How the working class will be fleeced again

The Thinker by Rodin

Stocks are up! Pundits (like me) were obviously wrong that Trump’s election would depress the stock market, at least in the short term. Trump’s threats of a trade war with China, dissing Lockheed Martin for its F-35 cost overruns and Boeing for bogus inflated costs to make the next Air Force One should have had the markets concerned. Boeing and Lockheed Martin have taken hits but overall the stock market keeps cranking up its share prices. By one measure, the S&P 500 is up 13.04% for the year, and 6.39% of the gain has been since the election.

Will these gains continue? In the short term it seems likely. Wall Street is betting that Republicans (who spent eight years trying to stop more federal spending) will agree to deficit spending for infrastructure initiatives that Trump has proposed. There are also those juicy tax cuts, principally for businesses. However, if Obamacare is repealed, the principle beneficiaries will be the rich, who won’t have to pay extra taxes to subsidize health care for the poor and middle class. (In case you were wondering, this is Republicans’ biggest grief with the ACA, not the mandate. They just won’t admit it.)

While this sucks for those who depend on Obamacare, all this should contribute to growth, at least until Trump starts his promised trade wars. What it won’t do is lower the deficit. In fact it will increase it. Most likely Republicans will lose their deficits-are-evil mantra again, at least until we have another Democratic president. Then of course it will become the most important thing in the world again. Lowering businesses taxes of course simply adds to shareholders’ bottom lines and thus share prices. This comes at the expense of depriving the government of revenue foisting yet more of the tax burden on individuals – well, except the rich, of course.

What this amounts to and what the stock market is telling us is that income inequality will increase again. To put it another way, the rich will get richer and the poor will get poorer. This should be very alarming because democracies are more vulnerable when income inequality is high. But in the short term those with money are likely to do better. Rising stock prices are a reaction to this anticipated future. Since Wall Street generally doesn’t look past the next quarter you can’t read too much into it for the long term.

For now, continuing rising U.S markets are not an unreasonable proposition. Trump is stuffing his cabinet with not just millionaires, but billionaires. His cabinet will be the richest ever. In fact, Trump’s proposed cabinet’s net wealth is equal to one third of the wealth of all American households. He thinks that wealth indicates not only success but also an ability to get things done.

Since Trump is picking people that are at odds with many of his stated goals (like bringing back manufacturing jobs in the United States) it’s likely that a lot of his campaign promises in these areas are simply bluster. I would not hold your breath for a wall on our southern border, for example and I would definitely not expect Mexico to pay for it. I do expect that the working class that voted for him will be disappointed where it counts: in the pocketbook. Here’s why:

  • Blue-collar jobs that pay decent wages aren’t coming back – at least not in the volume our parents knew them, and they likely won’t be union jobs or with pensions. Even Trump knows this. The robotics revolution will continue meaning those manufacturing jobs that are created in the United States will be relatively few and those that get them will need higher skills.
  • Despite a “hydrocarbon heavy” cabinet, fossil fuels won’t be making a resurgence either. It’s cheaper to get hydrocarbons through fracking than through coal mining and a fracking well largely runs itself. But there are other reasons. Generating energy through solar power is now as cheap as fossil fuels, and it should get cheaper. Trump of course could be promoting these green technologies. Putting solar panels on all the roofs in this nation could keep hundreds of thousands of blue-collar employees employed and productive for decades, while helping the environment. But don’t hold your breath on this one (pun intended).
  • Trump is hostile to increases in the minimum wage, and his Labor department secretary would prefer no minimum wage.
  • As the stock market demonstrates, to build wealth you must save and invest. If you are not seeing wage growth, you probably won’t be able to save or invest much so you likely won’t be building wealth.
  • Removing subsidies for health care will move the costs of health care on those least able to afford to pay them. If there is no mandate to have health insurance, of course those opting out save money in the short term. But it will likely be wiped out when a serious illness occurs. Not only will the uninsured be asked to pay the costs of getting well, they will be paying a list price instead of discounts that the insured get.
  • If Trump and Republicans are further successful in reducing Medicare and Social Security benefits, they will disproportionately affect those with fewer assets and depend on these safety nets. Their reduced incomes will also depress the economy.
  • If welfare and food stamps are cut back, people will eat less, starve or eat cheaper and unhealthy food. This increases the risk of health issues and shorter lifespans.

So what’s really going on on Wall Street is a “party while you can” mentality. Those partying have every reason to party, since they will be sucking yet more money from those least available to provide it. Like all parties this one will end and probably sooner rather than later. Those whose wealth is being tapped are already mostly tapped out, which means there is no source of sustainable growth for the economy.

