We are taking a little side trip inthis series of defining rich based on the prior tax rate schedulesbut, this post is keeping with the process of looking at history formarkers as to the definition of rich. For any new readers, I believeas a society we knew and had definite boundaries as to what definedrich. I believe we knew how to say the word “when” as the incomeand wealth was pouring into one’s glass These boundaries producedspecific public policy that resulted in a more equal and justsociety.
In our local city there is anothertextile mill going to the grave. We have lost a couple of huge millsto fire in the last decade. The local paper did an article on thismill known as the French Worsted Mill. It was built in two stages,1906 and then 1906. It was part of the revival of the mill industryvia specific targeting of French industrialists, post water power forthe city. A local person who was eventually governor of the state iscredited with bring $6,000,000 of foreign investment into the cityearly turn of the century. At one point they had a Uniroyal rubberplant that made soles for shoes The last pair of Keds (sneakers) went out thedoor in 1970.
Nine hundred and fifty people out of work due to “FarEaster Producers”. (See the article: Pressure growsrapidly for Congress to to clamp tariffs on foreign goods, 5/19/1970) This was a city as industrial asanything Detroit or Pittsburgh were. This was a cultural center forthe region with 6 theaters and I don’t mean just movies. We aretalking blue collar all the way. We’re talking jobs that we considerthrow away jobs to the far east today. We’re talking jobs that are notconsidered “good” jobs anymore.
So, now that you have the picture, hereis what this mill and the jobs within it were able to do for theworkers. I think this bit of history also adds to my position thatwe have continually pushed the cost of the American Dream up theincome line such that the middle class can not afford it…even with2 college educated people in one house. This is the sub-context tothe discussion regarding the decline of the middle class or the lossof the middle class. When people say the middle class does notexist, what is being stated is that the American Dream is no longerfinancially possible for this groups of citizens. The Dream is notdead or gone, it is over priced relative to the income of the middleclass. It is just as we are not drowning in debt, we are dehydratingfrom lack of income.
The article in the paper talked about aMr. Bacon. He worked in the mill in 1956 along with 700 to 800 otherresidents. The job was not as a machine tool maker (the mill as mosthad their own machine shop) or a special machine operator thatrequired special skill. He was a laborer. The tasks mentioned werestuffing waste wool into burlap sacks or “picking up the yarn” orfetching parts from the machine shop. We’re talking menial labortasks. Starter jobs.
For this work Mr. Bacon was paid $1.80per hour. The minimum wage was $1.00 per hour. At some point he wasearning $80 per week for 40 hours work. This is $4160 per year. With this income Mr. Bacon was able to put himself through collegeand became a teacher in the local school system. It was not just anyold college he went to. It was Providence College with a tuition of$500 per year. Yes, a private college that cost only 1/8thof his annual income.
Mr. Bacon’s story is the story that notonly are the Republican presidential candidates promoting as to whatwe need to “get back” to, but the democrats are saying we needto go forward to. Mr. Bacon’s story with this mill is the proof thatthe 2 parties are not talking about a fantasy time in our history. It did exist.
Here’s the problem though with both of their directions. I’m justgoing to list them.
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$40,000 is the annual tuition at Providence College today.
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$1.80 per hour is equivalent to the following: $14.40/hour standard of living, $17.80 real value, $18.20 unskilled labor and $22.00/hour production labor.
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Tuition of $500 is equivalent to the following: $4010.00 standard of living, $4960 real value, $5050 unskilled labor and $6120.00 production labor
Are you seeing the problem here? It’snot just the difference of tuition going up 80 times. It’s that the wage equivalent today for what amounts to stacking shelves in Walmartis not being paid at Walmart. Not only is this Walmart job notpaying such wages, this is what the current autoworker is earning. The autoworker was one of the best compensated citizens we had. Lookup the definition of middle class in the dictionary, and you would have seen anautoworker!
Thelow-wage benchmark set by the UAW has already set off a competitivestruggle in the global auto industry, with Fiat-Chrysler boss SergioMarchionne telling Italian workers they must accept American-styleconcessions or he will move production to North America for cheaperlabor.
I have read that the German automakersare here in the US for the same reason. We are now the stop for outsourcing.
