Last in a series…
Reuters reports that the Kraft Foods Group, maker of Velveeta, has long been experiencing a decline in sales for the product, but recently the company “reversed course after considering stopping the sale of single-serve packages of Velveeta cheese sauce, which wasn’t moving in traditional grocery stores. After another look at the numbers, Kraft found that shoppers on tight budgets at dollar stores were gobbling up Velveeta sauce in the affordable small size, and the food got a new lease on life.”
The Reuters’ story quotes Anielle Troyan, a call center worker in New York, who said she shops at discount retailers like Family Dollar for items like soap and detergent, but also for Kraft macaroni and cheese and small-sized condiments.
It’s “expensive to cook for one,” she said. “I’m 25, I’m poor, I’m usually going to buy what’s cheapest.” Velveeta has been reborn.
Forget immigration, climate change, even ISIS, Anielle Troyan’s shopping habits present the biggest political challenge of the moment and the greatest challenge to anyone who wants to become the next president. By the way, why would anyone want to become the next president? But, I digress. A subject for another day.
The gulf between the American life of a Ms. Troyan and the lives of the nation’s political and business elite has rarely been farther apart, perhaps rivaled in modern history only by the run up to the Great Depression or the post-Civil War era that Mark Twain famously dubbed “the Gilded Age.” The ultimate irony for the elites is contained in the capitalist reality that sustaining a robust market economy requires a much larger degree of participation by those, like the Family Dollar shoppers, who have been increasingly left behind.
As the Pew Charitable Trusts noted in a recent report on the state of the American family’s balance sheet: “Between 2010 and 2013, most household incomes fell, particularly among families of color and those without postsecondary education. Over that period, stock ownership decreased for households on all but the top 10 percent of the income ladder, with a particularly steep decline among those on the bottom half. And almost a third of working-age adults reported having no retirement savings or pensions.”
“It is not surprising, then, that recent public opinion polling found American adults pessimistic and anxious about the economy and their own economic stability. They question whether the American Dream is within reach, and many doubt that their children will fare better than they have.”
Among key findings directly from the Pew analysis:
• Although income and earnings have increased over the past 30 years, they have changed little in the past decade. The typical worker had wage growth of 22 percent between 1979 and 1999 but just 2 percent from 1999 to 2009.
• The Great Recession eroded 20 years of consumption growth, pushing spending back to 1990 levels. Over the 22 years before the start of the downturn, household expenditures grew by 16 percent. But households tightened their purse strings after the start of the recession in 2007 and spending has yet to recover. As a result, the net increase in average annual household spending is just 2 percent since 1990.
• The majority of American households (55 percent) are savings-limited, meaning they can replace less than one month of their income through liquid savings. Low-income families are particularly unprepared for emergencies: The typical household at the bottom of the income ladder has the equivalent of less than two weeks’ worth of income in checking and savings accounts and cash at home.
That third finding would seem to speak to the belief, again confirmed by opinion surveys, that many Americans are pessimistic and not at all sure their kids or grand kids will have it better.
The Decline of the Middle Class…
The economics website 24/7 Wall Street has identified the ten states were the middle class seems to be dying the fastest. Four of the ten are in the West – Idaho, Oregon, Washington and California. Idaho, for example, ranked seventh worst in middle class metrics, with the 20 percent of Idahoans in the middle of personal income growth seeing nearly a 5 percent decline since 2009. In terms of personal income the top 20 percent of Idahoans, who enjoy nearly 50 percent of the state’s wealth, saw a 1 percent increase in the same period.
It’s difficult to find a metric that tells a different story about the troubles confronting virtually everyone not among the economic elite. The rabble-rousing Vermont Senator Bernie Sanders may be on to something when he recently told the Washington Post: “The anger is there.” But, he says, “it’s an anger that turns into saying, ‘Go to hell, I’m not going to participate in your charade. I’m not voting.’ So it’s a weird kind of anger. It’s not people getting out in the streets . . . We’re at the stage of demoralization.”
No demoralization at the very top, however. Corporate profits are at an all time high and corporate cash continues to accumulate. Apple alone is sitting on $200 billion in cash, while fending off accusations that it’s not paying anywhere near the taxes it owes in the United States or elsewhere. A good deal of that corporate cash is being used for stock buy backs, a phenomenon economist William Lazonick calls “profits without prosperity.”
Writing in the Harvard Business Review Lazonick says: “Consider the 449 companies in the S&P 500 index that were publicly listed from 2003 through 2012. During that period those companies used 54 percent of their earnings—a total of $2.4 trillion—to buy back their own stock, almost all through purchases on the open market. Dividends absorbed an additional 37 percent of their earnings. That left very little for investments in productive capabilities or higher incomes for employees.”
