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Tax Profits, Not Labor!

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Are you properly compensated for your work? As we discussed previously, between 1947 and 1973 worker’s salaries accounted for half of Gross Domestic Product (GDP). There was a solid if unspoken agreement that labor and capital split the spoils of the free market equally between them.

But what of output per worker? Is it possible that workers are slacking off and don’t deserve the same arrangement they had in the immediate Post WWII era? An analysis of productivity, or output per worker, shows some interesting trends that may point to more unspoken agreements that the various markets for capital and labor expect. These trends follow business cycles, and as such point to some important changes that are necessary as we move ahead into the next cycle in the next few years.

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Broken Social Contract

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Are you better off now than you were so many years ago? It was a question first raised in the 1980 campaign, a motto used to defeat President Carter. The answer then was a rather sure “No!” and the voters responded, blaming the man in charge. But are you better off now than then? And was it fair to blame Carter or any President for the state of the economy?

A few graphs showing the state of workers in the Postwar Era (1947-today) shows how the problem persists. Sen Sanders has often said that the last 40 years have been a slow retreat for workers, and he has a point. But who is to blame?

Let’s leave blame aside for a moment and check out the numbers first.

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Chinese Meltdown, Latin America Next?

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The long anticipated meltdown in Chinese stocks has accelerated this week, although it took a break today. Whether or not it has implications for the broader economy in China and around the world is unclear, given how little China relies on its stock market for financing and growth.

It’s all about the “carry trade”, or ability to borrow money in a foreign currency (usually US Dollars) at low interest rates and invest it at home in the hope that the local currency (Renminbi, or “people’s currency”) will become more valuable relative to the foreign currency later. It’s a two-fer if you can invest it in something that appears to be gaining in value, such as local stocks, and Chinese investors went for it bigtime.

Yes, it was all another bubble waiting to pop, which it appears to be doing now. But can this hurt us? Speculation has centered on trade with Latin America, which has its own uneven growth and a growing reliance on China. But this is silly for a lot of reasons. It’s worth looking at Latin America as a unit and seeing what effects we can really expect.

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Banks Amok? Perhaps Not

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The Greek Crisis has everyone nervous, and for good reasons. If this is what happens when a nation hits a financial crisis people around the world have to reasonably ask, “Are we next?” Every nation on this planet is deep into debt, although few are as bad off as Greece.

A lot of national debt is a threat to the world we live in for two related but distinct reasons. The first is that a nation loses the ability to make its own decisions and operate as a legitimate sovereign nation – which, in the case of democracies, means a de facto taking of power by creditors at the expense of the people. The second is that a large debt load has to be serviced by the government somehow which ultimately is a drain on the economy, reducing the standard of living and generally hurting personal opportunities.

With all this debt floating around causing so much pain it’s best to look at who holds it and how the world can get a handle on it.

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“Oxi” Means …

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Greece has voted “no”. The word is “oxi”, pronounced something like “ohee” in phonetic English, but with a little bit stuck in your throat on the “h” as if you are spitting on the European Central Bank (ECB).

It may well be that this deal had to be rejected and Greece has to essentially go over the cliff to be able to really stand on its feet one day. It may be that the ECB deserves to be spat on, and for that matter perhaps all banks have it coming to them.

But banks today are what we have to watch – in Greece and all around the world. The proud Hellenic people may be about to find out what a world without banks is like as theirs are at the very least going to remain closed for a while longer.  Life is going to become increasingly more difficult for everyone.

But this is hardly the first time Greece stood up and said “no” to the great powers of the world.
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