Hello, everyone. As many of you have noticed my blogging fell off a bit this year. Part of this is that real life concerns and work that either earns me money, or might earn me money in the future, has taken precedence. But part of it is that so much of what annoys me on a day to day basis are things that I have already blogged about. If you've perused my posts, you've seen my complaints about the incompetence of government. So you'd think I'd have more to write about during a US Presidential campaign. But the reality is that the positions of most of the candidates are so banal, so pandering and so obviously lacking any sincerity, that I haven't felt much need to attack any of them. It feels too much like mocking toddlers or fighting with cripples. So I'll wait till the general election before I start pointing out why various political positions are stupid. And frankly, no matter who gets nominated, there will be a plethora of possible content on this front.
At the end of 2015, we're still sitting in the middle of the same terrible economy that we've had since the great recession. I've hit on the causes of this many times, but it's still disconcerting to hear the government crow about all the success its had getting people back to work. If you really think living in a part time, no-benefits gig economy is progress, you deserve a heap of scorn. Bragging about a low unemployment rate when the participation rate is bobbing around all time lows is willful ignorance. It's as if politicians don't realize that they are damning themselves with their own faint praise. There's a reason why Trump and Sanders are popular, its because the populace of the USA has realized the emperors have no clothes and no idea that their ugly nakedness is flapping in the breeze of their own hot air for all to see.
I find that I don't have a lot to be thankful for on the global economic and political fronts either. Terrorism has become a global issue and, if we aren't careful, a world war. Politicians seem torn between sticking their heads in the sand or wanting to nuke whole regions of the world. Like mass murder ever made people less violent and vindictive. Of course, ignoring problems usually isn't an effective solution either. Still, the lack of intelligent well thought out solutions is depressing. This reality doesn't leave me with much to write about, as I'm not one for hand wringing histrionics or stating the obvious. Suffice it to say that we're going to need targeted solutions to a multiplicity of problems and some global stability before we're going to be able to handle this issue.
I guess, when it comes down to it, the point of this post is to say so long to 2015 and good riddance. Also, with so few things in the public sphere to be thankful for, that we should all focus on ourselves, our friends, and our families, for things to be happy about. When the world looks like crap, I guess you need to go home and hug the ones you love. Find happiness in the personal. And lastly, here's a virtual ogre hug, from me to you, for reading my blog. I wasn't sure who'd read my posts when I decided to vent my spleen on the internet, but a few thousand of you have. And for that, I am grateful.
Monday, December 21, 2015
Thursday, September 17, 2015
The Experts are Still Confused About Slow Global Growth
As we enter the full swing of another election cycle here in the USA, more attention than usual is being paid to recent census findings and the Federal Reserve Board's debate on when to raise interest rates. The big headlines that have come out of these news reports have been that real incomes in the USA have declined 6.5% since 2007, and that despite central banks globally pumping out nearly $8 trillion into the global economy, growth remains tepid at best. This has left global policy makers scratching their heads and wondering what else they can do to spur economic growth and the Fed waffling on rate hikes. Links to relevant articles discussing these findings: http://www.wsj.com/articles/central-banks-lesson-easy-money-alone-isnt-a-growth-salve-1442505860 , http://www.wsj.com/articles/the-white-house-and-the-census-1442532398 .
For those of you who have read my previous blog posts, the reason for both of these stats are fairly self evident. But for those who missed them, here are some (but not all) of my relevant posts on the subject: http://ogresophist.blogspot.com/2014/02/the-failure-of-stimulus-spending-in.html , http://ogresophist.blogspot.com/2014/09/high-taxes-have-consequences.html . If you want the "Cliff's Notes" version, global growth woes in the first world are caused by structural problems. These problems are created by high taxes used to fund first world entitlements and restrictive laws that place huge financial and time burdens on businesses at all stages of development, from formation to multinational conglomerate. Rather than doing anything about these mammoth issues at the heart of our current stagnation, politicians have relied on central banks to pump easy money into the global economy in the hopes of spurring growth. Shocking no one but the most unobservant and doctrinaire, instead of investing this money at home, the global investing class has used this money to chase higher yields in foreign markets. The end result has been volatility and little growth in the first world.
