Repeat after me: Workers are consumers. Consumers are workers.
We're slouching toward a double dip, and the stock market is
imploding, because consumers -- whose spending is 70 percent of the
economy -- have reached their limit.
It's not just the jobless who can't spend. It's mainly people with
jobs. Median wages continue to fall. Weekly wages in July for Americans
with jobs were 1.3 percent lower than eight months before.
America's median earners are now earning less (adjusted for inflation) than they earned 10 years ago.
Every CEO of every company that continues to squeeze payrolls
(Verizon, are you listening? Ford?) needs to understand they're shooting
themselves in the feet. Where do they expect demand for their products
and services to come from?
They're doing the reverse of what Henry Ford did back in 1914 --
paying his workers three times what the typical factory employee earned
at the time. The Wall Street Journal called his action "an
economic crime" but Ford knew it was a cunning business move. With
higher wages, his workers became his customers, snapping up Model-Ts and
generating huge profits.
Many on Wall Street are scratching their heads, trying to understand
why the stock market is plummeting. After all, they tell themselves,
corporate earnings are still near record highs.
But it's becoming clear those earnings can't be sustained. Corporate
earnings are the highest they've been relative to worker wages and
benefits since just before the Great Depression. And the richest 1
percent of Americans are getting a higher percent of total income since
just before the Great Depression.
Get it? It was only a matter of time before the boom on Wall Street
turned into a bust. Economic booms cannot continue without American
workers participating in them.
Foreign consumers have helped sustain earnings, but that won't
continue, either. The European economy is sinking and China is pulling
in the reins on growth.
What will happen to the Dow Jones Industrial Average when corporate
earnings revert to their historic average relative to American wages?
I've seen various estimates. They're not pretty.