Smart partiers should realize this and turn their profitable assets into fixed income while they can. The smartest partiers will realize all this is counterproductive and that real growth depends on lifting everyone, and work to make this a reality. As for the working class, don’t be a fool and think that a new administration is going to save you. They’ll do their best to save those who they really care about: the wealthy.

Cutting the apron strings

The Thinker by Rodin

She took her final exam today, the very last exam for her very last class in a journey that consumed five years (two in community college) and three at Virginia Commonwealth University. “She” would be my daughter, age 23, who now merely needs to wait for the mail to get her diploma for a bachelor’s degree in English. Despite some prodding, she doesn’t want to attend her own graduation.

Which means she is mostly home now and we will continue to pay the rent on what will likely be her empty room in Richmond through the end of July. She needs to find a job but if her experience is like mine it may be a year or two before she finds a “real” job, assuming there are real jobs for people with English degrees. There are a few of them out there, and I am not talking about “do you want fries with that” jobs at the local Burger King. A real job for a while though might be working at a Costco or Wegmans, where they pay a living wage, which would be great because I don’t want her to get too attached to her old bedroom. Rather, it’s time for her to move out once and for all.

It’s hard to say how long that will take but I’ll lay odds somehow a year from now she will still be inhabiting her bedroom. Young adults today are painfully aware of the true cost of living, which is much higher than it was when I was a youth. This may be because so many things are assumed: the car, the smartphone, health insurance, high speed Internet and they are used to mom and dad paying for them. I don’t care if $12 an hour really is a living wage these days; that probably won’t buy you all of the above, even with a roommate or two.

What she wants to do is goof off, sleep late, stay up all night and when not distracted by things on the Internet write the great novel that probably won’t get sold, at least not without a whole lot more pain and suffering. Fortunately she is a bit more realistic now and is sending out random resumes, which suggests intent to find a job but not necessarily serious commitment. She could live a lot cheaper, assuming she lived alone, by settling in Richmond where she just finished her degree. But the jobs would pay a lot less and she seems happy to be home on a more or less full time basis. She actually cleaned her room and removed heaps of trash off her desk the other day. Either she is trying to get her life in order or she is planning to start a new burrow. Time will tell.

We’ve suggested some employers that might hire English majors. A friend at my church works for Motley Fool, and they hire English majors. Except she knows nothing about personal finance other than living on our money and making her allowance stretch until the end of the month. She wants to learn less, although I have provided a couple books on personal finance as a “gift”. The headquarters of Learning Tree in nearby Reston is near us. They teach mostly leading edge technology courses to people whose employers have deep pockets. They need people to write content for their web pages and course curriculum. And I have another friend whose office is always willing to hire college graduates, providing they want to learn the business of making specialized contact lenses. She worked there briefly out of high school and found it didn’t agree with her. I doubt she would want to give it another try.

Still, it is an accomplishment having a degree of any kind, and getting a degree in English is more interesting than it seems. She wrote a thesis on arguably the world’s worst English poet, William McGonagall. She learned a lot about Old English, and obscure Scottish literature. She interned at a Richmond publishing house and worked with female prisoners at a local jail teaching creative writing. Mainly she had the university experience, such as it is today, minus the fun stuff like sororities. She is not social enough for that stuff. She had the usual mixture of brilliant and mediocre professors, ate in the dining halls, learned that parking tickets cost real money, and that you can have really crappy roommates.

We learned that college education today is very expensive. Once we entertained the idea that, as parents with one child, we could send her to a private university. What a crazy idea! Her bachelor’s degree took a year longer than we budgeted. We paid for two cars, only because she wrecked the first one driving home with a homeless kitten. The expenses added up quickly. The nearly final total according to Quicken:  $116,238.05, or $36,238.05 more than the $80,000 I thought we were going to spend. And these are just the direct costs. It’s amazing anyone can afford to get any kind of degree these days. At least she graduates debt free. We were her scholarship fund.

Parenting is not over. Now comes the coaching phase, followed by the nagging and heaping on the guilt phase if necessary. The job hunting is still poor, and bad in particular for English majors with lackluster GPAs. At least here in Northern Virginia the unemployment rate is relatively low, but the mere hassle of commuting around here will probably ensure that she calls someplace far away from here home eventually.

A new adventure called real life awaits her. “What’s it like, dad?” she asked me some weeks ago. “Well, it’s not a lot of fun. But you get used to it.” And really, that’s about the most honest thing you can say about adulthood. I wish you the best, kid, but it’s time for you to cut the apron strings and fully direct your own life. Hopefully, we gave you enough of the tools to make your life meaningful but for the most part the rest will be up to you.