The moral of this story is timely for voters in the USA, or any country about to enter into an election cycle. Voters need to demand structural reforms from their leaders. They need to elect people with the power and political will to make the compromises needed to restore global growth. If we keep electing the same people who are wedded to the same failed economic policy ideas we are doomed to repeat our current low growth woes. In short, we need to demand better of our political leaders.
For those of you who have read my previous blog posts, the reason for both of these stats are fairly self evident. But for those who missed them, here are some (but not all) of my relevant posts on the subject: http://ogresophist.blogspot.com/2014/02/the-failure-of-stimulus-spending-in.html , http://ogresophist.blogspot.com/2014/09/high-taxes-have-consequences.html . If you want the "Cliff's Notes" version, global growth woes in the first world are caused by structural problems. These problems are created by high taxes used to fund first world entitlements and restrictive laws that place huge financial and time burdens on businesses at all stages of development, from formation to multinational conglomerate. Rather than doing anything about these mammoth issues at the heart of our current stagnation, politicians have relied on central banks to pump easy money into the global economy in the hopes of spurring growth. Shocking no one but the most unobservant and doctrinaire, instead of investing this money at home, the global investing class has used this money to chase higher yields in foreign markets. The end result has been volatility and little growth in the first world.
The moral of this story is timely for voters in the USA, or any country about to enter into an election cycle. Voters need to demand structural reforms from their leaders. They need to elect people with the power and political will to make the compromises needed to restore global growth. If we keep electing the same people who are wedded to the same failed economic policy ideas we are doomed to repeat our current low growth woes. In short, we need to demand better of our political leaders.
Monday, July 13, 2015
Greece's Problems are not Unique to Greece
Seems like you can't escape news about Greece and the crisis in the Euro zone these days. Today's news is that Greece and its creditors have reached a tentative agreement on a reforms for loans plan. In the coming days, the drama will shift from the negotiations for the accord, to the negotiations within the Greek parliament to try and get enough votes to pass the reform. It will be interesting to watch and see whether the legislature will continue to stick its head in the sand on reforms, or whether it is willing to make the concessions required to continue to finance their bankrupt nation.
In case you don't know what I'm talking about, Greece is a bankrupt nation that exists in Europe. It joined the Euro currency union and lived off the easy credit the shared currency and associated legal framework afforded them. When the great recession hit, the country went through a dramatic economic downturn that severely taxed public resources due to the Greeks' generous welfare programs. The country has never fully recovered. The long and the short of this is that Greece has been relying on loans from the IMF and its Euro zone partners in order to keep the government and its banks from closing. In order to pay the interest on these loans, Greece has been undergoing what is known as austerity, or the painful process of cutting budgets and raising taxes, that is required to increase revenues and decrease liabilities enough to keep it from going bankrupt and defaulting. This process has been so unpopular among the Greek electorate, that they elected an anti-austerity candidate who vowed to renegotiate the terms of the debt and fight with Greece's creditors. Since taking power, the banks have been all but shuttered and the government is mere days away from being forced out of the shared currency.
While it is easy for us in the USA to point and giggle at the problems of Europe, we can only do so if we choose to ignore a similar problem that exists in many states and municipalities in our own country. The problem is that, fundamentally, the public is not willing to pay the full cost for all the government benefits that it receives. So politicians have an incentive to promise more than they can deliver, borrow money to pay for it, and ignore the looming debt problem till they're safely out of office and its someone else's problem. In the USA this takes the form of a rash of municipal bankruptcies and severe budget shortfalls in states like Illinois and California. Many of these states are just another economic recession away from going through what Greece is going through. States in the USA are very much like nations in the Euro zone, they can't print their own currency, so are reliant on tax revenue to pay their bills. So when the debt is too large to continue to finance, new taxes and budget cuts become inevitable. My point here is that unsupportable debt burdens brought on by profligate governments are not unique to Greece. Instead of laughing, we should be seriously evaluating the budgets of our state and local governments and balancing them now before debt becomes a crisis here at home. Otherwise, our bankruptcy courts have a busy future ahead of them.
