The Dividing Influence in the US Job Market


For 6 weeks, the Dow has been going down. It should be ready to bounce.

But stock market investors didn’t get a bounce yesterday. They didn’t take a loss either. It was a draw. The Dow closed 1 point higher than on Friday.

As for oil, it was down to $97. And gold lost $13.

Business profits have been near record highs. This is not a good reason to buy stocks. Profits are famously “mean reverting.” That is, they go back to normal pretty fast. Which should mean lower profits in the future.

When profits are high it is usually because labor costs are relatively low. That is the case now. But that’s not good news. In the US, labor’s share of national income is the lowest it has been for almost 100 years. People who own and run corporations enjoy higher earnings. The rich get richer.

But the working stiff doesn’t share the joy. He feels he has been cheated. He just doesn’t know who cheated him. With 25 million people looking for decent jobs, he has no pricing power. He can’t threaten to walk off the job. There are too many people ready to take his place.

So what happens to him? Does he take his losses philosophically? Does he cut back his standard of living…spending less time driving his big SUV and more time reading the classics?

Or does he become bitter…and feel like he has a score to settle?

We have an uncomfortable feeling this morning. It comes from reading before we go to bed. Next to our bed is The Forgotten Soldier, a personal history of war on the Eastern Front in WWII. The author – a private soldier in the Grossdeutschland division – knew nothing of the strategies, logistics, or politics involved. He merely tells us what he saw…what he did…and what he lived through.

What disturbs us more than the events – which were unbelievably shocking and brutal – is the caste of characters. They sound like normal people. But what sensible man would invade Russia – without winter clothing – and let himself get bogged down in a four-year war of hellish slaughter in nightmarish weather? And yet, millions of apparently sensible people did.

The author of The Forgotten Soldier, Guy Sajer, seems like a decent sort. He joined the Wehrmacht willingly, happily and proudly. And he wasn’t even German. He was French. He barely spoke German.

Which just proves our point. People are neither good nor bad, but subject to influence.

In England, CEOs got huge pay increases last year. Their compensation rose 32%, thanks largely to such high profit margins.

We haven’t seen comparable figures for US CEOs but they are probably not too different. Bankers, for example, are partying again, just like it was 2005.

In Britain, as in America, the middle and lower classes got no raises last year. Or the year before. Or the year before. In fact, their real incomes are going down as the cost of living goes up and their wages stagnate.

Who will they blame for that? Will they carefully analyze the situation…and see how their central bankers and politicians misled and betrayed them? Or will they point their fingers at softer, easier targets.

People are always the authors of their own success. Their failures are always written by someone else.

What kind of influences will be felt by the American people…when they realize that they are no longer on top of the world…when they have lost their houses…and their jobs? And the Chinese try to force an austerity program on them!

Yes, dear reader, borrowers may want to spend, but creditors demand austerity. In Europe, the Germans are trying to force the Greeks to cut expenses. And now, America’s major creditor – China – is demanding that the US put its finances in order too.

There are bound to be some feelings of resentment.


Bill Bonner
For Daily Reckoning Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Bill Bonner

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5 years 4 months ago

June 14, 2011, 4:15 p.m. EDT
Bernanke: Don’t play politics with debt limit

Translation: QE3 is coming.

That’s why markets are rebounding. The Bernanke has given the buy signal, telling the USG to raise the debt limit, coz’ The Fed is armed and ready to buy treasuries.

The masked man
The masked man
5 years 4 months ago

Interesting, on the unemployment:

The only way the US can become productive again is to revitalise their manufacturing. Who is their biggest competitor? What are wages and conditions like there for workers?

In order to become productive they must match wages and conditions in the areas where productivity is high, and wages are cheap. We live in a global marketplace after all.

When the people are desperate, and the unions are broken, then the wages can revert to whatever level they like. The floor’s the limit.

5 years 4 months ago
” Which just proves our point. People are neither good nor bad, but subject to influence.” People can behave badly (evil) or they can behave well (good). While there is property to fight over there will be evil. Then we can take away property and evil will be no more? No. Property is not evil. Neither wine, women nor song are evil. Nor opium or guns even a nuclear warhead (illustrating with extremes: we could use it to blow up an incoming asteroid). People disrespect one another over property which is evil but property is neutral. However blaming property is… Read more »
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