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How will declining buying power play out?

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January 30, 2014 – Comments (10)

My dear brother got laid off yesterday and that got me thinking.  

I had this theory of how the economy worked for low wage earners versus higher wage earners from my youth.  My theory went that lower wage earners did not get laid off as frequently as higher wage earners when business slowed down and my reasoning was that it was affordable for the lower paying businesses to keep the workers and ride the slow down.  I was in lower paying jobs in my youth and not once did I get laid off, but a lot of people I knew in higher paying jobs got laid off all the time, so that was my reasoning.  In my mind part of the reason high paying seasonal work was high paying was in part because of the seasonal nature of the work.

Well, my brother is not in a higher paying job.  He is in a low paying job and he left the job for a while and when he asked to go back, they rehired him immediately because they knew he was a hard worker.  

So, what this got me thinking is wow,  not only has the buying power of so many people grossly decline, but what I thought of as a trade-off for a serfdom job was more job security if that was once true, it sure isn't today.

In the micro picture, a business lays off a worker and in the short term the business makes more money, but in the macro picture, there is one more person with less disposible income and with this gross level of declining wages and I do think declining job security, disposible income is contracting and has been contracting for some time.  Part of it is hidden in all the adult "children" who are still living with their parents so they don't have the same household bills and that is what gives them spending power.

And then there is the 20 odd years where the ability to increase debt has been there because how rates declined which has also masked the declining buying power. 

And then there is what I call the "parallel" economy.  This would be like how Costco has tables and tables of clothing that has prices that are comparable to prices from my teenage years.  When you don't have much income you can shop at second-hand stores, but there is this second economy of shopping available where the price difference between second-hand and new is not that different, as in these tables of clothes at Costco.  It seems to me that the price difference between "cheap" clothes and what was popular was popular was double the price, but today Lululemon is 5-10 times the price of what you can find on that Costco table.

Anyway, I think the economy is in big trouble because of this growing class of serfdom worker, which is contracting disposible income to the detriment of the greater economy and it is going to be really interesting in terms of how that plays out as the baby boomers age and these terribly undervalued generations come to power and will be making the decisions that determine policy in my old age. 

 

 

10 Comments – Post Your Own

#1) On January 30, 2014 at 10:35 AM, Teacherman1 (51.70) wrote:

Interesting thoughts DWOT.

The only clothes I get these days are the ones my wife buys me when my old ones are so "holy" she can not stand it anymore.

I can remember when I worked at Sears (back when they were the best and biggest) during my senior year in highschool in the mens clothing department and their shirts came in three grades, good, better and best.

The good were about $2, the better about $3 and the best about $4, sometimes $5.

Of course, when the wages of the people who worked there were about $0.75 and hour, maybe $1.00 with commision, that seemed a lot, but somehow we all managed to get by.

I am at the point in my life where I don't even have to worry about a future old age, since the "future is now":), but I agree that things have to change somehow, or there will be a real class war being waged in this country and the rest of the developed world.

Have a good day and try to stay warm.  

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#2) On January 30, 2014 at 11:30 AM, Mega (99.97) wrote:

Good luck to your brother.

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#3) On January 30, 2014 at 3:36 PM, awallejr (81.36) wrote:

or there will be a real class war being waged in this country and the rest of the developed world.

There has been one for decades now, except it is a war against the Average Joe.  Go back to the Eisenhower tax code (adjusted for inflation) and you will see an incentive to share the wealth unlike the incentive not to of today. 

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#4) On January 30, 2014 at 6:30 PM, EnigmaDude (87.04) wrote:

And then there is what I call the "parallel" economy.

I think you are living in a parallel universe.  You have been doom and gloom about the economy for as long as I have been on CAPS (which is nearly as long as you have been). Sorry to hear about your brother but he is not necesarily indicative of a larger problem as you suggest.

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#5) On January 31, 2014 at 11:54 AM, Teacherman1 (51.70) wrote:

awallejr

I am not quite sure what you mean because of the wording at the end of your last sentence.

What I was refering to was open, armed conflict, such as has been seen in the muslim world.

I hope and pray that it does not ever come to that, but there comes a point when pressure and frustration gets so intense that it just has to "boil over".

I am not talking about who will attack who, but the so called "middle class" is either getting very small, or the term is expanded to include a wider range of incomes, depending on who is doing the talking.

A very large part of the American population is at the point that they are just a "hiccup" away from total financial disaster.

I am not trying to be a doom and gloom person, (at my age it is mostly a moot point"), but I am concerned about those who come after me.

When the "middle class" is gone (if that comes about), then it will be a time of strife and turmoil.

JMO and worth exactly what I am charging for it.  