In case you don't know what I'm talking about, Greece is a bankrupt nation that exists in Europe. It joined the Euro currency union and lived off the easy credit the shared currency and associated legal framework afforded them. When the great recession hit, the country went through a dramatic economic downturn that severely taxed public resources due to the Greeks' generous welfare programs. The country has never fully recovered. The long and the short of this is that Greece has been relying on loans from the IMF and its Euro zone partners in order to keep the government and its banks from closing. In order to pay the interest on these loans, Greece has been undergoing what is known as austerity, or the painful process of cutting budgets and raising taxes, that is required to increase revenues and decrease liabilities enough to keep it from going bankrupt and defaulting. This process has been so unpopular among the Greek electorate, that they elected an anti-austerity candidate who vowed to renegotiate the terms of the debt and fight with Greece's creditors. Since taking power, the banks have been all but shuttered and the government is mere days away from being forced out of the shared currency.
While it is easy for us in the USA to point and giggle at the problems of Europe, we can only do so if we choose to ignore a similar problem that exists in many states and municipalities in our own country. The problem is that, fundamentally, the public is not willing to pay the full cost for all the government benefits that it receives. So politicians have an incentive to promise more than they can deliver, borrow money to pay for it, and ignore the looming debt problem till they're safely out of office and its someone else's problem. In the USA this takes the form of a rash of municipal bankruptcies and severe budget shortfalls in states like Illinois and California. Many of these states are just another economic recession away from going through what Greece is going through. States in the USA are very much like nations in the Euro zone, they can't print their own currency, so are reliant on tax revenue to pay their bills. So when the debt is too large to continue to finance, new taxes and budget cuts become inevitable. My point here is that unsupportable debt burdens brought on by profligate governments are not unique to Greece. Instead of laughing, we should be seriously evaluating the budgets of our state and local governments and balancing them now before debt becomes a crisis here at home. Otherwise, our bankruptcy courts have a busy future ahead of them.
Monday, May 11, 2015
Urban Decay and Revolution
In the past year, the USA has seen racial unrest in both Ferguson and Baltimore relating to police killing of unarmed minority suspects. In Ferguson, the federal investigation into the police force found rampant abuses by the police directed primarily against the minority members of the city. The investigation in Baltimore is still on-going, whether it finds similar abuses or not will likely have a strong impact on whether the city sees further rioting. The tragedy in both cases is two fold. First, that the police feel free to use excessive force against suspects with impunity is a travesty. Police should have the highest levels of professionalism; these actions, even if taken only by a small minority of officers, tarnish the reputation of the police, the government and the rule of law. The second tragedy is that both of these incidents resulted in rioting and lawlessness instead of well organized non-violent protests. By resorting to lawless behavior, rioters stole the meaning from the deaths and ruined a good opportunity for a national debate over the proper role of police in our communities and the use of force by authorities against the citizenry.
One of the things that makes (or made, depending on your perspective) the USA great is its citizens' belief in freedom and liberty from the deprivations of government authority. Near the founding of our country, the concerns over the power of the federal government were so great that the states refused to ratify the constitution until it contained protections for individual citizens against the power of government. As a result, we now have the Bill of Rights. Before this, and before the confederacy that came before it, we as a nation fought a war against our then sovereign in the name of freedom. Go back even further into the annals of history and we can see the foundation for all constitutional governments, magna carta, was similarly concerned with protecting the rights of individuals against the actions of their king. The protection of individual liberty and freedom is the basis of all modern democratic societies. And yet still, in the modern age, we see the police acting like street thugs, beating and killing unarmed citizens, actions that in previous generations led to revolution. The results of these actions have already risen to the level of general rioting and lawlessness. When the state and its emissaries act without respect for the law and the rights of citizens, the citizens stop respecting their rule and the authority of their laws. This is the path towards violent revolution. If the state is to maintain some semblance of legitimacy, it should stomp out such abuses. I wish the members of the federal probes into both Ferguson and Baltimore luck reestablishing legitimacy.
Unfortunately, despite how important reestablishing the legitimacy of government and the respect of the rule of law is for a nation, the focus of these federal probes seems to be in establishing blame. While it is important to bring the perpetrators of the horrible abuses by police to justice, it is equally important to correct the institutional corruption that led to the abuses of power in the first place. In focusing too hard on individual bad actors, we are missing the true corruption at the heart of the system. I worry what it means for the nation if, after a few bad actors are made examples of and the feds oversee the local police forces for a few years, nothing changes. Likely we will still have arbitrary laws that will be equally arbitrarily enforced, we will still have police and government agents getting away with horrible abuses, and we will still have a deep and simmering anger among the citizenry over how the government uses its powers to oppress people.
