This week, Verde Valley Independent Democrat board member, Bill Timberman joined host Steve Williamson on Democratic Perspective to discuss the overriding issue in today’s economy.
Bill began by looking back about 60 years to the end of WWII. “The image of American prosperity came from the period of about 1950-1972,” he said. “People made good money making war materials during the war, but there was nothing to buy. Things were rationed so they had a lot of savings. After the war, they needed to replace stuff that had worn out. So there was a huge boom.”
“Beginning about 1970, two things happened to our economy,” Bill said. “The first is what I like to call ‘We aren’t making things anymore’. The second is what I call the ‘Wall Street casino’,” he said.
He explained the first this way, “After the war, industry in Japan and Germany became competitive and reasonably priced. Think Volkswagen and Toyota. To compete, American businesses tried to reduce costs. So manufacturers started to run away from Michigan to Tennessee to Brazil and to China where they could produce products at much lower costs. But the wages were paid in other countries. So over time, you had a hollowing out of demand.”
“To maintain their middle class living, both parents had to go to work. After that, they had to start borrowing. As a result, up until the 90s, the middle class lifestyle was based on credit. Not on wages. And because everything is connected to everything else, the effects reverberated throughout the economy,” he said.
“This is where the Wall Street casino comes in,” Timberman continued. “The service industry was supposed to replace manufacturing. But most service jobs pay far less, except at the very top. As a result, we saw a huge increase in lawyers, financial advisers, Wall Street traders, and so on. The people with a lot of money realized they didn’t have to build a plant and hire a lot of people to make a profit. They could simply trade paper around on Wall Street.”
“Up to 1985,” he continued, “The financial sector represented 15 percent of corporate profits. Now it’s 41 percent. The same amount of profit now goes to a smaller number of people. You had thousands on an assembly line at a GM plant. But it takes many fewer people to trade stocks. Companies still make great profits, but for a smaller sector of the economy. About the only manufacturing left is the defense industry because they don’t sell to consumers. As a result, the dollars aren’t spread around as much.”
“As manufacturing jobs disappear, the consumer economy also shrinks,” he said. “It has to be propped up by debt. For example, people buy cars with loans on their home equity. That’s fine while house prices are going up. But what happens when they don’t?”
“People have to be able to buy things,” he continued. “Even though goods are cheaper, wages are lower. The trade off for exporting manufacturing is cheaper goods. But fewer can afford them. We can get into a downward spiral rather easily. Lower wages results in lower consumer sales which results in lower revenues for governments which results in fewer public workers, such as teachers and firefighters.”
“The cumulative effect is that people stop investing,” he pointed out. “That’s why businesses are sitting on cash. Apple now has more cash reserves than the US government. Why are they sitting on it? They don’t think enough consumers can buy their products.”
“The only way out is jobs,” Bill said. “We have to look at tax structures and public investment.”