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The Crisis of the Middle Class and American Power

San Diego:  As many of you know I am a HUGE fan of the private intelligence company STRATFOR.  Their analysis of geopolitical realities around the world and domestically sets the standard for insight and accuracy because their clients — big business — does not care about political spin such as the government imposes on the intelligence it gathers, it cares about success.  And success only comes from knowing, with accuracy, what your field of “battle” is really like.  Ideology rarely if ever defines reality.

Clearly this country is in crisis.  I watched with amazement, horror, and sadness as, on the Sunday news shows, representatives from left and right talked past one another.  They were far more interested in scoring ideological points that searching for workable solutions. In what has become typical American fashion, they debated how to address symptoms and completely avoided any discussion of underlying causes.

But not STRATFOR.  So once again I’m going to, with their permission, re-publish the analysis by their founder George Freidman and send it off with this warning: if we do not insist our politicians get off their ideological high horses and start facing then coming to grips with reality, our economy, our country, our culture and society all are sitting at the point of balance at the entrance into a black hole.

————–STRATFOR Article follows———————

Last week I wrote about the crisis of unemployment in Europe. I received a great deal of feedback, with Europeans agreeing that this is the core problem and Americans arguing that the United States has the same problem, asserting that U.S. unemployment is twice as high as the government’s official unemployment rate. My counterargument is that unemployment in the United States is not a problem in the same sense that it is in Europe because it does not pose a geopolitical threat. The United States does not face political disintegration from unemployment, whatever the number is. Europe might.

At the same time, I would agree that the United States faces a potentially significant but longer-term geopolitical problem deriving from economic trends. The threat to the United States is the persistent decline in the middle class’ standard of living, a problem that is reshaping the social order that has been in place since World War II and that, if it continues, poses a threat to American power.

The Crisis of the American Middle Class

The median household income of Americans in 2011 was $49,103. Adjusted for inflation, the median income is just below what it was in 1989 and is $4,000 less than it was in 2000. Take-home income is a bit less than $40,000 when Social Security and state and federal taxes are included. That means a monthly income, per household, of about $3,300. It is urgent to bear in mind that half of all American households earn less than this. It is also vital to consider not the difference between 1990 and 2011, but the difference between the 1950s and 1960s and the 21st century. This is where the difference in the meaning of middle class becomes most apparent.

In the 1950s and 1960s, the median income allowed you to live with a single earner — normally the husband, with the wife typically working as homemaker — and roughly three children. It permitted the purchase of modest tract housing, one late model car and an older one. It allowed a driving vacation somewhere and, with care, some savings as well. I know this because my family was lower-middle class, and this is how we lived, and I know many others in my generation who had the same background. It was not an easy life and many luxuries were denied us, but it wasn’t a bad life at all.

Someone earning the median income today might just pull this off, but it wouldn’t be easy. Assuming that he did not have college loans to pay off but did have two car loans to pay totaling $700 a month, and that he could buy food, clothing and cover his utilities for $1,200 a month, he would have $1,400 a month for mortgage, real estate taxes and insurance, plus some funds for fixing the air conditioner and dishwasher. At a 5 percent mortgage rate, that would allow him to buy a house in the $200,000 range. He would get a refund back on his taxes from deductions but that would go to pay credit card bills he had from Christmas presents and emergencies. It could be done, but not easily and with great difficulty in major metropolitan areas. And if his employer didn’t cover health insurance, that $4,000-5,000 for three or four people would severely limit his expenses. And of course, he would have to have $20,000-40,000 for a down payment and closing costs on his home. There would be little else left over for a week at the seashore with the kids.

And this is for the median. Those below him — half of all households — would be shut out of what is considered middle-class life, with the house, the car and the other associated amenities. Those amenities shift upward on the scale for people with at least $70,000 in income. The basics might be available at the median level, given favorable individual circumstance, but below that life becomes surprisingly meager, even in the range of the middle class and certainly what used to be called the lower-middle class.

