Dow at 13,000. How to account for the disconnect?

Wednesday, April 25, 2007

Call us skeptical by gimleteye

You read and hear the same news we do. Yesterday, on a day the Dow Jones Industrial Average closed above 13,000 for the first time, a new Wall Street Journal/NBC News poll disclosed that only 22 percent believe the nation is headed in the right direction.

How to account for the disconnect?

Wall Street apparently believes that the consumer economy is strong. But is consumer confidence really so different from what people feel about the war in Iraq and the collapse of the housing markets and sharply tightening credit across the nation?

It is true that Wall Street has always tended to view gridlock in Washington as good for business, and business is generally good in a time of war.

We look, though, at the disparity in wages, between the economic elite and the mass of Americans ("Income inequality grew significantly in 2005, with the top 1 percent of Americans--those with incomes that year of more than $348,000--receiving their largest share of national income since 1928, analysis of newly released tax data shows." NY Times, March 29, 2007) and believe that something else is going on.

The earth has been "flattened" by globalization. Americans have benefited from high quality goods manufactured in low wage nations, but those benefits are diminishing. People are very anxious, and with good reason.

A dollar of US labor no longer towers over our neighbors or trading partners. We are not educating and training American workers fast enough to compete for higher paying jobs in the new global economy. Hungrier workers are getting those jobs.

It doesn't mean we aren't working hard. We are. In urban areas where housing costs have skyrocketed, two wage-earner families are on a fast treadmill just to keep pace with a single wage earner family, a few decades ago. And businesses are finding out that the last dollar of productivity squeezed by technological efficiencies is not necessarily protecting the higher paying jobs that remain.

The stock market is agnostic to the difficulties ordinary Americans are experiencing. The stock market likes what globalization is doing for large multinational corporations, whose executives are part of a new economic elite, defined by the highest wage differential with ordinary workers since the Great Depression.

The markets are glad. Americans are sad and increasingly irrelevant to the operation of the world economy.

In Nation this week, William Greider interviews economist Ralph Gomory who explains, "America... becomes increasingly dependent, buying from abroad more and more of what its citizens consume and producing relatively less at home. US incomes stagnate as the high-wage jobs disappear and US exports become a smaller share of the world total."

Greider writes, "The conventional win-win assurances... are facile generalizations ... some nations, in other words, do indeed become 'losers'."

What seems to be driving both foreign and domestic policy in the United States is the urgency of 'winners' to separate themselves from the afflicted losers of the global economy. It is not just the issue of wage disparity: that the "the top 1 percent (of income earners) recieved 21.8 percent of all reported income in 2005, up significantly from the 19.8 percent the year before and more than double their share of income in 1980. The peak was in 1928, when the top 1 percent reported 23.9 percent of all income." We all know what happened in 1928.

No, there are more subtle effects, like the fact that so many Americans are driving gas-guzzling SUV's while Exxon coasts from one record profit to the next, a promise sold to consumers by a domestic auto industry that claimed it could not afford high gas mileage standards, leaving Toyota to dismantle US jobs on the basis of better engineered and more fuel efficient products that US auto suppliers couldn't build then but apparently will have to build now, now that they have lost that war, and, American jobs.

We could be wrong. Every government bean counter and statistician for the government wants to find good news in the numbers and even will 'cook the books' (ie. how inflation is measured) when reality cuts too close to the bone.

We noted, yesterday, how the good news on manufacturing and exports highlighted the contribution of a single company, Boeing Aircraft.

It seems inevitable to us that the collapse of housing markets will drag the economy downward. We look at the cranes busily moving over the Miami skyline, hurrying massive condominiums toward certificates of occupancy, we watch our local county commission doing back flips to satisfy the greed of the development lobby, built on the back of liar loans, mortgage fraud, and incestuous relationships between builders and lenders, and shake our heads.

But we may not be wrong. We may just be early.