Why Canada's Banks Don't Need Help
 

Time has an article that pleases me no end (pardon me if I reveal a bit of chauvinism): Why Canada's Banks Don't Need Help. This really pleases me for two reasons: I'm a taxpayer in Canada and the only stocks I own are in those banks. In spite of their drop in share value as the market has plunged, they nonetheless continue to pay dividends. What a relief to a retired guy.

In my view, this is the key:

In the US we like to learn from our mistakes before changing the laws, even if that means relearning over and over again.

(...and over and over and over...)

The real reason Canadian banks don't need help. If a bank's customers are doing well financially, the bank will do well.

This crisis is about wages. Everything follows from wages.

That was true in 2007, CWT, but Canada has lost well over 100,000 jobs in the manufacturing sector since then (mostly automobile manufacturers and suppliers of parts). If Americans don't buy cars, we can't build them either. Further, the huge decline in oil prices and metal prices (Canada is a net exporter of gas, oil and metals) has wounded oil/gas exploration ventures, so jobs are lost there too. The paper industry is hurting too. There's some hope for an earlier recovery than in the USA because of the declining Canadian dollar which makes our exports more attractive. Perhaps Canadians are doing a bit better financially, but our banks are hanging in there because they are well-regulated.

I don't think everything follows from wages. Everything follows from cash flow. The problem with high wages, or in other words, the problem when the economy was doing well, is that just about everybody scaled up their lifestyles way too much via cheap borrowing.

If you make $30,000 a year and you spend $29,000, no problem. If you make $60,000 a year and you spend $65,000, that's a problem. Too many people did the latter; their high wage was utterly irrelevant to the situation.

We lost more than that last month.
Same thing. Prices are higher than wages.

Remember to consider all per capita stats vis-à-vis Canada/USA at a 10/1 ratio. Your population is 10 times ours, so our 100,000 is your Million.

You can't fix high prices with higher wages. Higher wages raise the manufacturer's cost of goods, leading to a higher retail price.

And which prices and wages are we talking about? Are prices higher or lower than the wage at a Nissan Tennessee plant or the wage at a Michigan GM plant? That's another reason it's irrelevant. Wages are all over the place and the cost of living is all over the place across the country. There are not two numbers you can compare. What is the price of a home that is too high for a worker? $150,000? $750,000? Answer: It's too high when the worker picks an unsustainable mortgage, whatever that number is.

I think that should read "When the worker is permitted (and even persuaded) to pick an unsustainable mortgage." that's really where the fault lies.

That's not what's going on here. Corporations, many of which are still making billions of dollars in profit, are trying to effectively increase prices by lowering wages. This is an across the board problem: companies of all kinds are trying to take the easy way to higher profits: externalize costs. They've been getting away with it for so long now that they think it's their right. From the sports franchise that threatens to leave town if the local government doesn't build them a stadium, to bankers that need a bailout but won't lend money, they all think we owe them high profits.

I've said it before: you can't blame the workers because they're not in charge. If GM can't pay into the pension plan, it's GM's fault, not the pension plan, and not the workers. If Toyota isn't paying into a good retirement program, then we should be talking about raising Toyota's taxes, not eliminating GM's retirement program.

I know why the Canadian Banks don't need help...because in Economics they all got "Eh's"

Now, now..... We don't all say "eh", eh?

Bank reserve requirements have been trending downward, which has the effect of creating money. More easy money policy from the feds. Wiki has some good info on what the current requirements are: http://en.wikipedia.org/wiki/Reserve_requirement

Canadian bankers are not better or smarter, just less greedy. (Okay, maybe that does make them better.):)

Prices are set by the market place, not by the manufacturer's costs. Certainly they can ask for more, but realistically the price is already at the max they can charge because that's where the most profit is. They really won't reduce their prices just to be nice, and if the market would accept a higher price then they have already done that.

But why have they been trending downward? The only explanation I can see it that it's to the benefit of those in control of the markets. Making more money available to customers through loans helps with short term profits, and that's all they care about. It doesn't matter that in the long run it will ruin entire countries.

Do you still think there is a free market out there somewhere????

Yup, except US banks can't set their reserve requirements, somebody does that for them. The fed, I suppose, but congress could enact legislation to make it higher. They won't, of course, because politicians think we need to continue the easy money to avoid the fast approaching depression. Seems I remember somewhere from my youth that the requirement way back when was something like 18 percent. Now down to 10. Too big a drop I think.