The Expectation of Upward Mobility

I should pause and mention that this was one of the fundamental causes of the 2007-2008 subprime lending crisis. People below the median took out loans with deferred interest with the expectation that their incomes would continue the rise that was traditional since World War II. The caricature of the borrower as irresponsible misses the point. The expectation of rising real incomes was built into the American culture, and many assumed based on that that the rise would resume in five years. When it didn’t they were trapped, but given history, they were not making an irresponsible assumption.

American history was always filled with the assumption that upward mobility was possible. The Midwest and West opened land that could be exploited, and the massive industrialization in the late 19th and early 20th centuries opened opportunities. There was a systemic expectation of upward mobility built into American culture and reality.

The Great Depression was a shock to the system, and it wasn’t solved by the New Deal, nor even by World War II alone. The next drive for upward mobility came from post-war programs for veterans, of whom there were more than 10 million. These programs were instrumental in creating post-industrial America, by creating a class of suburban professionals. There were three programs that were critical:

  1. The GI Bill, which allowed veterans to go to college after the war, becoming professionals frequently several notches above their parents.
  2. The part of the GI Bill that provided federally guaranteed mortgages to veterans, allowing low and no down payment mortgages and low interest rates to graduates of publicly funded universities.
  3. The federally funded Interstate Highway System, which made access to land close to but outside of cities easier, enabling both the dispersal of populations on inexpensive land (which made single-family houses possible) and, later, the dispersal of business to the suburbs.

There were undoubtedly many other things that contributed to this, but these three not only reshaped America but also created a new dimension to the upward mobility that was built into American life from the beginning. Moreover, these programs were all directed toward veterans, to whom it was acknowledged a debt was due, or were created for military reasons (the Interstate Highway System was funded to enable the rapid movement of troops from coast to coast, which during World War II was found to be impossible). As a result, there was consensus around the moral propriety of the programs.

The subprime fiasco was rooted in the failure to understand that the foundations of middle class life were not under temporary pressure but something more fundamental. Where a single earner could support a middle class family in the generation after World War II, it now took at least two earners. That meant that the rise of the double-income family corresponded with the decline of the middle class. The lower you go on the income scale, the more likely you are to be a single mother. That shift away from social pressure for two parent homes was certainly part of the problem.

Re-engineering the Corporation

But there was, I think, the crisis of the modern corporation. Corporations provided long-term employment to the middle class. It was not unusual to spend your entire life working for one. Working for a corporation, you received yearly pay increases, either as a union or non-union worker. The middle class had both job security and rising income, along with retirement and other benefits. Over the course of time, the culture of the corporation diverged from the realities, as corporate productivity lagged behind costs and the corporations became more and more dysfunctional and ultimately unsupportable. In addition, the corporations ceased focusing on doing one thing well and instead became conglomerates, with a management frequently unable to keep up with the complexity of multiple lines of business.

For these and many other reasons, the corporation became increasingly inefficient, and in the terms of the 1980s, they had to be re-engineered — which meant taken apart, pared down, refined and refocused. And the re-engineering of the corporation, designed to make them agile, meant that there was a permanent revolution in business. Everything was being reinvented. Huge amounts of money, managed by people whose specialty was re-engineering companies, were deployed. The choice was between total failure and radical change. From the point of view of the individual worker, this frequently meant the same thing: unemployment. From the view of the economy, it meant the creation of value whether through breaking up companies, closing some of them or sending jobs overseas. It was designed to increase the total efficiency, and it worked for the most part.

This is where the disjuncture occurred. From the point of view of the investor, they had saved the corporation from total meltdown by redesigning it. From the point of view of the workers, some retained the jobs that they would have lost, while others lost the jobs they would have lost anyway. But the important thing is not the subjective bitterness of those who lost their jobs, but something more complex.

