The Private Sector Is The Problem

President Obama got into trouble several weeks ago while explaining his thoughts on the economy, saying "the private sector is doing alright".  The implication was that the private sector has seen growing payrolls over the last three years while the job cuts are coming from the public sector, but Romney and the GOP pounced on the gaffe.  The reality is much more complicated because at one level, the private sector is doing very well, and at another level, its excesses of recent decades are the root of our problems and the reason we're not likely to reverse them anytime soon.

For the last three decades, incomes and benefits for American workers has stagnated and even declined. Yet at least for the first two and a half decades of that period, the economy has still seen growth because of cheap credit and financial industry gimmicks that made the middle class and working class feel richer than their paychecks indicated.  Whether it be the advent of the 401K era, the tech bubble, or the housing bubble, workers have continued to be prolific consumers, borrowing against their overvalued assets to artificially boost purchasing power.  And all the while this happening, the capitalists in our economy have pocketed 100% of the real-world economic growth over that time period, although you'd never know it based on how aggrieved, persecuted, and enraged these people feel even after eating the lunch of everybody below them on the totem pole economically for a generation and a half.

But on September 15, 2008, the Reagan era finally ended.  The false growth economic model we had plodded through for more than 25 years was no longer sustainable.  The financial industry gimmicks were exhausted, the proletariat's credit cards were maxed out, and the house of cards was tumbling.  It was going to be back to basics from that point forward, and the supply-and-demand curve could return only with restored purchasing power for the workers who were flat on their backs.  But there's been one major problem with that transformation.  Four years later, and we still haven't gotten around to telling the "job creators" that times have changed.  They still think they can and should have it both ways, continuing to hold wages down at the lowest percentage of GDP since the Great Depression while still growing their customer base despite it being flat broke. 

The economic stalemate we're facing is a consequence of that cognitive dissonance on the part of the private sector.   There is no shortage of capital in the American business sector, which is sitting on more than $2 trillion in idle cash, whining about "uncertainty" as a reason that the "job creators" are not creating jobs. Somebody needs to have the political fortitude to inform the business community that they will not be able to keep 100% of economic growth for themselves for the next three decades as they have in the last three decades.  They either need to increase compensation for the economy's consumer base or cease to exist.  It's really that simple.

And I'm sure the laissez faire ideologues will fire back with the retort that employee pay is determined by market forces.  I agree.  And market forces are keeping would-be consumers sitting at home and the shelves in your businesses full in the current economy.  If you wish to clear that inventory and restore the rewarding economic feedback loop of the past, you have to raise wages.

Do I expect this happen?  Absolutely not.  Politicians are so petrified about scaring off the "job creators" that they will continue to coddle them no matter how counterproductive their economic practices continue to be.  And even as their share of the economic pie has soared in recent decades, the capitalists are in an endless purple-faced fury believing they are the victims rather than nihilists responsible for the American economy breaking down....and have the nerve to bemoan the expansion of an entitlement culture that is the direct result of private-sector stinginess, with government being the only entity capable of plugging some of the holes left behind by a private sector that is habitually undercompensating its workers. 

That's where the business community is now, blaming government for relieving a smidgen of the financial tension imposed on a bankrupted working class.  The capitalists don't even have the sense to realize that this paltry level of financial relief is the only thing keeping their businesses from experiencing even less economic activity.  So the business community will not let go of their three-martini status quo without an epic fight, having grown entitled to the concept of unlimited financial reward without shared prosperity.  Their blood pressure soars at the mere suggestion of limiting economic inequality and simply refuse to make the connection between a sufficiently compensated consumer base with purchasing power and actual economic activity that will be good for their businesses.

Bottom line:  the American business community has no intention of raising anybody's wages anytime soon, and plan to allow wages as a percentage of GDP to slump still lower than their already historic levels while they sit on piles of cash and complain that the real problem with our economy is food stamps and unemployment benefit extensions by evil government.  This is why nobody should expect an economic recovery even if an otherwise ideal opening for growth comes along.  The unrestrained gluttony of the pampered "job creator" class is destroying America in the most tangible way in recent history, but they don't think they're doing a damn thing wrong.