We live in a crony capitalist oligarchy where we are all reduced to serfdom. Historically these kinds of government actions don't end peacefully. If we continue down the path of internal policing with electronic stasi agents monitoring our behavior and communications, with the police violently oppressing the citizens, with the few being enriched at the expense of the masses through crony capitalism, then our glory days are truly over and we are headed for a fall. That said, if we resort to violence in retaliation, we encourage the bloodshed to continue. Instead, I urge the protestors to learn the lessons of Gandhi and Dr. Martin Luther King, that non-violent protests are the best way to bring a modern government to its knees without losing the moral high ground. Only by proactively ending the violence ourselves can we end the violence inherent in the system.
One of the things that makes (or made, depending on your perspective) the USA great is its citizens' belief in freedom and liberty from the deprivations of government authority. Near the founding of our country, the concerns over the power of the federal government were so great that the states refused to ratify the constitution until it contained protections for individual citizens against the power of government. As a result, we now have the Bill of Rights. Before this, and before the confederacy that came before it, we as a nation fought a war against our then sovereign in the name of freedom. Go back even further into the annals of history and we can see the foundation for all constitutional governments, magna carta, was similarly concerned with protecting the rights of individuals against the actions of their king. The protection of individual liberty and freedom is the basis of all modern democratic societies. And yet still, in the modern age, we see the police acting like street thugs, beating and killing unarmed citizens, actions that in previous generations led to revolution. The results of these actions have already risen to the level of general rioting and lawlessness. When the state and its emissaries act without respect for the law and the rights of citizens, the citizens stop respecting their rule and the authority of their laws. This is the path towards violent revolution. If the state is to maintain some semblance of legitimacy, it should stomp out such abuses. I wish the members of the federal probes into both Ferguson and Baltimore luck reestablishing legitimacy.
Unfortunately, despite how important reestablishing the legitimacy of government and the respect of the rule of law is for a nation, the focus of these federal probes seems to be in establishing blame. While it is important to bring the perpetrators of the horrible abuses by police to justice, it is equally important to correct the institutional corruption that led to the abuses of power in the first place. In focusing too hard on individual bad actors, we are missing the true corruption at the heart of the system. I worry what it means for the nation if, after a few bad actors are made examples of and the feds oversee the local police forces for a few years, nothing changes. Likely we will still have arbitrary laws that will be equally arbitrarily enforced, we will still have police and government agents getting away with horrible abuses, and we will still have a deep and simmering anger among the citizenry over how the government uses its powers to oppress people.
We live in a crony capitalist oligarchy where we are all reduced to serfdom. Historically these kinds of government actions don't end peacefully. If we continue down the path of internal policing with electronic stasi agents monitoring our behavior and communications, with the police violently oppressing the citizens, with the few being enriched at the expense of the masses through crony capitalism, then our glory days are truly over and we are headed for a fall. That said, if we resort to violence in retaliation, we encourage the bloodshed to continue. Instead, I urge the protestors to learn the lessons of Gandhi and Dr. Martin Luther King, that non-violent protests are the best way to bring a modern government to its knees without losing the moral high ground. Only by proactively ending the violence ourselves can we end the violence inherent in the system.
Tuesday, March 17, 2015
Government, Stealing your Money in New and Creative Ways
I have discussed this in a number of other posts, but in the modern world, government has become as much an impediment to prosperity as it has an ensurer of it. Currently the state of regulation and taxation in the first world has created an economic sclerosis in which only the biggest of businesses can be successful. As I have discussed this in depth elsewhere, I will not do so here. See:
http://ogresophist.blogspot.com/2015/01/middle-class-death-spiral.html, http://ogresophist.blogspot.com/2014/09/were-all-serfs.html, http://ogresophist.blogspot.com/2014/09/high-taxes-have-consequences.html, http://ogresophist.blogspot.com/2014/02/the-failure-of-stimulus-spending-in.html, http://ogresophist.blogspot.com/2013/12/the-minimum-wage-debate.html, http://ogresophist.blogspot.com/2013/11/the-death-of-small-business-investment.html, http://ogresophist.blogspot.com/2013/10/our-not-so-free-market-economy.html, and http://ogresophist.blogspot.com/2013/07/government-symbiosis-to-parasitic.html.
