more than in 1965 even after adjusting for inflation? Still, I wonder how much of our money has ended up in the pockets of Wall Street pirates, corporate fat cats and foreign billionaires, thus hobbling the nation's capacity to function smoothly. I mean, it's one thing if we stupidly but knowingly sacrificed the nation's future for the benefit of our own conspicuous consumption, yet it's quite another to have been duped out of billions or trillions by these unsavory characters.
I guess that's the question: Is it many billions, or is it trillions? Because if the big bankers ripped us off for tens of billions over the years, corporations lined their pockets and those of their stockholders with tens of billions more, and we've sent tens of billions in wealth abroad without it coming back to us in some form or another, then that's a bummer, but hardly explains the mess we're in. On the other hand, if the big banks and brokerage firms have pocketed many hundreds of billions or even trillions in ill-gotten gains, while corporations and foreigners have matched their thievery or - especially in the case of foreigners - perhaps rather fairly-gotten gains, well - that's a pretty big deal, isn't it?
I'm not sure which it is. Nor am I sure I want to do all the research to figure it out. But I'd like to have some idea, and think Americans (or at least readers of this blog) should know which is more likely. No sense blaming corporate America and avaricious foreigners for all for our ills if it's not really their fault!
Where to start? Well, knowing how much Wall Street firms and the big banks made over, say, the last 20 years would be a good starting point. Next, we could take a look at total pay (including bonuses & stock options) for top corporate executives over the past 20 years, using perhaps the 30 companies in the Dow Jones Industrial Average. Measuring how much foreigners have "ripped us off" over that same time period would be, I think, just too difficult. There are so many variables there, not the least of which is the incredible growth in their own country's markets, the degree to which they became wealthy "fair and square", and other considerations. So, now that I think of it, I'm just going to focus on home-grown theft by "Wall Street" and "Corporate America".
You don't know it, but I just took some days off to look for the kind of information mentioned in the previous paragraph. Didn't have a lot of luck. Bits and pieces, such as the nation's brokerage firms made $61 billion in 2009, a record year, but lost $23 billion in 2008. Well, I'm going to use those bits and pieces, some knowledge of the business world and economics, and some common sense to come up with some "guesstimates". These are not hard, reliable figures, but they're a start; an honest effort to gauge where some of our money has gone.
Going back to the early '90s, it seems that Wall Street lost money only a few times, but otherwise made something like $10 billion-20 billion a year most of the time, with plus $69 B and minus $23 B being the outliers. Let's take the middle of the range, and say that they averaged $15 billion a year in profits, or $300 billion total over the last twenty years. But what about all the bonuses they paid out? In most cases, those would have come out before figuring profits, so there's another big chunk of money that Wall Street walked away with. Last year those amounted to nearly $21 billion, the 5th largest amount ever. Let's go out on a limb somewhat and guess that maybe those have averaged about $15 billion a year also, or another $300 billion over twenty years.
That's perhaps $600 billion that Wall Street's taken home since 1990. Certainly much of that found its way into the pockets of millions of Americans, either in the form of dividends or the trickle-down effects of the wealthy spending their money. And a big chunk went for taxes; despite the conventional wisdom that the rich avoid paying taxes, the fact is that something like 70% of all income taxes collected come from the richest 10% of Americans. Let's cut to the chase: I'm guessing that Wall Street fat cats have pocketed, held onto, squirreled away perhaps $200-300 billion over the last twenty years; that's $200-300 billion moved into Swiss bank accounts, $20 million houses, $10 million works of art, etc.
That's a lot of do-re-mi, as they say. But not enough to explain why we're $15 trillion in debt, can't afford to fix our roads, and so forth. There's also the corporate profits, and increase in stockholder wealth, though. Again, it's really hard to get a handle on those numbers, at least without going out and doing the serious research that - well, let's be honest - I don't want to bother with right now.
