Monday, October 20, 2008

It's always about salaries

I’m watching CNN this morning (Monday, Oct. 6) and their reporting the world wide impact of the current US financial crisis. Markets are responding to the projected lower spending of US consumers.

Lets put this in perspective:

The same kids who took a sandwich to school on Friday will take a sandwich to school today. The same people who drove to work on Friday will drive to work today. People will still wash cloths and use detergent. They will stop doing those things only when they loose their jobs and don’t have an income. The most likely reason for them to loose their jobs is companies that don’t understand that for every job they shed, the economy looses that worker as a buyer of that same companies products.

I remember a statistic that explained how many jobs were created by a single new manufacturing job. This was back in the days when manufacturing jobs were actively sought by communities instead of big box stores. The understanding was that if you created three (or five or some other number of) manufacturing jobs you created one additional job in the community.

Those jobs in the community were at the burger stand, the car dealership and the local grocery store. Create 3,000 manufacturing jobs and you get 1,000 (or what ever number of) support jobs. That’s the coffee shop, the grocery store, mechanics and sales staff at the local car dealership, the doctors office, etc.

What we’ve been doing is cutting $45,000 a year jobs, creating two $25,000 a year jobs. Do this at the same time that your government is spending more than it takes in and you’ve got a recipe for disaster.

The idea that we could create an economy out of “information” was proven false on a smaller scale in Pittsburgh, Pennsylvania when the steel mills closed. The idea there was to take those displaced workers and retrain them into high tech. Only a few actually made it.

Not because they were stupid, but because people are not all the same. Think about the people around you. How many are really smart but just not scholarly, they do well in practical, hands on stuff but not in classroom stuff? A lot of people just go nuts cooped up in an office all day.

I’m not particularly well educated, but I was taught in high school that the economy was interconnected. People with good paying jobs buy stuff, they buy houses, cars, cloths, etc. People who had good paying jobs take on some debt to buy big ticket items like houses, cars, major appliances, things like that. Far too many got down sized, out sourced or their benefits cut leaving less income than they planned for.

They try to keep up with their debt but unless they can get their income back to it’s previous level, they’re doomed to keep falling farther behind. At some point it gets so far behind that they loose their houses. If this sounds like what’s happening today, your right. But the root cause is low wages. Add to that predatory lenders and bad public polices and you’ve got the perfect economic storm.

Please remember that we created sub-prime loans because such a large percentage of people were earning such low wages that they couldn’t qualify for traditional house loans.

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