Likely I have more, but I don't feel like delving that far back. The point is that regulation has a stultifying effect on business and economic prosperity. It can be justified if the public need is great enough, i.e. public safety laws and the like; but in the modern era, protecting the populace has become the battle cry of petty totalitarians trying to push through their crony capitalist reforms. As a result, I'm wary of any politician wielding the banner of protecting the populace.
One of the side effects of government overreach and largess is a sprawling and extensive regulatory state backed up by large police and military forces. This all costs a ton of money, which government must extract from its economy. But, since taxes are unpopular with voters, governments tend to run astronomical deficits. These debts need to be paid, like any other, if the government wishes to remain in the good graces of international investors. When they don't, well... you get Greece and Argentina.
The obvious answer to this problem is for government to shrink, allow the mechanisms of a freer market to spin and start creating wealth again for a broader swath of the population, and generally get out of the way of progress. The problem here is this requires power hungry regulators to release power, so it almost never happens. The end result of this has been the current world wide stagnation. Governments, faced with stagnating economies and growing debts have settled on a new weapon. This weapon? Monetary Easing!
What is Monetary Easing? Since governments have learned that you can't simply print money, a la the Weimar Republic (as it results in catastrophic inflation), they have found a new way to flood the world with their currency, devaluing it. This new method is called "Monetary Easing". What government does is use its central bank to buy financial assets on the open market (usually the government's own debt). This is sold to the public as a relatively risk free way of making exports more competitive without harming the currency. Does this work? Nope. Just ask Japan, and to a lesser extent the USA. Today's Wall Street Journal has a terrific analysis of Japan's economy responding to its central bank using monetary easing. Instead of economic prosperity and a flood of new exports, Japan has seen real wages fall and exports remain stagnant. Read more here: http://www.wsj.com/articles/japans-devaluation-warning-for-europe-1426548519 . The conclusion to reach here is that there are no silver bullets to economic woes created by the bloated parasite of government sucking the life blood out of the economy. Only real reforms will cause positive change. Unfortunately, this is unlikely to occur.
http://ogresophist.blogspot.com/2015/01/middle-class-death-spiral.html, http://ogresophist.blogspot.com/2014/09/were-all-serfs.html, http://ogresophist.blogspot.com/2014/09/high-taxes-have-consequences.html, http://ogresophist.blogspot.com/2014/02/the-failure-of-stimulus-spending-in.html, http://ogresophist.blogspot.com/2013/12/the-minimum-wage-debate.html, http://ogresophist.blogspot.com/2013/11/the-death-of-small-business-investment.html, http://ogresophist.blogspot.com/2013/10/our-not-so-free-market-economy.html, and http://ogresophist.blogspot.com/2013/07/government-symbiosis-to-parasitic.html.
Likely I have more, but I don't feel like delving that far back. The point is that regulation has a stultifying effect on business and economic prosperity. It can be justified if the public need is great enough, i.e. public safety laws and the like; but in the modern era, protecting the populace has become the battle cry of petty totalitarians trying to push through their crony capitalist reforms. As a result, I'm wary of any politician wielding the banner of protecting the populace.
One of the side effects of government overreach and largess is a sprawling and extensive regulatory state backed up by large police and military forces. This all costs a ton of money, which government must extract from its economy. But, since taxes are unpopular with voters, governments tend to run astronomical deficits. These debts need to be paid, like any other, if the government wishes to remain in the good graces of international investors. When they don't, well... you get Greece and Argentina.
The obvious answer to this problem is for government to shrink, allow the mechanisms of a freer market to spin and start creating wealth again for a broader swath of the population, and generally get out of the way of progress. The problem here is this requires power hungry regulators to release power, so it almost never happens. The end result of this has been the current world wide stagnation. Governments, faced with stagnating economies and growing debts have settled on a new weapon. This weapon? Monetary Easing!