What I do know is that the 5000 largest corporations were worth about $4.5 trillion in 1990, and are worth nearly $17 trillion today. That change would about account for the increase in our national debt over the same time period, but such a comparison would be totally bogus. First, because those corporations grew by creating tens of trillions of dollars worth of goods and services that went to us Americans, so it's hardly saying that they "stole" their greater value. Second, because nowadays more than half of all Americans own stock, either directly, indirectly, or both. So much of that increased value has, again, gone into the pockets of tens of millions of Americans, not just a relatively few fat-cats.
Another thing to consider is how much profits have been earned by U.S. corporations. This is different from how much the companies are worth (the subject of the previous paragraph); a big chunk of the profits are paid out every year, and thus become income for stockholders. Twenty years ago, U.S. corporations had total profits of about $400 billion a year; by the end of the 1990s, profits were over $800 billion a year. In the last five years, however, total profits have been in the $1 trillion - $1.6 trillion range a year. That implies that total corporate profits these days are about three times as high (or more) as they were twenty years ago and, by extension, we might suppose that an "extra" $10 trillion or more has gone to corporate America in the last 20 years.
Now, not all that money was paid out in the form of dividends; only about 50% of profits get paid out that way. But still - an "extra" $5 trillion or so going into the pockets of U.S. stockholders in the last 20 years? That's a lot! Still, let's remember that while a big chunk of that ends up in the accounts of the $20 million mansion crowd, quite a bit goes to many millions of more ordinary Americans.
Let's try to connect the dots now. First of all, the data is really scattered and it would be unwise to make definite conclusions out of what I've presented here. Nevertheless, it DOES seem a safe bet that many hundreds of billions, probably trillions, of dollars have found their way into the hands of corporate big-wigs, wealthy investors, and other Wall Street types in the last twenty years or so. Probably much of that was earned fair and square, but it's just as likely that much of it was excessive, unwarranted, and unfair. CEOs making 30 or 40 times what their average employee makes? OK - probably deserved. CEOs making 500 times the typical employee's salary? Not so much. Guys like Bill Gates, who revolutionized our world and created incalculable real value for all of us, becoming a multi-billionaire? Well done, Bill! The 22-year old kid becoming a multi-billionaire for creating an on-line chat room, or big bankers earning $300 million bonuses for figuring out new ways to game bloated, dysfunctional mortgage markets? I don't think so.
So is the nation a poorer place, unable to pay for good schools, roads, and avoid government shutdowns because of Wall Street's greed? Probably so, at least in part. Let's remember, however, that there's plenty of blame to go around - as discussed in earlier parts of this blog. Wall Street avarice and the full-contact form of American capitalism may be the bad guys, but they are hardly the only ones.
Sunday, March 27, 2011
Friday, March 18, 2011
A Really Big Question, part 3
The U.S. today is 3 to 4 times richer than it was 50 years ago, yet we can't afford many of the basics that we took for granted back then. Why is that? Where'd the money go? That's where we left off last time, after concluding that the nation's massive accumulation of debt (a.k.a - living beyond our means) is probably a big part of the answer. Related to that is the sad story of consumerism gone mad in the U.S.
During the 1950s and 1960s, the nation grew ever more prosperous, while memories of hard times (the Great Depression and WWII) faded from people's minds. The last really tough economic times were the late-1970s and early-1980s, when the twin devils of high inflation and high unemployment spiraled the nation into a pessimistic funk. Ronald Reagan, supply-side policies, the collapse of European communism, advances in technology and communication, and improved monetary policies out of the Federal Reserve (rank these according to your political views) led the country into the fabled "Goldilocks economy" of the mid-1980s to late-2000s. Notwithstanding the dot-com bubble collapse of 1999 and 9/11/2001, the country enjoyed an unprecedented period of low unemployment, low inflation, and high growth - a near miracle that made it the envy of the world.