Here is the other more important aspectof the story of the French Worsted Mill and it’s relationship to theAmerican Dream. All those candidates, all those legislators, allthose governors proposing programs they say will encourage people toget off welfare and join the “productive” class, programs thatwill spur job creation, programs that will grow the economy such thatwe can cut taxes JUST LIKE THE GOOD OLD DAYS have no answer for thelack of pay of $14.00 per hour for the Walmart shelf stocker. Theyhave no answer as to how they are going to return the ratio betweenthe hourly wage and the cost of college education to that of the1950’s such that an individual can accomplish what Mr. Bacon andothers from the same mill accomplished. Not only do they have noanswer, they don’t even want to consider this aspect of theirsolution.
Mr. Bacon’s story is also telling uswhy we think the public sector is so over paid. If a Walmart shelfstocker should be earning $14.00 hour comparatively but are not, ifan autoworker earning $14.00 per hour is underpaid comparatively,then certainly the higher hourly wages of the public sector lookexcessive. Everyone used to know that the public sector was alwayspaid less compared to the private sector. They did not have morebenefits than the autoworker, but they do now. The slowdeterioration of the autoworkers and all the other laborers pay andbenefits has hidden the reality of the finger pointing at the publicsector. It’s not that they are paid so much, and thus look “rich”by comparison, it’s that the autoworker has lost so much over such along time that the loss is not recognized as a loss. Instead, thepublic sector’s economic position is looked at as an unjust gain. Not only is this presented as an unjust gain, it is an injusticeperpetrated via taxation. And the stage is now set for all thearguments such as those we hear coming from governors such as Walkerand Kasich.
This is where the Keds hit the road. We, and I have to say “We” because We voted in those who made thepolicy changes, have decided that a good job is not one which allowsthe experience of Mr. Bacon or the autoworker. We upped it to be onethat required academic education. No longer would trade education orapprenticeship education be of such value that it would define themiddle class. Unfortunately, as I had
suggested in 2007, evenacademic education is being defined down as to not resulting in a “goodjob”.
“The dream seems to now only be adefinite with a 2 person, college educated and working household. That combination is not far from being in the 10% group. Thus, wehave raised the dream to something beyond which a large portion ofthe population will not reach considering only 28% have a 4 yeardegree even though 64% of high school students are entering college. It looks even worse with people suggesting that you need an IQ of 110to succeed in college. I mean, can we push the dream any further outor be anymore aristocratic in our arguments? “
In 2003, the homeownership rate for upper-income families withchildren was 90.8 percent, while the rate for their low- tomoderate-income counterparts was significantly lower at 59.6 percent– yet in 1978 some 62.5 percent of low-to moderate-income workingfamilies with children owned their homes. Ultimately, had the 1978homeownership rates for working families with children prevailed in2003, an additional 2.3 million children would now be living inowner-occupied homes.
How’s this little bit of history change your ideas about what toblame for the current housing/mortgage mess? I suppose if you areall for a future that is less than what was accomplished in the pastthen blaming government for promoting housing and people for spendingbeyond there means is all right by you.
No one in the middle class of yore was rich by any means. But,what they had was a life much freer of risk than today. What theylived in was an environment that provided the means to manage therisk of life and living. When we are told by those running for or inoffice that Americans need to be more…(fill in the blank) they aresuggesting such from within their own experience of having grown upin a socially constructed via government environment that was devoidof certain risks of living based on one’s income. In other words,you would not be told that the requirement for food stamps would meanyou had to have less than $2000 in savings.
The removal of these risks allowed one to take what theypersonally had (natural ability and otherwise) and grow it into alife where economically more of life’s risks could be taken onindividually. It was an environment which removed the concept ofluck from the social justice equation.
This environment was not all welfare. It was an environment thatassured a person of common acuity could live a life free from therisk of weather, malnourishment, illness and aging. It was anenvironment that produced an economy such that the vast majority ofthe 72% without a college education were living this minimal risklife. We had an environment which supported the economic life journeyof the autoworker, simultaneously supporting the economic life journey of Mr.Bacon’s experience, simultaneous supporting the economic life journey of anindividual such as President Obama.
It was an economic environment which produced a directrelationship between income/wealth and risk absorption. As incomeand wealth went up, so did the absorption of risk and vice versa. Today we
have a system that is completely theopposite such that we have arrived at place where the relationship iscompletely reversed. We spare those who as a group can purchase agovernment which insulates them from any risk while pushing all therisks of living on to those who can not afford any risk and then tellthose people “oh well”. The bank bailouts and theausterity plan is the realization of the reversal of the risk/income-wealth relationship.