If GM or Ford experienced a huge increase in their costs, do you think they would be able to pass that on to the consumers? If they tried, the Japanese automakers would eat their lunch and then their dessert, too.... as would the Europeans.

There is no reason to assume it's a free market just because there are market forces that everyone must deal with. Remember when Iraq had elections and Saddam got 100% of the vote? That didn't mean they had a democracy.

That's a very interesting reply. Let's start with the premise - just theoretical, mind you :rolleyes: - that the Japanese and Europeans are currently destroying the Big Three, and they are unable to reach profit at the current price point. So GM should be able to lower their prices, right?

I am not sure I follow your point. If GM/Ford cannot put a competitive product on the market at a competitive price (because of costs), they can take losses for a while or go out of business. They have to meet the competition's market price or they won't sell cars, which seems to be where they're at right now.

Not sure how the big three losing money computes to "they should be able to lower their prices." Big 3's costs to put a product on the market is not affected by what the Japanese automakers do, but the price the Big 3 can get for their products is definitely affected.

An interesting Op-Ed piece in the New York Times: "Bailout to Nowhere", by David Brooks. One small piece following an introduction in which he claims that the demise of corporations is how our economy renews itself. It's a survival of the fittest/evolutionary process:

I like the last line.

That's all true, but the problem here is that the people paying for GM's failure will be the workers. As usual, the fat cats will walk away unscathed.

Mom, apple pie, baseball and Chevrolet... and 3 million jobs. Plus another 1.7 million jobs supported by the money the 3 million spend. Five percent of the US manufacturing base. In short, this is not something we can let happen without some careful thought.

If the economy were good, I'd say let 'em crash. But at this point in time, I think we're headed for an environment where govt is going to have to directly create jobs. It might be cheaper to salvage jobs this way than to create new jobs with public works projects or such.

Are we going to bail out the employees if the Big 3 fail... pension plans, health care, etc.? Another expensive proposition, and I don't think we can, or should, do that unless we're willing to do the same for all citizens.

Clearly, a restructuring is in order one way or the other. Many divisions of these companies are profitable and should be allowed to survive. Unfortunately, others are making vehicles nobody wants today and/or are inferior to the competition. The manufacturers cannot retool because they can't borrow the money needed to do that given the credit crisis.

Like it or not, there is going to have to be a re-negotiation with the unions... and yes, a cutback in labor costs. A 10 percent reduction in pay/benefits is preferable to unemployment.

GM, until earlier this year, was the largest manufacturer of vehicles in the world and is the largest manufacturer of trucks. Painting them as only a manufacturer of large, inefficient, unwanted SUVs is only part of the story.

What we absolutely should not do is throw a bunch of money at them (the way we did with the banks) with no strings or conditions attached. Therefore, I conclude that is exactly what we will do.

A reduction in pay should only be allowed with an increase in tax on the gross income of upper management. I'd like to add 10% tax on gross income for every 1% that employees give up.

Unfortunately, I think you're right. We'll give them the money and then whine when the waste it on their island vacation homes.

Agree, the pain has to be shared. CEOs and other management types should take a bigger hit than the production line workers. The pain has to be across the board with no one spared.... and a 10 percent cut on the CEOs is a lot easier for them to absorb than a similar cut to the workers.

I'm thinking we should bring in a team from Walmart to oversee the auto bailout. Put somebody in charge that knows how to cut costs and be profitable. Bringing in auto sector management types to oversee just perpetuates the problem. The whole sector needs a little culture shock, they have been way too complacent for way too long.

You missed my point: 10% of the gross for every 1% reduction employees take would be 100% loss for management if the employees were to lose 10%. I'm 100% fine with that, but it won't happen. :D

As for Walmart, I don't like the idea of giving the most anti-American company in the country any more power than they already have.

I think that Detroit has been too complacent, but only upper management. While the rank and file may be better paid than those at many US companies, I still think they're underpaid. Management everywhere needs to take large pay cuts, the savings should go to the people who really make the economy run: the middle class employees.

I think we have to view Walmart for what they are.... they have a real world view of the environment in which they operate and do what is necessary to thrive in that environment. Walmart did the US products only things years ago... and prices went up and their customers complained, so they went back to importing from China/Mexico/Puerto Rico and on and on.... cheapest product they could put on the shelf because that's what people want.

