I decided to tackle discussing something that I have been pondering for awhile, and as my customary proviso I am stating that this probably isn't a new idea. It deals with the economy, and why we are in for a long period of adjustment. In previous installments I commented on the state of manufacturing in this country. That we must embrace bringing it back, at the same time recognizing the total cost of products produced and sold.
Something beyond over speculation in real estate, bank irresponsibility and a service based economy with it fits and starts has caused the stall we are seeing. What has held the stock market at bay for 10 years. Sane indicators on the stock market, using traditional measures, indicate the market is at a proper level. Take for instance GE, the first stock to be put in the Dow Jones Industrial Average. It is trading at about $17 with earnings per share at a price/earnings multiplier of 16.
So why the stagnation in growth compared to the 1980's through 2000? I believe it was caused by reaching saturation of two income households. If you look at data about traditional households (defined by married couple, one income earner, children) the percentage fell from 24% of households, to a 7% and has held for several years. This was over a period from 1970 to 1995. In addition, in households without children over this same period, two income households remained relatively stable. This indicated that as a second income entered into the "traditional" household it feed unprecedented growth, because it was mostly discretionary money. Money above and beyond needed for the basics of housing, food, clothing, a car. The data would also suggest that it may have fed inflation in the late 70's as oil and other natural resources were taxed to support this expanding economy (as well as the instability in the Middle East). Productivity gains made in the early 80's through the emergence of computer technology into a basically service economy and stabilization of the markets in oil calmed inflation following a tightening of credit by the fed.
What am I getting at with all this analysis? That now we have reached saturation of the two income households, we are likely to return to the lower rates of growth (or perhaps less due to lack of a manufacturing based economy)that preceded the 1980's.
I think the expectation for return on the stock markets the reflect the economy are going to have to be adjusted. In addition, I will continue to beat the drum for investment back into a manufacturing based economy. There are data that suggests that follow-on spending from manufacturing far exceeds that which is caused by a service economy. Data also suggest that jobs pay better in manufacturing. I have argued that it acts as a flywheel damping the spin up and down of a service-based economy. We are seeing the disappearance of the middle class due to all these factors.
I have also beat the drum for another action that needs to be taken. It transcends the health care issue, terrorism, and all that is heard and seen on the news. I will take that on next time. But here is a preview in one word: Energy.
Showing posts with label economy. Show all posts
Showing posts with label economy. Show all posts
Friday, March 12, 2010
Monday, February 22, 2010
Something not so Zen.......
Forbes magazine this week has named my hometown the most miserable place to live in the United States. Cleveland, Ohio.
This came just after I made a point to go visit there to see a long time friend and go to a "reunion" for a club I played in during my high school years.
I miss the place a lot. Sure I am getting old, and looking at just the fonder memories of a rust-belt, smelly, has-been industrial town. Sure, the river burned. It defaulted on bonds. Had riots in the mid-60's. Has not seen a world series since 1954 (which the team lost...).
But I wandered through the art museum, endowed by such industrial giants as the Rockefellers. Saw examples of Rodin, Van Gogh, Renoir, and dozens of other priceless works. Across the street from the Severance Hall, that houses the Cleveland Orchestra, one of the best in the world.
I visited an old haunt, my favorite deli, Corky and Lenny's. Half pound corned beef sandwiches to die for. Real bagels. Pickled tomatoes. And when I said to the guy behind the counter, "I can't get here but once or twice a year. I miss it.", he thanked me for coming in.
And when I went to Davis bakery, a real place to get baked goods, and real Jewish rye, I told them the same story. And got the same thank you response.
What the editors of Forbes seem to forget is that people still live there. 450,000 of them. And in the metropolitan area, maybe 1.5 million more. People who live in Mayfield, Euclid, Richmond Heights, or Lakewood. All suburbs and cities in their own right. But when you ask them where they are from, they will say Cleveland.
The clinical, quantitative analysis that Forbes performed may have been factual, but does not pay homage to those who lived there, or give respect to those who still are there. And why should they? Because Cleveland is symbolic of the real strength on which this nation was built. The industries and people that made the city. Steel and automobiles. Thousands of immigrants, mostly from Europe who gave Cleveland its rich multi-ethnic diversity.