In this glorious economy Americans, aided by the increasingly finely tuned instincts of the advertising industry, responded by demanding more of .... EVERYTHING. Whereas the typical 1950s family of six managed just fine with an average house of 1100 square feet and a modest four-door sedan, average new home size grew to over 1500 square feet in the late-1980s, and a ridiculous 2200 square feet by 2005 - while average family size dropped to less than four! Meanwhile, the basic sedan was replaced by the 1990's larger, signature vehicle - the Ford Explorer. But by the turn of the century, the Explorer didn't convey the idea of conspicuous consumption quite enough, and Americans traded up to even larger Expeditions, Excursions, Escalantes, Tahoes, etc. Yup - $40,000 four-wheel drive vehicles that seat nine, for families of three, who lived and stayed in the city. WTF?
It was the same across the board. Why buy $25 Levis when you could buy $100 designer jeans? Why eat at a modest local diner once a month when you could dine finely a couple of times a week? Why watch a the 26" inch TV that was plenty big in 1980, when you could get a 60" flat-screen for about five times as much? We never felt the need to be connected previously to everyone we know, minute by minute, but now how many people can get by without their cell phones, the minute-by-minute texts and tweets, the e-mails - all for a low, low $150 a month?
Americans spent, then spent more, then borrowed to spend even more. Meanwhile, the thought of saving money receded into the distant memories of "back in the day...." In the 1960s, the average American saved about 8% of what they made. In 1975, the rate was as high as 14.6%. But then it started dropping, as we all decided that "wants" were actually "needs". By the early 2000s, the nation's average savings rate was essentially zero; for every person who saved, there was another person with no savings, but debt instead. As a country, we stopped saving and just spent, spent, spent.
We became stupid. We equated happiness, success, and personal worth with - vast amounts of stuff. Expensive, unnecessary, superfluous stuff. So the money, hundreds of billions - trillions, actually - of American wealth went into the pockets of the advertisers, manufacturers and merchants that told us what we needed, and then happily gave it to us. Average Joe and Jane Smith became real estate wizards who made millions on the idiocy of millions of other Smiths trying to keep up with one another and the Joneses. Techie geniuses came up with devices so appealing that we simply couldn't live without them. The world (China!) opened up to us, offering their unlimited quantities of every-damn-thing to us at ridiculously low prices. Americans bought and bought and bought, their money lining the pockets of realtors, developers, entrepreneurs, and foreign businessmen at incredible rates.
The world's multi-millionaires became multi-billionaires. Broke-ass Chinese, all riding bikes 25 years ago, have come to have the second largest number of billionaires (64 of 'em) of any country in the world today; additionally, almost half a million Chinese are millionaires. CEOs in the U.S. regularly make millions of dollars a year, plus bonuses. The stock market, as measured by the Dow Jones Industrial Average was around 1000 in 1980; it's twelve times that today.
All the money we've made in the last 40 or 50 years, apart from being financed from borrowing, from debt, has gone into all the stuff we own and the pockets of the people who made and sold us all that crap. We've got bigger houses and cars and fancier and more of everything than we need, and that's where the money went. From there it lined the pockets of the bankers, the entrepreneurs, the stock owners, the real estate scammers, the foreigners. Instead of into better schools, roads, parks, health care for virtually everyone, a cheap college education, government offices open 5 days a week, every week.
Don't blame them. They're doing what they do: they create, they produce, they promote; they capitalize on opportunities. It's not their fault they've got our money. But that's where a lot of it went.
During the 1950s and 1960s, the nation grew ever more prosperous, while memories of hard times (the Great Depression and WWII) faded from people's minds. The last really tough economic times were the late-1970s and early-1980s, when the twin devils of high inflation and high unemployment spiraled the nation into a pessimistic funk. Ronald Reagan, supply-side policies, the collapse of European communism, advances in technology and communication, and improved monetary policies out of the Federal Reserve (rank these according to your political views) led the country into the fabled "Goldilocks economy" of the mid-1980s to late-2000s. Notwithstanding the dot-com bubble collapse of 1999 and 9/11/2001, the country enjoyed an unprecedented period of low unemployment, low inflation, and high growth - a near miracle that made it the envy of the world.
