Whose Recession Is It Anyway?

Okay. I'll fess up and admit I stole that title from a blog-analysis section of today's New York Times.  But it's been the elephant in the room of political discourse for months now. 

At the start of the Obama Presidency, it was pretty clear that our shambles of an economy began on Dubya's watch and was aided and abetted by the actions of a mostly Republican government (including business-leaning SCOTUS decisions) whose mantra was "what's good for Wall Street is good for Main Street."  We went from making money by making stuff, to making money by rendering services, to making money by making money. Derivatives--the weirder the better--ruled the day because NOTHING seemed to be ruling the financial sector.  When the housing bubble burst and the stock market took a nosedive, it was obvious that if any one party or leader was to blame it was the GOP and Bush, respectively; and polls all reflected that.

But there's been a disturbing trend of late. Technology, the Internet and the 24-hour news cycle have made us the ADD generation--we want change but we want it NOW and woe betide anyone who delivers it in less than an instant (or delivers a type of change we don't want).  Suddenly, a mere plurality of poll respondents are blaming the GOP and previous administration, and a small but significantly rising minority is blaming the Democrats for not fixing the economy by now (forgetting how long it took FDR).  A significant segment is expressing discontent over government spending (also forgetting how the New Deal recovery turned upside down and crashed when FDR caved to pressure from those decrying deficit spending). And for the first time in his Presidency, Obama's overall job approval rating has dipped to 49%, below the majority line. (Every other President in recent history has successfully rebounded from his first dip below that line, but there's always a first time).   

Wall Street and the White House (strange bedfellows in a Democratic administration) are all claiming the economy is rebounding, citing the rising stock market, balance of trade and GDP. But ominously, unemployment continues to rise--and for most of us, THAT is the only economic indicator that matters.  If you don't have a job, you don't have an income and in short order you probably won't have much else when it comes to the necessities of life: affordable health care, shelter, food, transportation, etc.

So who is to blame for this? The GOP for handing the seeds of this mess to the new Democratic majority in '06? Dubya for presenting the rotten fruits of it to Obama? The Democrats and Obama for not turning it around in a mere ten months?

None of the above.  The answer (an answer none of us want to hear) is the economic system and model we developed over the past eight years (and even back into the Reagan years):  that business' (individually and collectively) bottom line is the be-all-and-end-all and that investors (and the executives who make the system work for them) are the only beneficiaries who matter.  Don't blame the Republicans (except perhaps those who, way back in the '80s, instituted the trickle-down model) and don't blame the Democrats for what has become utterly ingrained in the American business model:  a robust bottom line and shareholder dividends at the expense of everything else.  Our businesses have all become addicted to making as much money as possible not by making and selling more of the best goods and services than the other guy but by reducing expenses. And the first expenses to suffer are salaries and benefits--and ultimately, when the last drop has been squeezed out of that, jobs themselves.  

I recently took a tour of the CF Martin Guitar Factory in Nazareth, PA.  I last took it in 2005. The differences between then and now are not only striking, but a microcosm of what's happened to American business in general, and I fear it's a business model that is here to stay. Back in '05, Martin's cheapest instruments, as well as their lower-end 15 and 16 series all-solid-wood guitars, were made in Nazareth by CNC (computer-numeric-control) machines, and then finished by hand by employees--some of whom also worked on the standard and custom lines of guitars and were the second or third generation of their families to do so.  An operation that dwarfed the Taylor Guitar factory in size felt like a big happy community-and-family driven company; you could see the pleasure and pride in every corner of the place. Fast forward to last week:  all the laminated-wood instrument manufacture has been outsourced to Mexico, and CNC is the order of the day for most components of even the standard and higher-end instruments. Where robotic spray finishing booths were employed just for the cheaper instruments, they're now the order of the day. To be sure, those functions still performed by human beings are now done in a manner designed to protect their health and prevent repetitive stress injuries, but improvements like that cost money and had to come from somewhere.  I was struck by how much of the assembly floor was completely empty--no stacks of wood or racks of instrument components or bodies, and not so much by how many more machines there seemed to be but how much fewer people there were.  The human factor and joie de vivre of the operation had plummeted relative to what it was in '05, when workers would smile and wave to the tour groups passing by--now, if they glanced up at all they did so grimly, no doubt wondering how much longer they'd be performing those jobs and which of their fellow workers would be increasingly and permanently absent.  

For the dark side of efficiency and boosting the bottom line is the loss of jobs.  Nazareth, PA is a company town.  All those guitars outsourced to Mexico meant that the townspeople running the CNC machines and hand-finishing the guitars were no longer working at Martin. Ditto the workers replaced by the robotic equipment now being used to make the more expensive instruments.  And I noticed afterwards that in the middle of the day on a Monday, the streets of Nazareth seemed quieter. The parking lot of the local pizzeria was nearly devoid of cars--we didn't even know if it was open till we walked in, and we were nearly the only customers in the place.  It seemed almost eerily reminiscent of Detroit, only without the urban blight.  And the analogy between guitars and cars was inescapable.

If we are to turn this economy around, we are going to have to go way beyond politics and individual or collective blame and do some soul-searching as to whether we are willing to ratchet back inexorably and automatically rising profits and dividends, narrow the gap between the increasingly wealthy few and the shrinking middle class--even upper middle class-- in order to get Americans working again.  Taxes and health care are less and less relevant when fewer Americans have the incomes to pay the taxes and buy the health insurance or pay their doctors.  

Greed is NOT good......it got us into this mess, all of us, Democrats, Republicans and independents, all except the relative few at the top.  I do not advocate ditching capitalism--obviously, responsible capitalism was what built this country and kept us robust (after we finally emerged from the Depression) well into the second half of the 20th century, and was the backbone of American society, with jobs for all who were competent and willing to work. If we are to turn this economy around, Wall Street will have to return to being controlled by Main Street, instead of using Main Street as its increasingly dwindling personal piggy bank.

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