And those bad things that happened? The pollution? It was a result of heavy industry and our country's decision that do not account for externalized costs, like waste disposal and other environmental impact. These will be borne by someone else, not the generators. So the steel mills are gone and sadly, the jobs. But happily, the pollution is gone as well.
So Cleveland's woes are not its own. They were given to it by companies that used it up, and spit it out. They took no responsibility for the community. Senior executives in industry that ignored the world competition, and forfeit our future over the desire for short term gain over long term strength. And eroded the middle class and manufacturing.
To fix a place like Cleveland, we need to fix what we are doing about our economy. Manufacturing acts as a flywheel. Its inertia takes the abruptness out of economic cycles. It slows down and speeds up slower than services. It adds more value back into the economy in follow-up spending. It provides better jobs. So we need to endeavor to build back up manufacturing here in the United States. And focus on creating more middle class jobs. Many non-American car manufacturers make their cars here successfully. Honda, Toyota, and now Korean makers Kia and Hyundai. Even my Bavarian favorite BMW.
So, my hometown, once a great industrial city now has as its largest employer the Cleveland Clinic. Essentially one big hospital. What is wrong with this picture?
The "recovery" we are seeing is an illusion. If we go on believing that a services, retail based economy is sustainable, we will become a society of Lords and Serfs once again.
This came just after I made a point to go visit there to see a long time friend and go to a "reunion" for a club I played in during my high school years.
I miss the place a lot. Sure I am getting old, and looking at just the fonder memories of a rust-belt, smelly, has-been industrial town. Sure, the river burned. It defaulted on bonds. Had riots in the mid-60's. Has not seen a world series since 1954 (which the team lost...).
But I wandered through the art museum, endowed by such industrial giants as the Rockefellers. Saw examples of Rodin, Van Gogh, Renoir, and dozens of other priceless works. Across the street from the Severance Hall, that houses the Cleveland Orchestra, one of the best in the world.
I visited an old haunt, my favorite deli, Corky and Lenny's. Half pound corned beef sandwiches to die for. Real bagels. Pickled tomatoes. And when I said to the guy behind the counter, "I can't get here but once or twice a year. I miss it.", he thanked me for coming in.
And when I went to Davis bakery, a real place to get baked goods, and real Jewish rye, I told them the same story. And got the same thank you response.
What the editors of Forbes seem to forget is that people still live there. 450,000 of them. And in the metropolitan area, maybe 1.5 million more. People who live in Mayfield, Euclid, Richmond Heights, or Lakewood. All suburbs and cities in their own right. But when you ask them where they are from, they will say Cleveland.
The clinical, quantitative analysis that Forbes performed may have been factual, but does not pay homage to those who lived there, or give respect to those who still are there. And why should they? Because Cleveland is symbolic of the real strength on which this nation was built. The industries and people that made the city. Steel and automobiles. Thousands of immigrants, mostly from Europe who gave Cleveland its rich multi-ethnic diversity.
And those bad things that happened? The pollution? It was a result of heavy industry and our country's decision that do not account for externalized costs, like waste disposal and other environmental impact. These will be borne by someone else, not the generators. So the steel mills are gone and sadly, the jobs. But happily, the pollution is gone as well.
So Cleveland's woes are not its own. They were given to it by companies that used it up, and spit it out. They took no responsibility for the community. Senior executives in industry that ignored the world competition, and forfeit our future over the desire for short term gain over long term strength. And eroded the middle class and manufacturing.
To fix a place like Cleveland, we need to fix what we are doing about our economy. Manufacturing acts as a flywheel. Its inertia takes the abruptness out of economic cycles. It slows down and speeds up slower than services. It adds more value back into the economy in follow-up spending. It provides better jobs. So we need to endeavor to build back up manufacturing here in the United States. And focus on creating more middle class jobs. Many non-American car manufacturers make their cars here successfully. Honda, Toyota, and now Korean makers Kia and Hyundai. Even my Bavarian favorite BMW.
So, my hometown, once a great industrial city now has as its largest employer the Cleveland Clinic. Essentially one big hospital. What is wrong with this picture?
The "recovery" we are seeing is an illusion. If we go on believing that a services, retail based economy is sustainable, we will become a society of Lords and Serfs once again.
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