In this glorious economy Americans, aided by the increasingly finely tuned instincts of the advertising industry, responded by demanding more of .... EVERYTHING. Whereas the typical 1950s family of six managed just fine with an average house of 1100 square feet and a modest four-door sedan, average new home size grew to over 1500 square feet in the late-1980s, and a ridiculous 2200 square feet by 2005 - while average family size dropped to less than four! Meanwhile, the basic sedan was replaced by the 1990's larger, signature vehicle - the Ford Explorer. But by the turn of the century, the Explorer didn't convey the idea of conspicuous consumption quite enough, and Americans traded up to even larger Expeditions, Excursions, Escalantes, Tahoes, etc. Yup - $40,000 four-wheel drive vehicles that seat nine, for families of three, who lived and stayed in the city. WTF?
It was the same across the board. Why buy $25 Levis when you could buy $100 designer jeans? Why eat at a modest local diner once a month when you could dine finely a couple of times a week? Why watch a the 26" inch TV that was plenty big in 1980, when you could get a 60" flat-screen for about five times as much? We never felt the need to be connected previously to everyone we know, minute by minute, but now how many people can get by without their cell phones, the minute-by-minute texts and tweets, the e-mails - all for a low, low $150 a month?
Americans spent, then spent more, then borrowed to spend even more. Meanwhile, the thought of saving money receded into the distant memories of "back in the day...." In the 1960s, the average American saved about 8% of what they made. In 1975, the rate was as high as 14.6%. But then it started dropping, as we all decided that "wants" were actually "needs". By the early 2000s, the nation's average savings rate was essentially zero; for every person who saved, there was another person with no savings, but debt instead. As a country, we stopped saving and just spent, spent, spent.
We became stupid. We equated happiness, success, and personal worth with - vast amounts of stuff. Expensive, unnecessary, superfluous stuff. So the money, hundreds of billions - trillions, actually - of American wealth went into the pockets of the advertisers, manufacturers and merchants that told us what we needed, and then happily gave it to us. Average Joe and Jane Smith became real estate wizards who made millions on the idiocy of millions of other Smiths trying to keep up with one another and the Joneses. Techie geniuses came up with devices so appealing that we simply couldn't live without them. The world (China!) opened up to us, offering their unlimited quantities of every-damn-thing to us at ridiculously low prices. Americans bought and bought and bought, their money lining the pockets of realtors, developers, entrepreneurs, and foreign businessmen at incredible rates.
The world's multi-millionaires became multi-billionaires. Broke-ass Chinese, all riding bikes 25 years ago, have come to have the second largest number of billionaires (64 of 'em) of any country in the world today; additionally, almost half a million Chinese are millionaires. CEOs in the U.S. regularly make millions of dollars a year, plus bonuses. The stock market, as measured by the Dow Jones Industrial Average was around 1000 in 1980; it's twelve times that today.
All the money we've made in the last 40 or 50 years, apart from being financed from borrowing, from debt, has gone into all the stuff we own and the pockets of the people who made and sold us all that crap. We've got bigger houses and cars and fancier and more of everything than we need, and that's where the money went. From there it lined the pockets of the bankers, the entrepreneurs, the stock owners, the real estate scammers, the foreigners. Instead of into better schools, roads, parks, health care for virtually everyone, a cheap college education, government offices open 5 days a week, every week.
Don't blame them. They're doing what they do: they create, they produce, they promote; they capitalize on opportunities. It's not their fault they've got our money. But that's where a lot of it went.
Tuesday, March 8, 2011
A Really Big Question, cont.
Last time I raised the big question of: even though the U.S. is much richer now than it was 40 or 50 years ago, why is it that we're missing so many of the basics that were part of our lives back then? Where did all the money go?