Our past economic environment also produced a direct relationshipbetween income-wealth and luck. Again, as income-wealth increased,your success was more dependent on luck and vice versa. This too hasbeen reversed as we see with the Washington revolving door and evergreater capture of the nations wealth as one’s income-wealthincreases. The environment produces an ever stronger assurance thatincome and wealth will increase as they both increase. This isunlike the experience of the middle class including all the highly educatedpeople who find themselves under employed or unemployed do to theshear luck of having chosen wrong. Today the closer you are to zeroon the line of income-wealth, the luckier you need to be.
I’ll leave you with this, the class warfare. There is classwarfare. It has always been with us, since the writing of theConstitution. However, I believe the current theater is the mostdevious the vast majority of the US population has ever faced. Thisis because of the two parties in this seemingly perpetual human quest,one has successfully cloaked themselves in the costume worn of athird party observer effectively immunizing themselves from the pain of the fight via camouflageof a messenger. I even suspect some aregaining a wee bit of entertainment in their ability to manipulate theircounterparts into fighting among themselves. I speak of the laborclass successfully being divided such that those who labor in theprivate sector of the economy accuses those who labor in the publicsector of the economy for their poor economic position and the publicsector laborer does not recognizing themselves in the private laborworld. I tell you, the false messenger is recognized in that theirlabor is money. It is not in their mind or body. Warren Buffet maywant to be taxed more, but Warren Buffet is not working his money asthe Kock Brothers are working theirs…and Warren Buffet isbenefiting from the productivity of the Kock’s Brother’s money.
Next up is 1936’s tax table.
skip all the numbers and analysis of them & ask yourself is this country capable of turning out as much real wealth (not in terms of dollar value, but in terms of actual goods & services) as it was a hundred years ago. i would say not only is it capable of matching that output, but it is capable of far exceeding it…so with the potential for more goods & services to be produced (per capita, if you like) by this country, the fact that a significant number of our citizens are in poverty & the majority are struggling indicates something has gone drastically wrong…
One should note that the 1787 constitution was written by the 1% to keep the 99% in check, for example no direct election of the president, or of Senators. Note that at the time property qualifications were required to vote. John Adams (the second president) thought than white manhood sufferage would be the downfall of the country. However the War of 1812 changed things as essentially the mantra became if you have to serve in the militia you should be able to vote, and this brought Andrew Jackson to power.
Actually, Jefferson was there. It is not true that the Constitution was written by the 1%. It is true that some were of what we would call upper middle class, but many were just the middle. They all were land owners, but they were not of the Rothchilds. Yes, Adams, was more looking and believed in an aristocratic model.
Super posting. So it would appear that a Mr. Bacon today should be earning roughly double per hour, and college should cost one-eighth as much, to approximate his 1956 situation in terms of his standard of living and ability to improve his income prospects by pursuing education? I’d call that a challenge. But as long as we keeep electing people who emphasize the values and policies that most of the one percent want to emphasize, Mr. Bacon’s condition is more likely to worsen than improve.
An interesting and fantastic post Becker.
“Are you seeing the problem here? It’s not just the difference of tuition going up 80 times. It’s that the wage equivalent of today for what amounts to stacking shelves in Walmart is not being paid at Walmart.”
What hits me initially is how inflation is critical to this statement and the current situation. It makes one skeptical of those who think inflation is the solution to the current economic crisis.
“I think this bit of history also adds to my position that we have continually pushed the cost of the American Dream up the income line such that the middle class can not afford it…”
And the economic phenomenon that allows it to occur so easily is inflation.
Society should champion the successes of the French Worsted Mill because its system used its labor and materials in such a way that it enabled it to pay Mr. Bacon a good wage for his labor. There are a few such examples today, but they are villainized for various reasons. On top of this, we assist companies that misallocate their resources. When Walmart is in financial trouble (and there will come a time when this will occur), I guarantee that many politicians will want to come to its aid with taxpayer money. They’ll talk about how Wal-mart’s suppliers will be affected, how shutting its distribution channels will have dire consequences for the entire economy, and how their bailout plan will save their large workforce. Watch who those politicians are and don’t defend them because they belong to the political party that you subscribe to.
Kevin: “What hits me initially is how inflation is critical to this statement and the current situation. It makes one skeptical of those who think inflation is the solution to the current economic crisis.”
