By Eduard Qualls, Special for USDR
Americans are not saving sufficient cash for the future, a recent study posted by Bankrate.com asserts. Further, it reports that while a majority don’t have enough saved, a quarter of Americans have effectively no savings at all.
Indeed, we have decades of reports of how Americans have consistently and persistently contributed less to their savings accounts, particularly in comparison to the more prudent residents of Western Europe or Japan.
What is new, and disturbing, is the fact that this lack of planning for the future no longer occurs as it did in the past, simply from spending rather than making the effort to save some of their income.
Most Americans no longer have the income to save, whether they would or not.
Since the start of this century, middle class income has fallen by 10%. Since 1982, median middle class net worth has fallen from near the top to 19th place in world rankings—now lower even than three of the notorious “PIIGS” of the Euro-bond fiasco: Italy, Ireland and Spain!
The money is just no longer there—or I should say, here. Where has it gone?
The problem in answering that question is that such conditions did not arise isolated, in fragmented news-releases from any particular researchers. It is the result of historical progression.
The reason Americans have reduced incomes is that quality, higher paying jobs are disappearing rapidly. America has failed to respond well, correctly or sufficiently to progressive redistributive changes in the world economy: falling to this abysmal state has been long-term.
In the 1970’s and ‘80’s, Americans were faced with the oil shock. Their income had to go for gasoline and heating oil rather than for consumer goods, whose sales drove American business.
To counteract their sales slumps, our businesses at that point responded not long-term, by increasing quality, training or market-agility, but old-style, minimal-term, lowering their prices by cutting costs—they cut quality to speed manufacturing throughput, and turned to cheap inputs to reduce materials costs further. This resulted in the Great Plasticizing, when American goods surrendered any remaining reputation for quality unconditionally to the Profit Imperative. Unfortunately, the Profit Imperative hit Detroit hard at that time; it has lately been shown still to be running rampant there.
With the removal of trade barriers, and the precipitous drop in shipping costs, the 1990’s saw the start of the shift, not just of raw-materials sourcing, but of the relocation of manufacturing itself. Leading the way was the much-trumpeted “clean industry” of computer and computer-parts manufacturing. The production plants built in the US in the early 90’s were closed in mid-decade when production moved to Mexico. When costs there rose, those were shuttered in favor of plants in Taiwan. As Taiwan’s wage levels have increased, it’s off to China, Viet Nam or Bangladesh.
Excusing this migration, Free Trade evangelists proclaimed the coming of the Service Economy, to replace the “dirty” Productive Economy. Little have they understood the effects this would have on the system as a whole.
Service jobs, as a rule, pay far less than production jobs. Those that pay more are far scarcer.
The more production jobs are moved off-shore, the less money is paid to American workers. The less they are paid, the lower prices must be forced. This exerts an even greater push to move industries out of the country.
In the same period that this developed, all administrations since and including Reagan’s, have continued to dismantle the anti-competitive rules that had long been limiting corporate purchases and mergers, which maintained greater market-attentive competition among American businesses. With every purchase or merger, competition has been further stifled; in every one, more higher-paying jobs are lost.
The benighted assumption made by American executives—that they could do whatever they wanted, and someone else would pick up the employment slack—has become toxic.
Because of the movement of production jobs overseas, and the contraction of job opportunities at home, the American worker—the American middle class—is stuck now holding the trash of 30+ years of business and government dysfunction, misfeasance and malfeasance—and bungled opportunities.
The problem our Free Trade advocates never brook, in their “service economy” delusion is that, with few exceptions, services are not exportable. A service economy’s imports-dependency also condemns it to be forever hemorrhaging cash.
Over-reliance on imported materials and finished products, after the industries and employee skills needed to create those domestically have been squandered and lost, has resulted since 1982 in a total trade deficit approaching $10 trillion. (No, the trade balance does not reset to zero at start-of-period: it is cumulative.) This cash still sits outside the US, waiting for our economy to fulfill its promise that it will make dollar-value goods and services available here for exchange.
Yet, the greater venom lies in the fact that every dollar moved out of the US commercial banking system to pay for imports has the same effect as when the Federal Reserve pulls a dollar out of circulation. Because of fractional reserve requirements, every dollar withdrawn from that system results in a contraction of up to $5. Thus that $10 trillion cumulative trade deficit has compelled US economic contraction of up to an additional $50 trillion.
If you want to see where the savings of the American middle class have gone, just look to the new cities of the Persian Gulf, the shimmering skyscrapers of Shanghai, the non-existent pot-holes in the Autobahn.
American business is now having to confront the painful lesson that when your market is not paid, you can make no sales in that market.
This transfer of cash overseas has meant that US businesses have, in fact, been relocating their own target markets, unconsciously and with absolutely no planning.
To fix this situation, tax, regulatory and litigious burdens must be taken off the backs of entrepreneurs, and small and medium-sized businesses. It is they alone who drive competition, innovation, and productive job-creation sufficient to the task.
Otherwise, the economy of the United States will never revive.
Eduard Qualls, author of Community Capitalism: Pulling Capitalism Back From Its Own Abyss, is a political and economic realist—a militant moderate—with a growing national reputation for his insights into the problems facing the United States and the World. His MSBA, combined with his knowledge of languages, cultures and history, gives him the skill to explain complex issues in ways that almost anyone can grasp to their benefit.