The graph below, from Huffington Post last week, says most of what I want to say:
But the graph’s title is wrong.
In fact, there is a direct, casual connection between the Dow’s upward progress and our flat earnings. Let’s remember that the purpose of a company, in corporate capitalism, is to produce profits for share-holders. In simple terms, it accomplishes that goal by selling as many widgets as possible, for more than it costs to produce them.
The hidden complexity of 21st Century corporate capitalism is that the mathematical difference described above is accomplished by having as much liquidity, relative to borrowing potential, as possible. How do companies accomplish that? They hold onto their pennies. They don’t hire. They keep wages flat. They find creative ways to eviscerate benefits. They outsource as much work as possible to “temporary” or “independent” workers. They avoid keeping much inventory. They avoid investing in future infrastructure. These tactics are collectively and blandly called “keeping costs down.” In case you did not realize it, you are a “cost.”
I remember that at the start of the Great Recession, financial pundits explained to the public, patiently, and with small words, that these prudent but temporary tactics would help companies to stay solvent. We were told that they were trying to reduce their precarious debt loads. We were told that companies would begin reinvesting in infrastructure once their debts were down. Or the stock market re-stabilized. Or consumers started buying again.
All of which has, um, happened. Several quarters ago. But hiring remains sluggish and wages are “stagnant”, which is term, let’s not forget, that really means wages are going down, relative to living costs.
So. I have been astonished and moderately nauseated by the spittle-punctuated announcements of the financial media in the last week that everything is great again(!!!)
For the captains and share-holders of the businesses in the Dow index, things ARE pretty great. The index is an indicator that post-consumer capitalism has been created: profits are now tethered to secret, ethereal, and self-referential formulations of value made by and for the stock market. A society of free, educated, and adequately paid workers, with the buying power to afford a company’s widgets is a former necessity that has now been removed from the core of this economic model.
The Dow is up not in spite of flat wages, but BECAUSE of flat wages (among other factors.)
Here is a small example from my own experience- not of flat wages, but of a big bank’s successful effort to increase its profit by excoriating my household budget for as long as it could.
I had a mortgage with one of those Too Big To Fail Banks that helped to create the Great Recession.
In August, 2012, my ex-husband agreed to take over the house that we still jointly owned, three years after our split, because The Bank would never refinance the original loan in just my name- they told me that I did not qualify for a lower monthly payment: essentially, that I was too poor to pay less.
I offered my ex-husband a sweet deal: our beautiful home, below market value. Once the refinance was completed, he would be paying a mortgage that approximately equaled his monthly rent. He wouldn’t have to shell out a new down payment. And with the house, he would have the entirety of our marriage’s assets. I would walk away with nothing to show for my investments into either the ten year marriage or the home.
I wanted to make that deal. If I could walk away, I would be free. I would be avoiding the burden of a house that no longer fit my life and the shadow of insolvency and bankruptcy that had been following me around.
In September, 2012, we filed papers with The Bank, stating our joint intentions to remove me from the loan and deed, and to provide my ex-husband with a much lower interest rate than we had on the original loan.
We were told the process would take “30-45 days, tops.”
The loan finally closed on January 30th, 2013 (139 days.)
If you wonder how such a big bank could lack the competence to process the refinance in the promised timeframe, you’re asking the wrong question. I believe that the right question is: what did The Bank gain by stringing us along for three times the maximum estimated timeframe?
Profit, of course.
They kept us locked at the old, higher interest rate for longer. They continued to have more of my money to use for their own investments.
If you believed that consumer capitalism was at the core of The Bank’s business model, you would have expected them to expedite the refinance process because:
1. If they made my ex-husband and me happy, we would each remain loyal customers. We would use their other “financial products” in the future. All of my dealings with this bank have made it clear to me that they have no interest in servicing my present debts or my future wealth.
2. If we were each relieved of the overly expensive original loan, we would have more money to invest (one assumes they would want us to invest it with them) and more money to circulate through the larger economy.
But the bank dragged its figurative feet because… well… I feel compelled to borrow a phrase from chick lit, which is something I never do, but here I can’t help it: they’re just not that into us.
Here at Laura’s Lemonade Stand, as I make tart observations (ha!) about money and family life in America, my aims are to become clear and to get financially strong again.
I share my observations- mostly personal stories, hunches, and riffs on things I’ve seen in the media- because I think they might resonate with you. And I wonder what would happen if a lot of us got clear about the load of goods we’re being sold? Could we nudge the flat, teal line at the bottom of that graph into a more vertical slope? Could we flip that graph on its head?