Here is a scary thought. The Pareto Principle in economics says that 80% of the effects come from 20% of the causes. In practical terms it might mean that 20% of your movies at Warner Bros. would generate 80% of the revenue. Pareto himself noted that 80% of the waelth in Italy was held by 20% of the people.
This morning unemployment hit 10.2%, a 26 year high. Yesterday the Labor Department reported that productivity surged to 9.5%. The U.S. has worked hard to transform itself into a knowledge economy and companies like Google and Goldman Sachs record record revenues per worker. What if some version of the Pareto Principle begins to apply itself to employment–20% of the workers produce 80% of the GDP? Dan Greenhaus of Miller Taback & Co has the grim reality of our future.
We have argued and continue to argue that another jobless recovery is materializing and if our estimates for G.D.P. growth going forward materialize, the unemployment rate will remain at elevated levels for several years. Nearly 16 million people are unemployed right now while another 9 million are working part-time jobs because they cannot get a full-time job.
So here is the reality of life for the bottom 40% of America’s families. After they pay for food, housing and transportation they have $1200 per year to spend on “discretionary items” like clothing, medicine and doctors. Never mind telephone, Internet or cable TV which are supposed to be middle class entitlements. I don’t believe the 25 million underemployed people in this country are not going to sit on their hands passively zoned out in front of the TV set in the next two years, especially when they see Hedge Fund managers taking home $100 million bonuses for successfully taking down companies like Abitibi-Bowater, CIT, General Growth Properties, Six Flags and even General Motors with their brilliant government subsidized Credit Default Swaps and bond packages that forced the companies into bankruptcy.
In earlier times we had outsider artists who could articulate the rage like Woody Guthrie in the Depression.
Yes, as through this world I’ve wandered
I’ve seen lots of funny men;
Some will rob you with a six-gun,
And some with a fountain pen.
I believe it’s going to take a new renaissance of rebellious artists, spiritual leaders and politicians to wake up the public to the reality of the real America. Glenn Beck has no solutions but to retreat to a fantasy world of the 1950’s. The truth is that for more than half a century Republicans and Democrats alike have been prisoners of the conventional wisdom propounded by Wall Street bankers, military contractors, the Chamber of Commerce and their academic neoclassical economics enablers. The result is a hollowed out economy with no manufacturing base for exports except in making weapons of mass destruction, dependent on financial bubbles to keep the party going. Well, the party is over. Anyone who thought that just electing Barack Obama was the solution to our problems, misunderstood the institutional power of the Establishment and their conventional wisdom.
As I have said before, we are in an Interregnum where the old is dying, but the new cannot be born. Obama’s election was just the start of what needs to be a new age of reform. Writing of the Progressive Era 100 years ago, Richard Hofstadter noted that the reform movement “was the effort to restore a type of economic individualism and political democracy that was widely believed to have existed earlier in America and to have been destroyed by the great corporation and the corrupt political machine.”
Of course the task of Teddy Roosevelt, Upton Sinclair and the Muckrakers of 1904 was a lot easier than the task of Barack Obama. America was entering a period of technological mastery and export superiority. Jobs were plentiful. What TR had to do was break up the monopolies and end the corruption and greed in industries like meat packing and coal mining. Obama will have to do all of that (break up the Big Banks and reform the food and energy businesses), but his task will be far greater because he has to help create 30 million new jobs in the next few years. To do that we will need to remake our industrial base, because it’s clear these jobs are not going to come from the existing knowledge and service economy that gets more productive by the day.