Just bought a watch at Walmart.... exactly what I wanted, $4, made in China. I don't think US producers could put an empty box on a Chinese shelf for $4. (Hadn't owned a watch for years, got tired of repairing the Seiko... hey, I'm retired, what the heck do I care what time it is anyway?)

It is now an international market, we can recognize that or live with the consequences (ala GM, Ford).

Do you really think you've benefitted from the ability to get a $4 watch that won't last a year? All you've done is help to put more American workers in the unemployment line, which will increase your taxes. Where do you think the huge trade deficit comes from? Because of it, and shipping costs: both financial and environmental, you're going to pay more than the real cost of a decent watch, but you won't see the money leaving, so you'll continue to think that you got a deal. You didn't. You got robbed.

Oh, my! CWT, you're a protectionist. Should I buy US built cars, too? Or do you think Toyota profits don't go to Toyota? This is what free trade is all about.... compete internationally or die.

The watch is disposable.... the replacement battery is $4.75. I honestly bought the watch that best met my predetermined needs, actually the only one that did. Price was irrelevant to me.... well up to a fifty or so. Utilitarianism and all that.

No, I'm not a protectionist! I'm simply against allowing any company to externalize costs because that is Socialism for corporations. It is most definitely not free trade, or anything like it. It amazes me that anyone could think that using taxpayer dollars to clean up after corporations is even close to a free market. I'm not at all concerned with whether or not Toyota profits go to Toyota. I'm sure that their management will see that it does. I'm more concerned that all of Toyota's (or any other company's) expenses are paid by the company and not taxpayers.

The watch is irrelevant. Price is not. The real price of the watch you bought is far more than $50, but you're blissfully unaware of the real cost.

I guess I am missing your point. Agree on corporate responsibility. But, nobody has ever had to clean up after Walmart, and for sure the US taxpayers won't be cleaning up after the Chinese manufacturers.

The trade deficit is a two way street. If we competed better in foreign markets, it would even out. We gain nothing by subsidizing US manufacturers with preferential treatment... what we get is GM and Ford when we do that.

In any case, we've strayed a long way from Canadian banks, though for sure it is all interrelated.

UAW says they won't budge.... taxpayers should subsidize them.

http://news.yahoo.com/s/ap/20081115/...t_gettelfinger

@CWT: you often refer to "free trade" and often give us examples of what free trade is not, but I don't recall your ever having exactly defined what the term means to you. When you've got a moment sometime, you might start a thread with your definition and see what others thought, or give us a chance to ask questions.

Every time a Walmart employee who can't afford health insurance goes to the emergency room, taxpayers and people with insurance pickup part of the tab. That's billions of dollars in clean up right there, but that's only the tip of the ice berg.

US taxpayers, as well as those in other countries, are paying and will continue to pay a heavy price for the huge number of dirty coal fired power plants that China builds every week, just so they can sell $4 watches.

There you go with this mythical free market again! Nobody's talking about subsidizing US manufacturers. I'm talking about forcing all manufacturers to pay their own way. No more US taxpayers subsidizing Walmart's employee health insurance program, or Chinese power plants.
Canadian banks, US banks, Walmart, it's all the same: Corporate welfare is the problem.
A free market cannot be free if organizations aren't required to pay their own way. I would say that a free market would be one in which companies expect to pay a living wage for any job just as they expect to receive a fair price for their products and services. To look for ways to avoid paying living wages is to look for government handouts: corporate welfare.

If a business can manage to force the taxpayers into paying a portion of its own costs, then that business is manipulating the market. If the market is manipulated, it is not free. In today's market, corporations are laying pollution costs, health care costs, security costs, and many others onto taxpayers. Then when these corporations still can't manage their affairs, they ask for bailouts, but don't accept any responsibility.

I don't think such a market ever has, and I suspect, ever will exist. There are too many trade-offs..

We were much closer to it in the 1990s than we are today, but whether or not is has existed is almost irrelevant. We have swung so far from a free market that it's become just a buzz word used by corporations to advance their own selfish interests. One example: In what free market do the corporate officers of failed banks get bonuses?

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NovaScotian: Great thread! Very interesting.
And many worthwhile thoughts by other posters.