The nation's GDP, or Gross Domestic Product, is about $14 trillion today. GDP, which is the most widely used measure of a country's wealth, tells us how many goods and services are produced in a year. If we want to know how wealthy the average citizen is, however, we're better off looking at GDP per capita, or the amount of goods and services produced in a year, per person. Our GDP per capita is about $45,000 these days, which is one of the highest figures in the world.
The nation's GDP, or Gross Domestic Product, is about $14 trillion today. GDP, which is the most widely used measure of a country's wealth, tells us how many goods and services are produced in a year. If we want to know how wealthy the average citizen is, however, we're better off looking at GDP per capita, or the amount of goods and services produced in a year, per person. Our GDP per capita is about $45,000 these days, which is one of the highest figures in the world.
By contrast, let's look at the year 1965, which in many ways was a high point for this country. The Vietnam war was not really a problem yet, inflation and unemployment were virtually non-existent, the U.S. was the unquestioned manufacturing giant of the world, and civil and generational upheavals were mostly a couple of years down the road still. All of these things would change quickly, but in 1965, the nation's real GDP (GDP that is adjusted for inflation) was about $3.5 trillion, or about a fourth of what it is today. GDP per capita, also adjusted for inflation, was about $18,000, or a bit more than a third of what it is today. So it's pretty fair to say that as a country, the U.S. is about 3 to 4 times richer today than it was in 1965.
Getting back to the original issue: why is it that today's much wealthier nation - 3 to 4 times wealthier than in 1965 - cannot provide many of the basic services that were a "given" back then? Why have police, firefighters, teachers, librarians, sanitation workers and other key public servants' jobs been eliminated, with many more cuts likely? Why are key government offices closed several days a month, and school years being cut, just when we need to focus more on education, not less? Why are our bridges and roads falling apart after decades of neglect? Why is medical care an unaffordable luxury for so many Americans?
Now debt's not always a bad thing. If you or I or a business or the government borrows money to make a sensible investment, then debt can be good. So if I borrow to pay for a solid college education, a business borrows to build a new factory, or the government borrows to build a better transportation system for the country, then those things are most likely going to pay me, the business, and the country back several times over in the long run. Similarly, if the government borrows to fight a necessary war, well - that's a necessity, isn't it? That's good debt.
On the other hand, though, if I borrow so I can take a high-end European vacation, the business borrows to pay its top executives un-Godly large bonuses, and the government borrows to pay for wasteful pork or an expensive war that perhaps was unnecessary, then all of us are going to end up with nothing to show for it down the road except a reduction in our net worth. That's bad debt.
I think the reality is that a lot of the borrowing that we saw in the 1980s was associated with a number of supply-side policies, and that it was "good debt". Starting in 1981, marginal tax rates for businesses and individuals were cut, giving them more incentive to work harder and invest. Regulations on businesses were cut back, making it easier and more profitable for them to operate and expand. More savings was encouraged by opening up IRAs and 401(k) plans to millions of Americans, helping to reduce the cost for businesses to borrow. The end result of all this was that more money went into research and development, into opening new businesses and expanding existing ones. All this investment (along with major developments in technology, communication, and trade) then set the stage for the explosive growth of the late-1980s and all of the 1990s.
To be sure, a lot of the borrowing of the 1980s, and especially the 1990s, went for silly, materialistic stuff as Americans became more and more interested in "having it all." I'm just guessing here, but my intuition is that a lot of borrowed money went into productive businesses, research, infrastructure, etc. in the mid-1980s, but the percentage going there gradually dropped as the '80s became the 90s, and then the 21st century. My guess is that more and more borrowed money went into replacing smaller cars and houses with bigger cars and houses, eating at home with eating out, sensible clothes with designer label stuff, and so forth. And more money on an endless variety of government programs and bureaucracies.
To whatever degree that is true, then the nation switched from focusing on a better future, to having a better now. This would be a reversal of countless generations of thought, where it was always: "I want my children to have a better life than I did." And to whatever degree this is true, then, the answer to "where did all the money go?" is that it went to the banks, the wealthy, and the foreigners who lent us the money. By borrowing, we basically got lots of stuff, and they got lots of IOUs that are now starting to strangle the country. Next time, we're going to take a closer look at this huge paradigm shift, this gonzo consumerism that came to characterize the United States in the 1990s and continues even today.
