Former Secretary of Labor Robert Reich has another excellent article explaining why one sector of the economy (the top 10%) can do so well while the bottom 90% is in such a precarious position. In "Why There's a Bull Market for Stocks and a Bear Market for Workers" Reich explains why American workers and our middle class have not seen the benefits of a 4 year stock market rally.
Specifically, Reich argues that American workers and the middle class aren't seeing any real spill-over from stock market gains because of the following:
* Productivity Gains: Corporations get tax credits and deductions for investing in technology over workers. So they do. Corporations can now do more with fewer people on their payrolls.
* High Unemployment Reduces the Bargaining power of Most Workers: The 2008 market collapse threw millions into the ranks of the unemployed. With the GOP refusing to fund programs that would help rebuild our nation’s crumbling infrastructure downward pressure is placed on wages as the unemployed and underemployed vie for full-time work.
* Globalization: American-based corporations have been expanding and hiring around the globe, but not here. Cheaper labor abroad means downward pressure on labor here. Generous tax deductions to go abroad plus state sponsored trade policies have encouraged this.
* The Fed’s Easy-Money Policies: The Federal Reserve has pushed investors into the stock market because bond yields (and interest rates) have been kept low to help bail out the banks. On Tuesday (3/5/13), the yield on the 10-year U.S. Treasury note was just 1.9%. Privileging finance capital over jobs and the middle class has had a devastating effect on both.
To this I would add two other developments.
* Market Interventions: Another reason why investors are flocking to the stock market is because market stability is pretty much guaranteed (for now). Through an alphabet soup list of purchase, credit and other programs the Federal Reserve and the Treasury Department have intervened in the market at least 1,230 days (out of 1,519 days, through January 22, 2013).
* Labor Under Attack: With corporate America pushing Congress to go after unions, while promoting so called "right to work" legislation at the state level (which gut worker rights), America's labor force has been under attack for decades. The post-war social contract has come unraveled.
Almost all of these market shaping developments involve - or are completely dependent on - government intervention. What this means is that without government orchestrated interventions the stock market would still be in the tank. Simply put, tax payer subsidized purchases, loans, credits and other guarantees have artificially inflated the stock market by propping up and bailing out the worst market products put together by Wall Street's biggest players.
Long story short? We're in trouble. We don't have a free market system. We are sweeping the worst of the financial sectors 2008 mess under the rug. Worse, we are propping up a decaying and corrupt financial system.
On the positive side, the market hit 14,000 and Wall Street is feeling good about itself. Again.
Yawn ...
- Mark
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