PS. CWT, you’re beginning to sound like a broken record.
I am not belittling your points, but you really don’t have to repeat them in every thread. ;)

I think what you're really saying is the US did a poor job negotiating trade agreements and regulating our own corporations. Monetary exchange rates are not always fair. That is, however, the world the way it is.

Should I not buy a Mac because the hard drive was made by Toshiba? Half of a US car is assembled with imported parts. Should I compare percentages before a purchase? Or should I simply do the best I can until utopia gets here? Paying more won't make the problems go away.

But I keep seeing the same idea in these threads: "We can't do x because that would violate the free market." You can't violate something that doesn't exist.

I would be happy if people would just recognize that the government isn't the only organization capable of taking actions that are against the principles of a free market. That in fact, large corporations can be even more detrimental to free market principles because they have more influence throughout the world than most (if not all) governments.

True. You've got to pick your battles. Walmart however, is the poster child for these kinds of abuses. They've taken them to levels never before dreamt of by large corporations.

Walmart, McDonald's, you name it.... all the same thing. Low wages, no health insurance for part time employees which they use extensively, etc. Only a national health care program and a mandated minimum wage will level the playing field.... and you can't force that internationally.

If they want to do business in this country, you can.

Perhaps not, but Wal-Mart certainly get their share of subsidization at the expense of local taxpayers in many cities and towns. I suspect that most Wal-Mart customers in those locations are unaware that Wal-Mart pays lower sales tax rates than other retailers, while still charging (and recording on the receipts) the higher rate to their customers.

There's also WalMart's "Made in America" ad campaign of the 1980's and early 1990's, a period during which they were becoming the nation's single largest importer of Chinese goods. Source "If it were an independent nation, it would be China's eighth-largest trading partner." Source

Wal-Mart is not exactly a model of an ethical corporation that pays their own way. We certainly don't need them "helping" American automakers.

I'm not a Walmart fan, and they are by no means a model corporation based on the way they treat their employees. But when it comes to cutting unnecessary expenses, they are very, very good. The Big 3, on the other hand, really take good care of their employees.

Since when have employees been unnecessary expenses? :eek:

Walmart is very, very good at cost shifting, which is the reason the economy is in the toilet. Cost shifting only works until the people you've shifted the costs to either wake up and refuse to pay or they run out of money. One or both must happen at some point.

A better example is probably Circuit City. As they got in trouble, they let all their experienced (and somewhat knowledgeable) sales folks go and replaced them with the least experienced (and thus cheapest) replacements they could find. See where that tactic got them -- no one would shop there.

Whether we like it or not, folks, labor is a commodity. Wages are subject to the laws of supply and demand. When you mess with supply and demand, ala UAW, you get overpriced labor, over priced products and an inability to compete in the market place.

People who work at Walmart work there because that's the best job they can find and at the best wages they can find (same reason we all work where we do/did). Had a couple friends who worked at Walmart... they liked it, and of course they had health care and a retirement plan. It's Walmart's tendency to hire a lot of part time people that some find objectionable. McDonalds, Burger King, and on and on do the same thing.

Walmart is successful and profitable in the US and all over the world because they do it right. Extremely involved, effective management.

Most cities will provide a kickback of sorts for large operations to locate in their cities/counties/states.... because there is a city/county/state sales tax. Employees who live in the location will also pay income tax and property tax. Not unusual for a large manufacturing facility to get a favorable rate on electricity/natural gas... cheaper than a homeowner pays.... as an incentive to locate there.

Right, CWT, it ain't a free market. But if you don't do these things, you end up living in a poor city/county/state with the neighboring states getting all the jobs and taxes.

Our state actually provides a kickback to large operations for paying their taxes on time.... i.e. remitting sales taxes they have collected on the state's behalf. So, technically, the operation collected taxes from the customers and kept part of it. It's not just Walmart getting a good deal.... they're all getting it if they bring jobs and income with them.

This is the problem with that "New Math" that they taught in the 60s and 70s. It doesn't add up, and that's why we're where we are today. You can't claim you want a free market and then setup Socialism for large organizations.

We all recognize that labor is a commodity. The problem is that few people recognize that corporations are also commodities. If not giving one a tax break will mean they won't locate to your community, you're better off without them. Another will be happy to take their place, and do a better job of it while paying its way!