As the permanent corporate jobs declined, more people were starting over. Some of them were starting over every few years as the agile corporation grew more efficient and needed fewer employees. That meant that if they got new jobs it would not be at the munificent corporate pay rate but at near entry-level rates in the small companies that were now the growth engine. As these companies failed, were bought or shifted direction, they would lose their jobs and start over again. Wages didn’t rise for them and for long periods they might be unemployed, never to get a job again in their now obsolete fields, and certainly not working at a company for the next 20 years.

The restructuring of inefficient companies did create substantial value, but that value did not flow to the now laid-off workers. Some might flow to the remaining workers, but much of it went to the engineers who restructured the companies and the investors they represented. Statistics reveal that, since 1947 (when the data was first compiled), corporate profits as a percentage of gross domestic product are now at their highest level, while wages as a percentage of GDP are now at their lowest level. It was not a question of making the economy more efficient — it did do that — it was a question of where the value accumulated. The upper segment of the wage curve and the investors continued to make money. The middle class divided into a segment that entered the upper-middle class, while another faction sank into the lower-middle class.

American society on the whole was never egalitarian. It always accepted that there would be substantial differences in wages and wealth. Indeed, progress was in some ways driven by a desire to emulate the wealthy. There was also the expectation that while others received far more, the entire wealth structure would rise in tandem. It was also understood that, because of skill or luck, others would lose.

What we are facing now is a structural shift, in which the middle class’ center, not because of laziness or stupidity, is shifting downward in terms of standard of living. It is a structural shift that is rooted in social change (the breakdown of the conventional family) and economic change (the decline of traditional corporations and the creation of corporate agility that places individual workers at a massive disadvantage).

The inherent crisis rests in an increasingly efficient economy and a population that can’t consume what is produced because it can’t afford the products. This has happened numerous times in history, but the United States, excepting the Great Depression, was the counterexample.

Obviously, this is a massive political debate, save that political debates identify problems without clarifying them. In political debates, someone must be blamed. In reality, these processes are beyond even the government’s ability to control. On one hand, the traditional corporation was beneficial to the workers until it collapsed under the burden of its costs. On the other hand, the efficiencies created threaten to undermine consumption by weakening the effective demand among half of society.

The Long-Term Threat

The greatest danger is one that will not be faced for decades but that is lurking out there. The United States was built on the assumption that a rising tide lifts all ships. That has not been the case for the past generation, and there is no indication that this socio-economic reality will change any time soon. That means that a core assumption is at risk. The problem is that social stability has been built around this assumption — not on the assumption that everyone is owed a living, but the assumption that on the whole, all benefit from growing productivity and efficiency.

If we move to a system where half of the country is either stagnant or losing ground while the other half is surging, the social fabric of the United States is at risk, and with it the massive global power the United States has accumulated. Other superpowers such as Britain or Rome did not have the idea of a perpetually improving condition of the middle class as a core value. The United States does. If it loses that, it loses one of the pillars of its geopolitical power.

The left would argue that the solution is for laws to transfer wealth from the rich to the middle class. That would increase consumption but, depending on the scope, would threaten the amount of capital available to investment by the transfer itself and by eliminating incentives to invest. You can’t invest what you don’t have, and you won’t accept the risk of investment if the payoff is transferred away from you.

The agility of the American corporation is critical. The right will argue that allowing the free market to function will fix the problem. The free market doesn’t guarantee social outcomes, merely economic ones. In other words, it may give more efficiency on the whole and grow the economy as a whole, but by itself it doesn’t guarantee how wealth is distributed. The left cannot be indifferent to the historical consequences of extreme redistribution of wealth. The right cannot be indifferent to the political consequences of a middle-class life undermined, nor can it be indifferent to half the population’s inability to buy the products and services that businesses sell.

The most significant actions made by governments tend to be unintentional. The GI Bill was designed to limit unemployment among returning serviceman; it inadvertently created a professional class of college graduates. The VA loan was designed to stimulate the construction industry; it created the basis for suburban home ownership. The Interstate Highway System was meant to move troops rapidly in the event of war; it created a new pattern of land use that was suburbia.