Thoughts on the Health Care Ruling

I'm not a legal expert but had a number of takeaways from this week's surprise Supreme Court ruling on the Patient Protection and Affordable Care Act.  I wasn't as floored as some that Chief Justice John Roberts was the deciding vote to uphold the act because I read a number of pieces by legal experts leading up to last spring's oral arguments that predicted Roberts was more likely to uphold than Kennedy based on past rulings in vaguely similar cases.  However, in the oral arguments Roberts showed absolutely no sympathy for the government's case so as of Thursday morning the little remaining hope of the PPACA's survival seemed to rest in the hands of Anthony Kennedy who, as it turns out, was actually lobbying Roberts to rule against the act.

Anyway, my three primary takeaways from the ruling....

First, the Supreme Court of the United States is truly in the hands of a fringe right-wing majority.  Even amongst the most conservative jurists on the bench nationally, the majority seemed to believe that the individual mandate was easily justified within the bounds of the interstate commerce clause.  But with this SCOTUS, five justices were monolithically to right of even the majority of conservative judges, and they didn't even blink when reaching the conclusion that the mandate was unconstitutional.  Roberts, apparently conflicted about the court seeming too partisan and overturning the will of a democratically elected legislative body, ultimately carved out a semantic exemption that allowed him to uphold the law, but otherwise all five judges were prepared to toss out the entire law by judicial fiat.  While Roberts deserves a muted hat tip for not fancying himself a super-legislator with broad-reaching veto power over legislation he doesn't like, it's still very scary that four other conservatives believe that is their role, and overturning the entire health care law based on an extremely restrictive view of interstate commerce that applies to one portion of a 2,700-page law really would have been a judicial overreach of monstrous, banana republic proportions.  In other words, the bar for which we tip our hat to conservative SCOTUS judges is pretty low.

Second, the business community has just been energized in an election year, and that can only mean fantastic things for Mitt Romney and right-wing SuperPACs.  There was already widespread speculation that Romney's campaign was gonna outraise Obama's in the final months of the campaign, but with this ruling, the business interests who have consolidated all the profits of the last three decades of the American experiment will really let the mullah flow in the direction of Republicans in general and Romney in particular.  Expect an outsized fund-raising advantage for Romney over Obama in June, figures which are likely to be announced as early as tomorrow, and for Romney to pull in as much as $150 million (or perhaps even more!) in July, significantly more than Obama.

And third, unless Republicans are able to win the trifecta in November and overturn the PPACA, the Democrats own American health care for the foreseeable future.  This is what makes me so uneasy because is a poorly constructed bill, and only through accounting gimmickry were drafters able to manipulate cost savings.  Particularly with the Medicaid expansion tossed out by the court, it's even more unlikely the fanciful predictions of the PPACA "reducing the deficit" will come to pass.  The more likely scenario is exploding out of control cost increases and unforeseen consequences of delivery.  In some respects, this is to be expected with complex new legislation and lawmakers frequently count on being able to tinker around the edges and plug holes as they emerge, but that was in the era of a good-faith opposition.  Republicans accepted the passage of Social Security and Medicare when they went into effect and always played along with Democratic majorities when it came to fixing them for the common good.  That won't happen in the current era.  The only solution today's Republicans will ever present with the PPACA is full repeal.  Any problem that arises helps the GOP politically as they can pin fault on the Democrats for passing it.  Twenty years into the future, if the law still stands, the Republicans will be just as entrenched in their repeal position as they are today and will take every opportunity to sabotage the legislation's enactment and take advantage of the political fallout from that sabotage.  Nobody wants ownership for the trainwreck that is American health care policy in a nation as polarized as this one, but the Democrats now have it and will likely hold it.  As a result, expect the PPACA to be the Democrats' version of the Iraq War, broadly unpopular forever and leading to significant short-term and long-term election defeats.  I hope I'm wrong on this, but I'm really not confident about this legislation.