What is Monetary Easing? Since governments have learned that you can't simply print money, a la the Weimar Republic (as it results in catastrophic inflation), they have found a new way to flood the world with their currency, devaluing it. This new method is called "Monetary Easing". What government does is use its central bank to buy financial assets on the open market (usually the government's own debt). This is sold to the public as a relatively risk free way of making exports more competitive without harming the currency. Does this work? Nope. Just ask Japan, and to a lesser extent the USA. Today's Wall Street Journal has a terrific analysis of Japan's economy responding to its central bank using monetary easing. Instead of economic prosperity and a flood of new exports, Japan has seen real wages fall and exports remain stagnant. Read more here: http://www.wsj.com/articles/japans-devaluation-warning-for-europe-1426548519 . The conclusion to reach here is that there are no silver bullets to economic woes created by the bloated parasite of government sucking the life blood out of the economy. Only real reforms will cause positive change. Unfortunately, this is unlikely to occur.
Monday, January 19, 2015
Middle Class Death Spiral
As the new year has dawned, and 2015 has arrived, I have noticed the news talking a lot about the wealth gap, the death of the middle class and the stagnation of earnings by workers in industrialized nations. In the US, part of this media hand wringing is due to liberals trying to sway public sentiment towards anti-capitalism as we head into a presidential election, but that does not mean there is nothing to these news stories. It's quite the opposite in fact, the middle class is stagnating while the rich get richer on a global scale. But unlike the other articles, which are usually trying to push a political agenda, I'm not here to solely blame policy for this. Instead, the point of this post is to briefly discuss the systemic changes in the global economy that are killing off the middle class.
The first, and really most obvious, reason why the middle class is struggling is because we now truly exist in a global economy. In the annals of history, the middle class was made up of local professionals, shop keepers, doctors and businessmen who served particular communities meeting their needs. As long as there were people living nearby, there were customers for the local businessman to make money from. In the modern era, where the internet makes the world available at a key stroke on your computer, the local community does not need to go to the local business man to do business. Instead, they can order what they need online and get it delivered to their doorstep almost anywhere in the world. Local businesses now have to be cost and convenience competitive with multinational corporations who can spread the cost of doing business over a huge global distribution system. This makes profits for local business slim to non-existent and causes local businesses to fail. As local small businesses are the largest employers in the economy, this puts strong downward pressure on wages (to keep the business competitive) and puts a lot of people out of work. Those people then can't find jobs, since so many small businesses have died or are not hiring, which creates more downward pressure on wages.
The second reason the middle class is stagnating is debt. This is especially true in the USA, where college and graduate school programs are paid by the student out of pocket; or more frequently, with borrowed money. Before the internet and globalization, it was possible for a high school graduate to go out, get a job and support himself and a family on the wages he earned. College was considered a luxury good, reserved for the rich to essentially send their children to professional finishing school before they were brought on to help run the family business. In the modern era, where most of these family businesses have long since gone out of business, in order for a child to compete for higher paying jobs, they need specialty college education. Unfortunately, in the USA, this schooling still comes out of pocket; and with so many people looking to go, prices have shot up at a rate of inflation many, many times the national average. Kids who still want to get an education despite the cost have to take on huge amounts of debt (often 5 or even 6 figures worth of it) in order to get this specialty training needed to compete in the new global economy. The prolonged schooling, delayed entry into the job market and increased competition for these professional level jobs has caused salaries for these jobs to fall and lifetime earnings for those who get them (when adjusted for inflation) to stagnate. This competition and resultant debt have crippled young earners. Unfortunately, as Europe is finding, even when you make education free, it doesn't solve the problem. It helps take care of the debt issue, but it increases the number of people looking for these jobs even more (since now price is not keeping people out of school). The result has been epic youth and young adult unemployment.
Thirdly, because the world is now one large global supply chain, companies can pick and choose where they do business and how they produce the goods or services they sell. This is especially problematic for the first world nations that have long relied on their large economies to drive tax revenues for their governments. Because companies can now pick and choose where they do business, they can weigh factors like local wages, cost of living and tax/regulatory environments in deciding where to put manufacturing centers, R&D facilities and corporate headquarters. First world nations, with their high cost of living, high wages and large tax/regulatory burdens, are suddenly not a desirable place to do anything but sell goods. This further exacerbates the job losses and wage reduction for the middle class.