It seems to me that you are using the term, “inflation”, in a different sense than those who think that inflation is the solution (or at least, part of the solution). You are using it in the everyday sense of price inflation (relative to wage inflation). Because of relative inflation, things cost more in relation to people’s incomes. Like college.
Those who talk about inflation as a cure are using it in the technical sense of increases in both prices and wages. (As in “the inflationary spiral”.) A lot of that has to do with debt. In a deflationary or low inflationary situation, it takes more in real terms to repay debt that was taken out in earlier times (such as mortgages). People are being weiged down by their debt. Mass bankruptcy would be painful and, as people like to say, distortionary. People would be bankrupt, not because of personal irresponsibility, but because of the failure of the system. Inflation of both prices and wages would lift their burden.
No one in the middle class of yore was rich by any means. But, what they had was a life much freer of risk than today. What they lived in was an environment that provided the means to manage the risk of life and living.
This is the crux of it. Profits have been privatized while losses have been socialized.
Contra Kevin, inflation has not been the problem. Prices have risen while wages have not. That is the problem.
JzB
Requires a sub but an article about another textile mill, that I am very familiar with:
The Anti-Kodak: How a U.S. Firm Innovates and Thrives
http://online.wsj.com/article/SB10001424052970203721704577157001419477034.html
Jefferson was in France as ambasador during the 1787 constitution, but Madison was there but indeed one would have to call Jefferson a 1% in todays terms since he had a lot of slaves, as indeed did Madison.
“Those who talk about inflation as a cure are using it in the technical sense of increases in both prices and wages. (As in “the inflationary spiral”.) A lot of that has to do with debt… Inflation of both prices and wages would lift their burden.”
The error in that model is the belief that there is little lag between price increases and equal wage increases. Becker notes the 80 fold increase in tuition at Providence College. Has the wage growth for professors, admissions advisors, or dining hall workers matched it? Tuition at state supported University of Rhode Island has increased an estimated 40 fold for the same period and its workforce compensation hasn’t matched either. This discrepancy occurs in almost all industries, whether profit seeking, mission driven, or public sector.
Inflating away large liabilities would be a great strategy if it weren’t for this result. Yet in order to alleviate debt burdens over 10 or so years, the average worker faces increased daily living costs. For the average single person, buying groceries for a week now requires 7 hours of work instead of 5. Rent and energy costs rise before their wages. This new dynamic is faced not only by the worker, but by those who will enter the workforce in the future, whose own debts will not be alleviated by the increased daily costs. The retired who are lucky enough to have a nest egg will now go through it faster than anticipated.
If you work in an industry that supplies the consumer, does your pay rise at the same rate as your company’s products?
Back in the day they lived off the low hanging fruit. That’s part of it. Part of it is we are not as invested in the present, that is, in the past we did not invest enough in the future, (which has come, and is today) even as today we are not investing enough in the future, because our masters are going for the quick return, and we are allowing this, because it allows us to consume more. It’s what you get when you invest in Walmart rather than a textile mill.
Because the fruit is ever higher, we must invest more than just a constant amount, but an ever increasing amount, to maintian our standards. We are not doing this, so our standards are falling. This is the real bottom line for renewable energy, sustainable agriculture, and global warming. We are failing to invest in these, and so our standards of living will decline. Real-Economik.
The candidates have no clue, or they are lying. Tthey are promises made to an electorate the candidates believe hungry for self-delusion.
Min I understand the difference but tell me how the Fed will increase wages along with prices. Call me skeptical on this. I do believe that if we increase employment (customers) and decrease unemployment that there would be pressure to increase wages and prices together–the type of inflation that is a part of the solution. Wrong?
I see more clearly why I don’t feel rich even though I am part of the 10 percent.
My house payment is a larger part of my salary than my father’s was. Sending my daughter to college will cost me more than sending me to college cost my parents. When I compare myself to mey parents, some very important things cost me a lot more. Some not so important things (150 channels, nuking my dinner, …) cost me less.
I don’t compare myself to who do not make a professional’s salary, because that it not how I grew up. On top of that, the difference between my parents wages as educators and autoworkers of the time was not so great.