Walmart is a perfect example of what I'm talking about: they don't do it right. They pay lower taxes, lower wages, and they shift health care and retirement costs to tax payers. The math challenged among us look at the tax dollars they pay and are impressed because the numbers appear to be large. They are not. When you factor in the lost taxes from all the businesses Walmart destroys, it's a loss of income for the cities and towns combined with an increase in costs.

In a perfect world. The competition among states to woo an auto manufacturer (Toyota & Honda usually) is fierce. We've lost that competition time and time again because we offered less than surrounding states (Texas, Tennessee, and Mississippi). Should not be that way; that's 3rd world type thinking (legal bribes). But, it is a fact.

Walmart pays taxes. Which is more than you can say for over 50 percent of the corporations in the US.

With so called free trade, US workers are forced to compete with workers all over the world. This fact has hit our workers hard and does threaten the standard of living we have enjoyed in the past. We are going to have to become more productive or accept the lower wages. Sucks, but its real.

That's survival of the fittest. And, it results in lower prices for consumers. That's a good thing.

Again with the New Math! States should NOT be competing to get manufacturers, because that ends up with reduced tax per capita income, and because it destroys the free market. By favoring large business you make things more difficult for small business, which is where real innovation and job creation comes from. If other countries are making bribes, we should counter those with INCREASED taxes when we find a company accepting them. If they don't want to do business here, great! They'll be replaced by a company that will pay their taxes.
Oh, in that case, let's be sure to kiss their butts. :rolleyes:

Once again, it's not free trade! When large corporations can manipulate the government into giving them tax advantages over smaller competitors, there is nothing free about the market.
No, it is systematic destruction of small business, which is the backbone of our economy. The result is not lower prices. It is slight of hand which creates the appearance of lower prices by increasing taxes and unemployment. It is nowhere near a good thing.

That's some of that new math CWT is talking about.

A very large proportion of corporations that "don't pay taxes" only escape tax liability as corporate entities. They are small businesses whose owners pay taxes on the pass through income. Instead of paying x amount in corporate taxes and y amount in personal income taxes, they pay x+y (or a similar amount) in personal taxes only. It's no different than someone taking the most advantageous of itemized deductions or standard deductions on their personal income taxes.

WalMart gets to add a gross profit percentage to their sales and list it as "tax" on the sales receipts, making their prices appear lower to the customer, while oftentimes actually increasing the net cost to the consumers, who have to make up for the lost revenue of their city/county/state by paying more in taxes elsewhere, getting fewer services for their tax dollars, and/or subsidizing the income of many WalMart employees via food stamps and other social welfare.

Like many large corporations (Exxon-Mobil would be another good example), much of WalMart's "profit" is just tax revenue fleeced off the consumers who are fooled into believing they are getting good deals shopping at WalMart.

I am familiar with Subchapter S corporations.

Aw, you guys are just into US Corp bashing.... you don't think Honda, Toyota, etc., do business the same way as Walmart and Exxon? You think they don't hire lobbyists?

How do you explain Walmart's success in the international markets?

(Note again, I am no friend of Walmart and oppose some of what they do. My point is that this is the way the world works until somebody changes it for the better.)

Here's the data who pays corporate tax rates.

http://www.americasbestcompanies.com...corptaxes.aspx

No. I'm into corporate bashing. I don't believe that there is such a thing as a US Corporation in a time where stocks are traded all over the world, every day.

You mean in markets that don't claim to be free markets like ours?

My point is that nobody is going to change it while people insist on citing Walmart as a good example of how to do business. Yes, it is the way the world works, and like any problem, the first step in solving it is to recognize that it is a problem.

After reading it, it's clearly a biased source, offering up just those facts that support the author's assertions, while completely ignoring the fact that would highlight the absurdity of that assertion.

Having said that, I'm all for completely eliminating corporate income taxes, instead taxing shareholders individually on stock dividends and profits from stock sales, at a rate no lower than that which they would be subject to if the money were earned via employment and reported on W2's. Taxing corporate income in such a manner could virtually eliminate tax loopholes. Corporations that are currently paying their own way without receiving corporate welfare would not see any significant changes. The rest of the corporations would have to start paying their fair share, leveling the playing field.