It is unclear how the private sector can deal with the problem of pressure on the middle class. Government programs frequently fail to fulfill even minimal intentions while squandering scarce resources. The United States has been a fortunate country, with solutions frequently emerging in unexpected ways.

It would seem to me that unless the United States gets lucky again, its global dominance is in jeopardy. Considering its history, the United States can expect to get lucky again, but it usually gets lucky when it is frightened. And at this point it isn’t frightened but angry, believing that if only its own solutions were employed, this problem and all others would go away. I am arguing that the conventional solutions offered by all sides do not yet grasp the magnitude of the problem — that the foundation of American society is at risk — and therefore all sides are content to repeat what has been said before.

People who are smarter and luckier than I am will have to craft the solution. I am simply pointing out the potential consequences of the problem and the inadequacy of all the ideas I have seen so far

The Crisis of the Middle Class and American Power is republished with permission of Stratfor.”

—————- End of Stratfor Article————————–

We have reached political gridlock because all sides can accurately see the policies of the other side as failing.  Because all sides, as i’ve said before in this blog, are true believers with no room to compromise.  The problem is the left consists of true believers in a world that never existed and runs counter to human nature and the right consists of true believers in a rosy view of a world that no longer exists and did exist only because of very specific environmental and social factors.

There is no room to compromise when both tightly held belief systems are based in a fantasy.  Both fail to deliver becuase they cannot succeed based on those fantasies.  This article provides an opportunity for a few people, those who subscribe to their service and those readers of this and other blogs that may reprint it or paraphrase it in their own words, to step outside the malestrom of competing political fantasies, and start to think hard about the underlying realities that may need to be addressed (note, I did NOT say “fixed) if we are to pull back from the black hole.

Now, if only i believed that was even remotely likely to happen…

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Posted by on January 8, 2013 in Uncategorized

 

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Useful Idiots and Socially Altered Memory

San Diego –– I’m not sure why I keep reading the claptrap that passes for political philosophy on Facebook.  Maybe it is in the forlorn and doomed-to-failure hope that at some point individuals that I like and otherwise respect would actually read the policies and statements about which they wax poetic and attempt to give credibility with cutesy cartoons or pithy slurs.

I was aware that early Soviet authors coined the phrase “Useful Idiots” to describe with contempt those adoring followers who thoughtlessly supported the words they spouted and were ignorant that the words were meaningless and used only to sway followers to help them gain the power they wanted.  But I did not understand how modern people, educated people, could remain useful idiots for the same philosophies now presented in softer phraseology when so much of that historical data existed and was easy to research on the web.

And then I saw a program this past week on the science channel about experiments in memory and memory alterations and I was at once frightened at the obvious conclusions and suddenly provided an understanding of the willful (it seemed to me) suspension of intellect in the blind service of a blatant attempt to completely transform our country into a model of society that has failed every time it has been attempted throughout human history.

In the experiment to learn more about how the human brain creates and processes memories, participants were asked to watch a short video that included clips of a young boy in cowboy attire including broad brimmed western styled hat. Immediately after viewing a true/false test was given based on that clip and what they had just seen.  Now despite the weight given it by jurors, law enforcement officials know that eyewitness testimony is among the least reliable types of evidence available except in the broadest of terms.  So these questions were not designed for small details but for larger ones, for example, “The boy in the clip was wearing a hat (T/F)?”

Most of the participants got it right most of the time.  However after a week went by they were given the same test.  This time the test included “data” on how the other participants had answered the questions except the information was purposefully incorrect.  For example nearly all had actually recalled he wore a hot but this time the data asserted that nearly all of them had said he was not.   So what happened?

Most of the participants that had gotten it right, upon “learning” that their peers gave a different answer, changed theirs to fit the consensus indicated in the so-called data.  The social pressure to conform was too great and overwhelmed their accurate recall replacing it with the conforming answer.