«What has this push produced:
In 2003, the homeownership rate for upper-income families with children was 90.8 percent, while the rate for their low- to moderate-income counterparts was significantly lower at 59.6 percent – yet in 1978 some 62.5 percent of low-to moderate-income working families with children owned their homes. Ultimately, had the 1978 homeownership rates for working families with children prevailed in 2003, an additional 2.3 million children would now be living in owner-occupied homes.»
This is so funny that I really LOL’ed when I read it. It goes the other way round: the push has been produced by widespread homeownership.What has happened is that the working class heroes of your legend, and perhaps even Mr. Bacon, have come lower middle class landlords and rentiers, looking to a fixed-income retirement.What these petty rentiers have been voting for the past 30 years is a relentless push for lower wages and higher asset prices.They want more offshoring of well paying jobs, imports of cheaper stuff, more immigration to drive down the cost of services, lower taxes on investments and higher taxes on earned income, and above all more low-tax or tax-free capital gains on their houses, their 401ks and their corporate pension accounts.Their motto is “F*ck you! I got mine”. They also wnat more repression of anybody who looks like a threat, because “Better safe than sorry”. They feel exploited by parasitic minorities, and they feel that they are on the same side as the 1%. These are the voters that have re-elected enthusiastically a whole string of Republican or Blue Dog Democrat congresspeople for 30 years, those who have voted for PATRIOT, for TARP, etc.
A quote from Grover Norquist:http://www.prospect.org/web/page.ww?section=root&name=ViewWeb&articleId=11699
«The 1930s rhetoric was bash business — only a handful of bankers thought that meant them. Now if you say we’re going to smash the big corporations, 60-plus percent of voters say “That’s my retirement you’re messing with. I don’t appreciate that”. And the Democrats have spent 50 years explaining that Republicans will pollute the earth and kill baby seals to get market caps higher. And in 2002, voters said, “We’re sorry about the seals and everything but we really got to get the stock market up.»and one from Nancy Drew:http://www.nybooks.com/articles/archives/2011/aug/18/what-were-they-thinking/
«It all goes back to the “shellacking” Obama took in the 2010 elections. The President’s political advisers studied the numbers and concluded that the voters wanted the government to spend less. This was an arguable interpretation.
Nevertheless, the political advisers believed that elections are decided by middle-of-the-road independent voters, and this group became the target for determining the policies of the next two years.
That explains a lot about the course the President has been taking this year. The political team’s reading of these voters was that to them, a dollar spent by government to create a job is a dollar wasted.
The only thing that carries weight with such swing voters, they decided — in another arguable proposition — is cutting spending.»
«tell me how the Fed will increase wages along with prices. Call me skeptical on this.»
But the Fed have been increasing wages a lot in the past decades! There have been huge job and wage booms in China and India in the past 20-30 years of Fed generated and supported credit booms in the USA.
What do you think has enabled third world countries like those to start exporting iPads and Software consultancy? An endless flow of USA factory investment and of imports fueled by easy credit.
Fed sponsored “easy money” policies have created a colossal wall of money, and it has gone in two places:
* Investment in safe or bubble assets in the USA, from USA Treasuries to USA homes, generating massive low-tax or tax-free caital gains for small and large landlords and other rentiers.
* Investment and imports into China and India, as they are low-cost/high-growth countries, not hgh-cost/low-growth like the USA. When you go to Wal*mart and can buy a $10 sock made in the USA or a $5 sock made in India, which are otherwise identical, which one do you buy? Are you going to let exploitative USA workers screw you out of $5 of the capital gains you got by investing so cleverly in bubble assets?
Sure the Fed has a dual mandate: low wage inflation in the USA, high employment in China and India (the two are obviously related). Plus their new mandate: ever higher asset prices, because capital gains are the ultimate stimulus for the deserving rich.
“They feel exploited by parasitic minorities, and they feel that they are on the same side as the 1%. These are the voters that have re-elected enthusiastically a whole string of Republican or Blue Dog Democrat congresspeople for 30 years, those who have voted for PATRIOT, for TARP, etc.”
Yes this is true. However my point was that in doing such, as a nation we have less home ownership such that children are living in more rented houseing than parent owned housing.
I have also noted in my posting that I beleive in the late 70’s the middle class was feeling rich not recognizing that they were not rich, they were secure do to the reduction of risk of living. That they felt “rich” meant the upper class (1% etc) could bring them into an argument for restructuring the economy and thus society that works for those who earn their money from money and not labor.
Well, the middle and upper middle are finally waking up to this error in how they veiw themselves.