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Stock Ideas Investors Daily Edge Techies and Middle Class: Unite!
Stock Ideas Investors Daily Edge Techies and Middle Class: Unite! 
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Dear Reader, I have written several articles over the last couple of months about the chart of the S&P, but things have changed now. The lower rail of the trend channel and the 200-day moving average both gave way on Friday. |
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| Techies and Middle Class: Unite! |
| Wednesday, 26 November 2008 | ||||||||
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C.L. reminds me of the lead character, Howard Beale (played by the great British actor Peter Finch) in the great 1976 movie Network who screamed, "I'm as mad as hell, and I'm not going to take this anymore!" I have a feeling that C.L. saw this movie back in the day. Okay, C.L., the floor is yours... I'm just mad as hell! I’m 55, had to take an early retirement because of a bad back and I will be lucky to hold onto my house. Which, by the way, is not a $300,000 or up house. Very meager. “When the government no longer represents the people, you have the right to abolish it!” These words have greater meaning every day I live. C.L. saw the American Dream sneak out the back door during the Reagan administration. On the article "Is the American Dream Fading?" I loved it! Then of course, I like most of your articles. Anyway, one thing that I must add, though, is we were a different society. Meaning that we were an industrial society... when ol' Uncle Ronnie decided that corporations could make much more money by exporting our jobs and creating a "service society". That was the beginning of the end. Service jobs, typically, do not pay the same as the manufacturing jobs they were to replace.... You are absolutely right on the idea of women in the work force. When the wealthy of the country saw this, they licked their chops and said, “Hey look at this, more bang for the buck! “We’ll put them to work for half the wage”... I know what you’re saying, C.L. When I worked for the Governor of Maryland back in the 80’s and 90’s, I was charged with creating jobs through “inverse” investment from overseas. I spent a good part of my days back then encouraging the Europeans and Japanese to invest in Maryland. And we went after manufacturing jobs hard. Service jobs? We weren’t nearly as enamored with them and it wasn’t just the pay. The total wealth they created for the state was much less. Service jobs just didn’t have the coattails that manufacturing jobs did. Even in future industries such as biotech and the environment, we encouraged the manufacturing rather than the service end.
Tell me this. How is wealth created by having someone else cut your hair rather than doing it yourself? The results are exactly the same. The only difference is that someone else now has your 15 bucks. Is it worth it more to the country for a barber to have that $15 in his pocket to spend rather than you? Yet, GDP just grew by $15 when you use a barber. Go figure... I have a special treat for you today. I rarely feel the need to publish an email in its entirety. But David V. has an interesting and unusual take on the struggles of the middle class. So here is David’s view with no cuts... No one seems to understand why the middle class is fading.... Here's my take. From 1947 to 1973, you didn't need to have a higher education to make it into the middle class. You could do it literally through hard work. A factory worker, garbage man, construction, farming.... What happened in 1973? TECHNOLOGY. All kinds from communications to robots to computers. The technology eliminated many of the "grunt" jobs that paid well. Then the Asian's realized they could use the technology as a force multiplier... pair technology with cheap abundant labor and what do you get? Cheaper, faster, better "stuff"... and the USA was hungry for more cheaper, better stuff. We like $10 tennis shoes and $19 slow cookers. We buy 'em even if it means we eliminate our own jobs doing so. The first jobs to go? The "grunt" jobs... bolting stuff together, adding value is what creates a middle class anywhere. Service industry jobs don't build wealth. Why? NO VALUE ADDED. Yes, people need the service, but most likely, they are jobs that require little or no education. Pay is proportionate to the education required. Suddenly to make the middle class, hard work was no longer sufficient. You needed to be educated. I challenge you to the following: add to your graphs, lines that compare education levels here and abroad to the income numbers. My guess is you'll see the rest of the world "caught up" to us. The middle class didn't go away. It simply moved... first to Japan, then to China and India... where they still bolt stuff together, and add value. Which is why the auto industry here is “so” important. And why the French subsidize Airbus.... Any third world country not "building stuff" will remain a third world country void of a middle class, even if they have resources (like oil). Those economies with only "haves" and "have-nots" are service based and will remain third world (Central America, most of the Middle East...) Third world countries that figure out how to ADD VALUE (i.e.: build stuff) thrive and develop middle class populations (Japan, China, India, etc...), even if they don't have oil or other natural resources. Bottom line, the way to save the middle class is NOT to throw money at them in the form of stimulus checks or anything of the sort.... It's to get us back to ADDING VALUE (building stuff...), given the chance we are the best in the world at it. Great piece, David. Thanks. I just want to add one thing in reference to your “pair technology with cheap abundant labor and what do you get? Cheaper, faster, better ‘stuff’.” That’s absolutely true. And as the emphasis slowly switches from “cheaper” to “better,” that is when the emergence of a middle class gains traction. But if the technology doesn’t keep up, these countries are soon priced out of the market by even cheaper labor pools and they’re stuck making cheap stuff but not quite cheap enough. If the U.S. is to remain an industrial power, it will do so thanks to its technological leadership. The good news is that in the important sectors of health care and biotech, computers and chips, clean energy and biofuels, we’re still leading the way. Take that away and you can kiss the middle class in America good-bye. P.S. To let me know what you thought of today's article, send an e-mail to: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
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