Lastly, none of this is to say that government isn't playing a roll here. It is the source of the tax and regulatory burdens discussed in the previous paragraph. And while it can make these burdens less onerous, that's not going to cure the larger issue which is globalization. Unfortunately, globalization is not a force that an individual government can fight. Especially not after the fact (since most supply chains are already globalized). At best, governments can work to mitigate the problems that globalization has caused, while benefiting from all the progress globalization has created (namely better, cheaper goods available to a much larger swatch of humanity than ever before). Deciding how we are going to mitigate the problems of globalization is the challenge of the 21st century. But mitigate we must, or our economies will continue to stagnate and our middle classes suffer.
The first, and really most obvious, reason why the middle class is struggling is because we now truly exist in a global economy. In the annals of history, the middle class was made up of local professionals, shop keepers, doctors and businessmen who served particular communities meeting their needs. As long as there were people living nearby, there were customers for the local businessman to make money from. In the modern era, where the internet makes the world available at a key stroke on your computer, the local community does not need to go to the local business man to do business. Instead, they can order what they need online and get it delivered to their doorstep almost anywhere in the world. Local businesses now have to be cost and convenience competitive with multinational corporations who can spread the cost of doing business over a huge global distribution system. This makes profits for local business slim to non-existent and causes local businesses to fail. As local small businesses are the largest employers in the economy, this puts strong downward pressure on wages (to keep the business competitive) and puts a lot of people out of work. Those people then can't find jobs, since so many small businesses have died or are not hiring, which creates more downward pressure on wages.
The second reason the middle class is stagnating is debt. This is especially true in the USA, where college and graduate school programs are paid by the student out of pocket; or more frequently, with borrowed money. Before the internet and globalization, it was possible for a high school graduate to go out, get a job and support himself and a family on the wages he earned. College was considered a luxury good, reserved for the rich to essentially send their children to professional finishing school before they were brought on to help run the family business. In the modern era, where most of these family businesses have long since gone out of business, in order for a child to compete for higher paying jobs, they need specialty college education. Unfortunately, in the USA, this schooling still comes out of pocket; and with so many people looking to go, prices have shot up at a rate of inflation many, many times the national average. Kids who still want to get an education despite the cost have to take on huge amounts of debt (often 5 or even 6 figures worth of it) in order to get this specialty training needed to compete in the new global economy. The prolonged schooling, delayed entry into the job market and increased competition for these professional level jobs has caused salaries for these jobs to fall and lifetime earnings for those who get them (when adjusted for inflation) to stagnate. This competition and resultant debt have crippled young earners. Unfortunately, as Europe is finding, even when you make education free, it doesn't solve the problem. It helps take care of the debt issue, but it increases the number of people looking for these jobs even more (since now price is not keeping people out of school). The result has been epic youth and young adult unemployment.
Thirdly, because the world is now one large global supply chain, companies can pick and choose where they do business and how they produce the goods or services they sell. This is especially problematic for the first world nations that have long relied on their large economies to drive tax revenues for their governments. Because companies can now pick and choose where they do business, they can weigh factors like local wages, cost of living and tax/regulatory environments in deciding where to put manufacturing centers, R&D facilities and corporate headquarters. First world nations, with their high cost of living, high wages and large tax/regulatory burdens, are suddenly not a desirable place to do anything but sell goods. This further exacerbates the job losses and wage reduction for the middle class.
Lastly, none of this is to say that government isn't playing a roll here. It is the source of the tax and regulatory burdens discussed in the previous paragraph. And while it can make these burdens less onerous, that's not going to cure the larger issue which is globalization. Unfortunately, globalization is not a force that an individual government can fight. Especially not after the fact (since most supply chains are already globalized). At best, governments can work to mitigate the problems that globalization has caused, while benefiting from all the progress globalization has created (namely better, cheaper goods available to a much larger swatch of humanity than ever before). Deciding how we are going to mitigate the problems of globalization is the challenge of the 21st century. But mitigate we must, or our economies will continue to stagnate and our middle classes suffer.
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