A week later they were given the same test one last time.  Even though the false data was no longer included in the test, those that had changed their answers to fit the “data” now held to the changed but false answer.  The socially imposed “reality” even though false, was stronger than their own eyes and initial memory and had, in fact, replaced the truth.

If that does not frighten you with its implications then you are not paying attention.  Goebbels, the propaganda master for Hitler, wrote about the “Big Lie” noting that a lie repeated often enough will slowly but surely start to be accepted as the truth. And more, that a HUGE lie, one that no one would believe you would have the nerve to make up, would be accepted even more readily.

But when you remove the BS, the drivel, the bumper-sticker philosophies that passes for something profound, the cutesy slogans and cartoons that remove the need to actually think through the issues at play and encourage you to accept the reports of incorrect data as truth, here is what the divergent political philosophies driving the debate boil down to:

  1. On the Right are people who believe the words of the Constitution are still good and established a country based on personal responsibility and personal accountability and in which government’s very limited role was to be precisely delineated and only those things spelled out were allowable.  This group believes in consequences for choices and behaviors.
  2. On the Left are people who believe the Constitution is merely a loose guide to be ignored when desired and that the extensive role of government is to ultimately replace family, faith, and individual efforts as the arbiter of our daily behaviors and, along with that, replace personal responsibility and accountability with government entitlements that bring everyone to the same lower level of survivability while accumulating power in those upon which the people will become dependent.  This group believes choices and behaviors should be consequence free.

Don’t get me wrong, I don’t believe for a second that the current presumptive candidate from the “Right” side really believes the approach set forth in number one above or that he will turn the ship of state now steering in a lefterly direction back to the course laid out by our founders.  At best he may buy some time to find the one that will do those things before such a correction is impossible.  I am once again going to vote against a candidate not for one.

Both believe their vision is a good and proper one for America to follow, both attempt to demonize the other side because that is the easiest way to avoid those pesky issue ridden discussions for which it appears neither side is very comfortable anymore.  Both are so blinded by partisanship that even when one of their own ideas is presented by the other side it must be opposed.

But for me to accept the frothy pabulum from the left I would have to burn all of my history, sociology, anthropology, political philosophy, and ethics books in my library and pretend I had never read them.  I would have to be rendered amnesiac about having owned businesses.  I would have to, in essence, shut down my brain as they have and let my heart rule in its place.

And before you assert that I have succumbed to the social pressure on my side let me tell you that my college days were filled with activist professors and fellow students, my career in photography was people largely by folks leaning left, and my current career as a professor myself is one surrounded by left-wing sentiments.  If I were philosophically the product of my environment for the last 40 years I would have voted for and support Obama.

But I have (in their eyes) an unfortunate propensity to read and read ALL sides of issues; and worse, to test them against my own experiences and sense of logic and logical extensions to see where they lead ultimately and how they stack up to historical precedence.    To note that virtually every autocratic tyrant of the 20th century was propelled into power by the denizens of academia was revealing.  That in every case from Lenin and Trotsky to Stalin, Hitler, Mussolini, Mao, even the Ayatollahs it was students and professors who led the charge but that once in power they were turned on ferociously if they strayed from the tyrant’s orthodoxy seemed to be left out of their narrative.   I would have to forget that throughout history,  the first or nearly first act of all tyrants was to remove from the people the ability to resist oppression.

Years ago I wrote that I believe I have been privileged to live during America’s peak, its golden age and that we are now seeing the perhaps inevitable decline of a experiment gone off the rails.  This election, as it is shaping up, is not about getting it back on the rails or heading to instant disaster, it is about the speed at which our descent is measured.

How sad.  The younger generation of my students will most likely become the most entitled generation in our country’s history, but they will not know the pride and accomplishments of the giants on whose shoulders they refuse to stand.  The rarified air from atop those shoulders is terrifying to them at worst or, at best, disagreeable because it actually contains the gall to expect of them some personal accountability for themselves and their own choices and behaviors.