Friday, March 4, 2011
A Really Big Question
TIME magazine's cover this week is titled: Yes, America is in Decline. I guess their premise is pretty obvious, and it's one that would come as no surprise to readers of this blog. Take the essay posted here last week, for example. But here's the Really Big Question, and I've been wondering about it for quite a little while: "How come we're SO broke?"
What I mean is, the U.S. in the 1950s and 1960s was MUCH less wealthy, even after adjusting for inflation. And yet, where I grew up, a lower-middle class town ..... Nearby state and national parks were fully staffed and fully serviced; open all the time. Every school had a full-time librarian, a full-time nurse, and at least a part-time music teacher that taught virtually every kid to play an instrument. New roads and bridges were constantly being created, and existing ones were kept in decent condition. All government offices were open five days a week. Almost every kid was in scouts or played Little League, or both. School class sizes were modest, school supplies and books were never in short supply. College was located just next door to free. Cities ran smoothly, and nobody talked about draconian budget cuts. Nobody even thought about health insurance; everybody could afford to go to the doctor.
Nowadays, when even after our recession and whatnot the U.S. is still much wealthier than it was 50 years ago, many parks are shut down and/or have limited services. School librarians, nurses, and music teachers are endangered species. Roads and bridges are old, worn out, and not being fixed. State offices are closed several week days a year. Scouts and Little League are too expensive for a lot of people. Schools are laying off teachers, class sizes are growing, teachers often buy their own supplies or do without. Even state colleges are starting to be beyond many students' ability to pay. Cities are going bankrupt or slashing staff and services. Health care is almost a luxury. Why is that???
I can think of a number of possible answers, and will explore these here over the next few weeks. Most likely culprits include: the huge government debts built up over the last 40 years; Wall Street and corporate greeders that have raped the country for countless billions; the insane, mindless consumerism of the past 30 years; the wars of the last 40 years; and...... perhaps the reality that things really AREN'T worse than 50 years ago, the natural tendency to remember the past more fondly than it really was.
So stay tuned and check back once in awhile.
What I mean is, the U.S. in the 1950s and 1960s was MUCH less wealthy, even after adjusting for inflation. And yet, where I grew up, a lower-middle class town ..... Nearby state and national parks were fully staffed and fully serviced; open all the time. Every school had a full-time librarian, a full-time nurse, and at least a part-time music teacher that taught virtually every kid to play an instrument. New roads and bridges were constantly being created, and existing ones were kept in decent condition. All government offices were open five days a week. Almost every kid was in scouts or played Little League, or both. School class sizes were modest, school supplies and books were never in short supply. College was located just next door to free. Cities ran smoothly, and nobody talked about draconian budget cuts. Nobody even thought about health insurance; everybody could afford to go to the doctor.
Nowadays, when even after our recession and whatnot the U.S. is still much wealthier than it was 50 years ago, many parks are shut down and/or have limited services. School librarians, nurses, and music teachers are endangered species. Roads and bridges are old, worn out, and not being fixed. State offices are closed several week days a year. Scouts and Little League are too expensive for a lot of people. Schools are laying off teachers, class sizes are growing, teachers often buy their own supplies or do without. Even state colleges are starting to be beyond many students' ability to pay. Cities are going bankrupt or slashing staff and services. Health care is almost a luxury. Why is that???
I can think of a number of possible answers, and will explore these here over the next few weeks. Most likely culprits include: the huge government debts built up over the last 40 years; Wall Street and corporate greeders that have raped the country for countless billions; the insane, mindless consumerism of the past 30 years; the wars of the last 40 years; and...... perhaps the reality that things really AREN'T worse than 50 years ago, the natural tendency to remember the past more fondly than it really was.
So stay tuned and check back once in awhile.
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