“Why are such massive resources being devoted to stock repurchases?” Lazonick asks and answers with a simple truth. “Stock-based instruments make up the majority of [CEO] pay, and in the short term buybacks drive up stock prices. In 2012 the 500 highest-paid executives named in proxy statements of U.S. public companies received, on average, $30.3 million each; 42 percent of their compensation came from stock options and 41 percent from stock awards. By increasing the demand for a company’s shares, open-market buybacks automatically lift its stock price, even if only temporarily, and can enable the company to hit quarterly earnings per share (EPS) targets.”
The rich thereby get richer…
While CNN and Fox News have been obsessing over Ebola, or was it measles, the Congress has quietly been doing the bidding of Wall Street and repealing, bit by bit, the Dodd-Frank financial service industry reforms put in place back when the national and world economy was hours from a back-to-the-future visit to 1929.
“In the span of a month,” the New York Times wrote in January, “the nation’s biggest banks and investment firms have twice won passage of measures to weaken regulations intended to help lessen the risk of another financial crisis, setting their sights on narrow, arcane provisions and greasing their efforts with a surge of lobbying and campaign contributions.”
If you were a betting man or woman with the comfort and security of residing in the rarified air of the growing economy you might be inclined to put some money on Jeb Bush and Hillary Clinton ultimately becoming the next contenders for the White House. Bush has had a good week garnering strong reviews for saying in a Detroit speech: “How do we restore America’s faith in the moral promise of our great nation that any child born today can reach further than their parents? This is an urgent issue: Far too many Americans live on the edge of economic ruin.” Bush is asking the right question, but as news accounts pointed out he offered no specifics and he may turn out to be a questionable advocate for the middle class.
Not the Best Messengers…
The former Florida governor, sometimes called “the smarter Bush,” began the year by shedding his relationships with various corporate entities that out of office have made him a wealthy man and thereby able to seek the presidency. Among Bush’s out-of-public-life efforts were stints as an adviser to a private equity firm, not unlike the last Republican candidate, and to Barclay’s, the big British banking concern that took advantage of $8.5 billion in government money during the last financial crisis. Bloomberg Business reports, as the Brits quaintly put it, that Barclay’s is facing more than $8 billion in “conduct” costs by 2017. Make that “bad conduct” for rigging interest rates and to settle investigations into the bank’s manipulation of foreign exchange rates. Bush cut ties with Barclay’s just as Bloomberg notes the bank’s new CEO struggles to “change the culture.”
If Jeb Bush has a credibility gap when it comes to addressing “economic ruin,” then Hillary Clinton does, as well. While taking her time announcing a campaign, Clinton keeps to the rubber chicken circuit of paid speeches, including recent appearances sponsored by the Canadian Imperial Bank of Commerce. Typically Clinton has been pulling down at least $200,000 for such appearances. When UCLA asked if there was “a university rate” they were told sure – $300K. The cash is a necessity apparently since she and Bill left the White House, as she put it, “dead broke.” Clinton’s post-State Department take on the lecture circuit, combined with her husband’s lucrative gabbing, has made it certain that she won’t be shopping at any dollar store, or even Walmart where she once sat on the corporate board.
Hillaryworld may not be exactly “the Gilded Age,” but her speaking contracts do require that she be supplied with “room temperature water…lemon wedges…ginger ale…chairs with two long, rectangular pillows and two cushions to be kept backstage in case the former secretary of state ‘needed additional back support.’” And, of course, as Slate reported a while back, there are the pesky interchanges with real people. “Prestaged” group photos must be deftly handled so that Clinton doesn’t have to wait ‘for these folks to get their act together.” The former secretary of state, it is said, “doesn’t like to stand around waiting for people.”
Lots of Americans are, unfortunately, standing around and waiting for an economy and political system that works again for them. Joe Valenti of the Center for American Progress says it well. “An additional dollar in the hands of a middle income earner is going to drive a lot more spending than an additional dollar in the hands of someone in that top quintile.” While households at the very the top are able to spend enormous sums of money, Valenti says, “at some point there’s only so much that an individual can spend, even on all different kinds of luxury goods.”
For the most part, those of us fortunate enough to have a college education, enough income to invest in the market and steady employment are doing just fine. But nothing lasts forever, not even for the economic and political elite. The American middle class really has built the country and a growing economy insures that the middle class will continue to spend and save and invest, and not just at the dollar store.
The American Dream is in trouble. It is time to change the culture. Don’t believe it – just ask Herbert Hoover.