Sunday, September 30, 2007

India and the middle class

I know, they're disparate subjects, but if you follow along with me, you will see their connection. First, consider this: the US stock markets are trading at all time high prices. Most economists will tell you that this is because interest rates are low and people are borrowing money to hop onto the stock market. There is also the fact that more capital is in the stock market than at any other time in history. This is due to retirement account investing.

In fact, assets from 401(k) plans have increased annually at double-digit rates since 1990. In 1990, 401(k) investing amounted to about $380 billion. Now, they amount to $2.7 trillion. That's a lot of money, honey.

These investments create tremendous pressure on publicly owned corporations to do everything in their power to increase profits. Failure to do this can result in lawsuits by shareholders. The lawsuits are directed against the board of directors for failure to maintain their stock value. Here's just one example. Unfortunately, the typical approach to stock value is short term and thus, short-lived.

In order to maintain stock value at high levels, corporations do everything they can to manipulate their stock value. This manipulation can translate into very high rates of compensation for executives. It can also lead to wild fluctuations in the stock market and trouble for regular folks who just want to put their money in the right place for retirement.

Most corporations try to lower costs. So they outsource to China, Vietnam, Nepal, wherever low wages can be found. The rate of outsourcing is huge and astounding. Now here's the rub:

As corporations outsource, American jobs are lost and wages are depressed, despite inflation. To put it differently, we are literally eating themselves with investment in the stock market. This financial system, I think, will prove to be the bane of the middle class. As we can see from previous examples of executive looting like Enron, the upper class has no intention of allowing any room for the middle class to continue it's existence.

"We used to have customers but they all moved to India for better living conditions."