We also need national legislation forbidding retailers from charging higher sales taxes than consumers are actually required to pay with that retailer. There is no reason WalMart, or any other retail chain, should be able to charge their customers sales tax at one rate, while actually paying a lower rate to the governments on the customers' behalf. (Such deals should really not even be allowed to be made without explicit voter approval.)

I agree with everything you've said but this. Such deals should not be allowed at all. They're fraudulent, plain and simple.

Personally, I agree, and would be extremely unlikely to vote for approval of such a deal. However, I believe the local citizens should have the final say, after being informed about the real net costs of such a measure. I can think of scenarios where such a deal could actually be mutually beneficial. The local voters typically have the authority to raise and lower taxes anyway, so eliminating companies' ability to sidestep that authority should be effective enough.

But there are two insurmountable problems with it:

1) You can never fully inform customers.

2) It gives an unfair advantage to large businesses, destroying any pretense at a free market.

I've probably said this before, but I'll say again: The bank's problems are the same as the auto industry's and the problems facing most other businesses. You can't sell any product or service unless there are people who can afford to buy it, and wages have been falling for years while corporate profits soared. It had to end badly, and it has.

What scares me is that our answer to the problem is to blame it on labor costs. When the problem is that wages are too low, it makes no sense to try to fix it by reducing them further.

You might be interested in reading this report from the Brookings Institute. Some excerpts:

Recent studies suggest that there is less economic mobility in the United States than has long been presumed. The last thirty years has seen a considerable drop-off in median household income growth compared to earlier generations. And, by some measurements, we are actually a less mobile society than many other nations, including Canada, France, Germany and most Scandinavian countries. This challenges the notion of America as the land of opportunity.
…

Income inequality has been widening for nearly three decades in the United States. Amidst a flurry of new data and media reports, President George W. Bush addressed the issue for the first time in January 2007 during remarks to Wall Street: “The fact is that income inequality is real — it’s been rising for more than 25 years.” … The Congressional Budget Office finds that between 1979 and 2004, the real after-tax income of the poorest one*fifth of Americans rose by 9 percent, that of the richest one-fifth by 69 percent, and that of the top 1 percent by 176 percent.

Focusing on the familiar story of rising inequalities between CEOs and their employees yields figures that are perhaps even more striking. Between 1978 and 2005, CEO pay increased from 35 times to nearly 262 times the average worker’s pay.4 Said another way, by 2005, the typical CEO made more in an hour than a minimum wage worker made in a month.
…

Relative mobility can occur regardless of what is happening to the society as a whole. Individuals can change their position relative to others, moving up or down within the ranks as one would expect in a true meritocracy.
…

Data on relative mobility suggest that people in the United States have experienced less relative mobility than is commonly believed. Most studies find that, in America, about half of the advantages of having a parent with a high income are passed on to the next generation. This means that one of the biggest predictors of an American child’s future economic success — the identity and characteristics of his or her parents — is predetermined and outside that child’s control. To be sure, the apple can fall far from the treeand often does in individual cases, but relative to other factors, the tree dominates the picture. These findings are more striking when put in comparative context. There is little available evidence that the United States has more relative mobility than other advanced nations. If anything, the data seem to suggest the opposite. Using the relationship between parents’ and children’s incomes as an indicator of relative mobility, data show that a number of countries, including Denmark, Norway, Finland, Canada, Sweden, Germany, and France have more relative mobility than does the United States.

Compared to the same peer group, Germany is 1.5 times more mobile than the United States, Canada nearly 2.5 times more mobile [emphasis mine - J Christopher], and Denmark 3 times more mobile. Only the United Kingdom has relative mobility levels on par with those of the United States.
…

Beginning with a comparison of men ages 30-39 in 1994 with their fathers’ generation, men ages 30-39 in 1964, we see a small, but fairly insignificant, amount of intergenerational progress. Adjusting for inflation, median income increased by less than $2,000 between 1964 and 1994, from about $31,000 to under $33,000 — a 5 percent increase (0.2 percent per year) during this thirty-year period. The story changes for a younger cohort. Those in their thirties in 2004 had a median income of about $35,000 a year. Men in their fathers’ cohort, those who are now in their sixties, had a median income of about $40,000 when they were the same age in 1974. Indeed, there has been no progress at all for the youngest generation. As a group, they have on average percent less income than their fathers’ generation at the same age. This suggests the up-escalator that has historically ensured that each generation would do better than the last may not be working very well. [emphasis in original]
…