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#6) On January 31, 2014 at 1:47 PM, afewgoodstocks11 (24.29) wrote:

"A very large part of the American population is at the point that they are just a "hiccup" away from total financial disaster."

 As is so prevalent in human nature, those that have no experience with something are more or less clueless.

This isn't a question of 'get a job'. There are no jobs, and many of the jobs out there barely/don't provide a standard of living.

I have been saying this for decades but i finally saw some analyst saying it. Automation is taking a substantial, and growing number of jobs. Those jobs aren't coming back.
When i was young is was said that automation would reduce our work week to 20 hours. What really happened was now we have half as many jobs, and they are often for just few enough hours to deny benefits. etc etc etc.

 If you aren't familiar with the term Post Decadence Anarchy, it's based on the concept the humans really NEED little, and huge amounts of the golbal economy is really just discretionary. They problem is the knife cuts both ways.
I don't really have time or intrest to write an entire thesis on it.

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#7) On January 31, 2014 at 2:10 PM, ThisIsFor2053 (< 20) wrote:

Most recent Bureau of Labor Statistics report shows that, at the end of November, there were 4 million jobs available.

4 million jobs > no jobs

A lot of people don't seem to realize that employers don't pay you for something you want to do.  They pay you for something they want you to do.  If people are seriously in agony over their job search, then they should probably tailor their skills to better match what employers are looking for, rather than waiting for employers to look for their skills. 

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#8) On January 31, 2014 at 5:08 PM, awallejr (81.36) wrote:

Teach

My last sentence was an offered solution.  The middle class thrived during those years (under Eisenhower) mainly because the tax code forced rich management to share since there was a hard tax cap at 92%.  By taxing at such a high rate at the top of the income bracket it basically forced management to share the money instead.  Employees got raises, they spend it within the business or even on lunches and corporate entertainment.

Under the Bush tax cuts you had basically top rate at 15% (capital gains) so now management had incentive to keep as much as they can, so they shipped jobs overseas (yeah the so-called job creators - well for Asia anyway).  Accordingly the middle class started dwindling since the wealth was no longer being shared.

Eventually the masses really do need to wake up and take back Congress.

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#9) On January 31, 2014 at 7:50 PM, gman444 (28.95) wrote:

dwot:

Maybe buying power will be artificially inflated by newly maturing young adults, who will use credit until they are leveraged to the hilt, then live in economic purgatory for the next few decades. I know there has to be a limit at some point,  as these new credit users descend into the debt-induced malaise that seems to be the norm now, and increasingly higher percentages of large economies like the US live on fixed incomes. But perhaps that point can be put off further than one would intuitively think by the new debt customers entering the market.

And when that point comes, then people will adapt. Expectations will have to be lowered, things once taken for granted will increasingly be seen as luxuries, economic/bartering activity that is further and further removed from  being reflected in official numbers will increase, margins on non-essential goods/services will contract, perhaps as in the parallel economy you mention, etc, etc.  I think we are already well along on this road. 

Good to see you posting again.  

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#10) On February 05, 2014 at 1:12 AM, dwot (72.69) wrote:

Teacherman1, the price differences that you describe are like what I remember when I was young.

I really noticed these unusual price differences when I was in the UK.  I remember Telsco had these massive chocolate bars, about 1/2 pound, for about $1, and there were nuts and some canned goods and a few other things that were simply priced really cheap.  And the other thing that I noticed about the UK compared to Canada was the huge numbers of 30 something year olds that were still living in mom and dad's home, and stuck in low paying jobs.

Interesting comment about how how much tax you have to pay would influence incentive to share wealth, or to not share it awalljer.

EnigmaDude, I'm just stating what I observed in my youth in terms of who got laid off and who worked through slow periods.  My observations could be highly skewed because of the nature of the local job market, which was resource based.  You are correct that I do not see a good future for the economy as a whole.  With the aging population the numbers just don't add up and I think there are going be a lot of adjustments to expectations going around.  

Already in Canada programs people thought they were getting are being cut, but only for "younger" people.  For example, the age for our Old Age Security is increasing from 65 to 67, but only for people born after April 1958, so people that are 56 or younger are hit and it is phased in for people between 56 and 52.  I get it at 66 and 11 months so I don't think I am wrong.  But there is no way that this will be enough.  It is yet another example of aged favoured over youth in that it is no more affordable for for those over 56, but they got zero of the adjustment hit.

 afwgoodstocks, interesting comments about automation.  I was in the banking industry when the automation of bank machines started and it was a very bad place to be in the economy.  There were service cuts for years so there just was no movement or advancement happening.  There sure are a lot of positions never coming back.

Maybe gman, but the birth rate has declined with the lower wages. 

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