Tuesday, January 6, 2009

Sharing the Wealth

The measurement that most differentiated the USA and Canada from countries in Latin America, once upon a time, was the size and power of the middle class. As this difference continues to erode, a bit of soul searching is in order. Overall, Latin America's middle class has grown in the past decade, while the USA's continues to contract in size and purchasing power.

Last year I reported on the increasing tendency among the majority of Latin American countries to lean left politically. Now the USA will inaugurate its 44th president amidst its own profound shift to the left. The 2008 election was a massive rejection of trickle-down economics, a theory that led to enormous global problems for 2009 and beyond.

U.S. workers are earning less while their CEO’s have earned pay increases equivalent to more than 900% since 1970, even while bankrupting their companies. The average hourly wage rate has failed to keep up with inflation over the past four decades. In other words +900% for CEOs and +0 for workers. Source: Paul Krugman, sole 2008 recipient of the Nobel Prize in Economics.

And deregulation has enabled record-breaking corporate bankruptcy rates. The most publicized of 2008’s systematic failures occurred in the investment banking sector. This led to a trillion dollar taxpayer bailout which is now spilling over into the manufacturing sector. Add to this billions of dollars in bankruptcy filings from home-builders and media conglomerates. Consider bankrupt retailers such as Sharper Image, Mervyn’s, Linens & Things, and Circuit City.

The travel industry has been hit particularly hard with bankruptcies such as Aloha Airlines, ATA, Frontier Air, and Advantage Rental Car. In my holiday travels I have observed stunning vacancy rates at my favorite beachfront hotels.

Clearly, Henry Ford was correct to encourage corporations to pay their workers a good wage if they hope for the general public to afford their products. A free market is of little value when sellers can’t find buyers. Economic “trickle-down theory” has been proven to be of very little value, based on 38 years of stagnant hourly wages. In this context, a political shift to left is inevitable.

In 2009 the USA joins its hemispheric neighbors in embracing the enlightened self-interest of “sharing the wealth”, a necessity explained to ‘Joe the Plumber’ by then-Senator Obama. Government regulation is obviously necessary at some greater level than has been advocated by Wall Street lobbyists. We don’t have to call it socialism. We do need to recognize what we have in common with our neighbors and work together for a better tomorrow.
In the immortal words of Hanna-Barbera's Snagglepuss (pictured) ... "Exit, stage left already!"

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