A growing gap between U.S. productivity and median family income challenges the notion that a rising tide will lift all boats. For nearly thirty years after the end of World War II, productivity growth and median household income rose together in lockstep. Then, beginning in the mid-1970s, we see a growing gulf between the two, which widens dramatically at the turn of the century. As the data … indicate, the benefits of productivity growth have not been broadly shared in recent years. [emphasis mine -J Christopher]

One thing is clear. A society with little or no absolute mobility is one in which for every winner there is a loser. It’s a zero sum game. And a society with little or no relative mobility is one in which class, family background or inherited wealth loom large. Equal opportunity is a mirage.

Very interesting. This is what Obama means by doing something for Main Street; i.e. actually raising all boats.

Agree, the facts are the facts. But, what is the solution? Should we do away with "class" (whatever that is), family backgrounds, and inherited wealth?

Of course, those who can are going to help their kids get a good start in life and that means those kids are going to have an advantage. I would not want to change that.

Of course, those who own a business are going to want to bring their children into their business. I would not want to change that.

Of course, those who have accumulated an estate are going to want to leave it to their children. I would not want to change that. The estate tax already puts somewhat of a cap on the intergenerational passing of wealth and I support that tax. All the facts quoted from the post occurred WITH an estate tax in place.

Certainly, we should throw "trickle down" economics in the trash and fix the loopholes in our tax system so that the system favors the maintenance of the middle class. We should improve our education system, particularly as it has to do with access to higher education. (Have you checked out the cost of college lately... absolutely unreasonable even for publicly supported institutions.)

Past that, I think we just have to live with it. Often smarter, more successful parents have smarter, more successful kids, and that's just the way it is. Those kids tend to marry smart, successful people and on it goes. How are we going to change any of that? Declare them a "class" and discriminate against them?

If we were to get rid of trickle down economic policies that prop up wealthy people who don't produce anything of value and we created a truly free market, then there wouldn't be the problems we're facing now.

The first step in creating that free market is to level the playing field, which means no subsidizing large companies. Government money should only be used in areas where the free market cannot do the job well enough or fast enough: the process of developing clean energy, education, health care, police, fire, national defense, and social security. The only way to do that is with strong regulation, part of which would keep corporations from lobbying.

The article seems to want to blame all inequality on: Fixing those things is social engineering to achieve the numbers they deem desirable. It is not a realistic solution.

IAgreed, that would be more fair. But, don't be surprised if the same groups continue to do better than others. Creating an opportunity to be successful is all we should concern ourselves with... who wins the game should be left to the players.

What do you think the so-called Conservatives have been doing??? Social engineering is what government is about. The question is: is the engineering for the richest people, or the majority of people?
If the same exact groups continue to do better, it can't be fair! Many of the people who have done well over the last eight years would be in prison if it were fair.

We can probably all agree on the futility and wrong-headedness of trickle-down economic theories which plainly don't work in a capitalist society any better than Communism did for the USSR, and for the same reason: GREED.

In the first case, a share of wealth entirely disproportionate to the effort of creating it goes to the top where it is not shared as it should be with those who made it possible, and in the other, again, power rests in the hands of too few whose merit did not get them the power they wield, it was their greed for power and ruthlessness that did. Both forms lead to corruption of a system that could work in theory because human nature obviates their merits and they are subverted to personal gain by those at the top.

Having said all that, however, you cannot deny that although we are all created equal under the law, we are not created equally able, nor are we equally intelligent, ambitious, motivated and focused. There is always the merit factor. Pay scales are based to some extent (or should be) on merit, availability of the talent required, and scarcity of those resources. Finding a system that treads equitably between socialism and trickle-down is not a trivial pursuit because while we must award the meritorious, we must also support the workers; the hands and eyes of labor.

True enough, but any system should at least match that of our distant ancestors. Hunter/gatherers were able to make a living working about two to four hours per day. Did they live as long? No, but is our economic system so unable to provide for its people that we need to work at jobs most of us don't like, and for most of our waking moments, just to exist for longer periods of time? And to spend those extra periods as indentured servants: slaves to our jobs, homes, and vehicles, all the while living in fear that some fat cat might pull the rug out from under us so he can buy another mansion/yacht/trophy wife?