When we see no problem with statements like “I was for it before I was against it” or better yet, “No way is it a tax and it is sheer coincidence that I am making the IRS in charge of compliance” until the tune changes to “Of course it’s a tax and that is why we have the power to do it.”  If that does not cause our sense of logic to simply gasp in disbelief and tell us all we need to know about the ethics and approach of those doing it, then we are truly lost.

 
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Posted by on July 1, 2012 in Uncategorized

 

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Labels Are Not Issues!

San Diego — There is a sorry screed from the Daily Kos that is making the rounds on Facebook that basically tries to argue that people opposed to Obama have put their hatreds ahead of their love of country and that those on the right are only motivated by hatred as an inherent component of their philosophies.  I honestly would expect no deeper thinking from writers for that group, but I confess I did expect better from some of my friends and students participating in that vast display of philosophical brilliance masquerading as a social network.

Setting aside for the moment that writers and readers of the Kos Kool-Aid (with apologies to Kool Aid for the association) are so blinded by their partisan biases that it is impossible for them to even conceive of the idea that someone could have analyzed the policies of the administration, compared those to historical ones and the results of them, and decided that it was THOSE POLICIES that were not good for the country, what is really at play is a purposeful substitution of labels for issues.

Calling someone a “Hater” or “Bigot” or any other ad hominem negative is the fall-back debating device of someone who has too poor an understanding of the issues or of the facts surrounding them to discuss them straight up.  And what it does, to avoid a meaningful, educational, serious debate on critical issues — skills with which they have, by engaging in these label-slinging approaches, admitted to being completely unburdened — is to take the focus immediately off of their failure to support their own side and tends, unfortunately, to immediately place it on the person defamed to see how they will defend themselves.  The approach appeals on an emotional level to others equally ignorant of the full story and, better yet, allows them to self-righteously and vicariously join in the fray as if they had some basic clue as to what was at stake and how all the parties and all of the competing philosophies fit into the mix.  They know nothing other than primitive “us and them” verbiage and, in fact, are no less narrow minded, short sighted, small time thinkers, than would be the individuals they accuse of being haters and bigots if they had been correct.

In this day and age of sound-bites and quotes taken completely out of context, the media provides ample fodder for such mental midgets on all sides of the fray… and they do inhabit all sides.  That they would attempt to devolve the discussion to their own inept levels is not surprising; it is a revelation, like swearing, of the extent of their knowledge and vocabulary, and to be expected.  What is surprising is the ease with which individuals I would have thought more intelligent than that, not only fall for it, but, apparently only because it is coming from someone they perceive as a political ally, parrot it as if it had any substantive value or accuracy at all.  That pathetic state of affairs is both surprising and massively disappointing.

All sides seem to agree that this is a critical turning point in our country though they disagree on which direction is good for us.  I agree that this may be one of the most important elections in our history and that the stakes are as serious as any faced in my lifetime.  So we are apparently agreed on something.  Then can we not agree on something else?  Can we not also agree that such a serious situation deserves, perhaps demands from all of us, better thinking than this fatuous labeling?  It demands that we do our deep research into core philosophies and their derivations, into the historical record to see what has worked and what has not and question why things worked or not, and that we apply the results of that inquiry to our discussions?

Serious and even brilliant thinkers over history have disagreed with one another and come to competing conclusions which they have supported vigorously but often without resorting to this sort of intellectual immaturity.

So here is the question that will only be answered by behavior:  have we so completely lost our intellects and ethics that we can only attack each other on such scurrilous grounds?  Have we so devolved from the days of the founders, who also argued passionately for varying approaches to this bold new experiment, that we cannot  take our discussions as seriously as they did?  Has our educational system left us so intellectually impoverished that all we are left capable of doing is shouting ugly names at each other because we truly have no idea what informs the other side or to what conclusions they may have legitimately arrived?

If the participants of this churlish, childish discourse on Facebook are truly examplars of the greater voting populace, then it will not matter who wins: we and our country will all be doomed anyway.

 
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Posted by on January 11, 2012 in Uncategorized

 

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