A few things need to happen to get us (i.e. the US) back on track.

One important thing is that we need to recognize that money flows upward (defining "up" as the direction that tends toward those who already possess wealth, i.e. the "haves" and "down" as the direction that tends towards those who lack wealth, i.e. the "have nots"), not downward. It must be pumped downward. The reason is simple, and should be fairly obvious. The overwhelming majority of rich people got rich by spending less money than they made. Unfortunately, saving is often a luxury the poor cannot afford. Certainly some people could save, but choose not to, but many people make every attempt to keep their expenses to a minimum and still are barely able to get by. However, those who spend all of their income make larger contributions to the economy (relative to their income) than those who save. Those extra contributions are eventually siphoned off as savings by those who save.

Another important thing that needs to happen is we need to get past the anti-communism/anti-socialism rhetoric of the Cold War. It was BS then and it's BS now. Capitalism isn't the holy grail of economics. Socialism and capitalism each have their relative strengths and weaknesses. As a nation, we need to be able to objectively evaluate when industries better serve people via capitalism and when they better serve people via socialism, and then we need to adopt policies that best serve the people. Mixed economies are proving themselves to be superior to both capitalist and socialist economies. There's a lot more to economics than just supply and demand. We wouldn't want our engineers disregarding things like friction and wind resistance in their designs; why do we readily accept the opinion of economists who disregard important aspects of economics?

Something else we need to do it prioritize education. Somehow US culture has reached a point where people actually pride themselves on their ignorance. Educated people are often pejoratively referred to as elitists. Scientists are often accused of participating in widespread conspiracies (e.g. evolution, global warming) by people far less informed in the subject matter. Cultural perceptions of education and inconvenient educated opinions aside, we need to overhaul our education system. A secondary education should be enough to prepare the typical graduate for a typical job in which they can earn an income sufficient to provide a comfortable life. Currently, it's fairly common to find high school graduates unable to write a coherent paragraph (or even a coherent sentence in too many cases) or unable to perform mathematical operations as simple as long division or adding two fractions with different denominators. These are things that should be mastered long before students leave elementary school. There's no reason high school graduates should not have a basic understanding of calculus. There's no reason high school graduates should not have a thorough understanding of the differences among writing memos, emails, proposals, textual chat entries, etc.

Recently, I had a conversation with a roommate, a Chinese citizen in the US on an education visa. I asked him his opinion regarding why China's economic policy has been so strong in recent years. His answer was simple; the Chinese government adopted mathematically sound economic policies. Perhaps the US could learn something from that.

Absolutely, but while it is related, I think education is a separate issue from our/Wall Street's/Auto industry's economic problems. There are many religious groups who teach their young to read specifically so they can read religious texts. That's wrong, and we shouldn't be educating people so that they can pray at the altar of commercialism either. I believe that people should be able to earn a living even if they're illiterate. Yes, better education should mean better pay, but we tend to look at training as if it were education. That's another huge mistake.

To an extent I agree. However, I think a better educated public would have been generally more resistant to succumbing to the sales tactics used to sell sub-prime mortgages that were only affordable as long as the teaser rates lasted.

(There are other things a better educated population could have prevented, but their arguments would be far too political for this forum.)

Certainly there were other factors, but if the intent is to prevent the current economic crisis from reoccurring in 20-30 years, education is something that must be addressed.

Hmmmm. Good argument for going to school, working hard, and being successful. We should advertise that. :)

Who said the fat cat did? Lots of very undeserving people are very wealthy.

Perhaps in a country where there is a strong correlation between the two.

Well said! Except that hunter-gatherers enjoy better health than farmers, thanks to their leisure and more varied diet. On the other hand, the h/g male death toll in constant low-level warfare is generally huge. On the gripping hand, that is what males are for, we are merely destructive genetic testing devices in the service of female lineages, so who cares.

A case can be made that the Agricultural Revolution was humanity's biggest mistake. It gave us larger populations at the price of backbreaking toil, poor health, the expropriation of the product by the strong and the enslavement of women. And we didn't even escape the wars.

Yes, and there are other differences. Hunter/gatherers didn't have Macs (what would I do?) for example.

My point was only to demonstrate that while we tend to look at individual performance within the system as being the most important factor, it is the performance of the system itself that matters most. Our system has performed poorly.