When Does the Economy Hit Bottom?

In what seems to be our economy’s race to the bottom, one wonders how to tell when we have reached it. Where, exactly, is the tipping point at which not enough people are employed or are making an insufficient hourly wage to purchase the goods that keep the economy going? When do companies run out of emerging markets in which to manufacture and sell their goods because the U.S. market is flat? When do corporations realize that supporting a strong middle class through jobs and good wages is actually good for the U.S. economy and, thus, good for their bottom lines? And when, given the lack of jobs and low wages, have we shrunk government support for the working poor to the point where they cannot purchase what they need to live?

A Signpost on the Way

Wal-Mart, food stamps

Wal-Mart’s Grocery Aisle

One signpost long the road to the bottom appears to have been passed. Wal-Mart recently reported that their FY Fourth Quarter profit was down 21% from the same period last year. That’s the fourth consecutive negative number for their profit.  In addition, traffic to U.S. locations declined by 1.7%.

@Walmart CEO William S. Simon attributed the poor performance to two things. One was bad weather across the country, which is understandable. But the primary reason Mr. Simon gave was cuts to the federal Supplemental Nutrition Assistance Program, AKA “food stamps.”

Retail analyst Ken Perkins attributed the company’s central problem to the struggle of its core consumers, with stagnant wages. He says hey have, “been left out of areas of economic growth, like rising stocks and home values.” Well, duh.

Here’s the story: companies like Wal-Mart that sell to people with less money aren’t paying their employees enough to participate in the economy. Wal-Mart employees don’t have investment portfolios or big homes, Mr. Perkins’s areas of economic growth They benefit from the “dignity of work” yet live from paycheck to paycheck—when those paychecks are not big enough for them to actually live on.

Wal-Mart, the Welfare Queen

According to The Huffington Post, Wal-Mart employees also “receive $2.66 billion in government help each year (including $1 billion in healthcare assistance). That works out to about $5,815 per worker. And about $420,000 per store.” Barry Ritholtz reports in @BloombergNews that, “in many states, Wal-Mart employees are the largest group of Medicaid recipients. They are also the single biggest group of food stamp recipients.” He calls Wal-Mart, a private corporation, one of the nation’s biggest Welfare Queens. Translation: the rapacious Walton family rakes in billions while we, the taxpayers, subsidize their wealth by providing the benefits that Wal-Mart denies to its employees.

Now one of Wal-Mart’s government support mechanisms, the food stamp program, has been cut in two consecutive Congressional actions that were designed to reduce federal spending. Wal-Mart’s customer base—including their own employees—no longer have enough money to buy food—even if they shop at Wal-Mart. And that’s bad for Wal-Mart.

You see, Mr. Simon, the economy is all connected. What goes around comes around—if there’s enough to go around, that is. Does this constitute a tipping point?

The One Percent in the Capitol

The Hunger Games, Effie Trinkett, the Capitol, Suzanne Collins

Effie Trinkett in the Capitol

Will we recognize the bottom when we see it? Will it look like Panem, the fictional country of Suzanne Collins’s The Hunger Games? In this version of a dystopian United Sates, the One Percent live in careless luxury in the Capitol, Panem’s official government, along with those fortunate enough to have jobs that support a comfortable lifestyle. Their goods and services are provided by the starving, freezing denizens of twelve districts, who are kept in a state of abject submission. The Capitol’s glittering citizens know of their plight but lack either sympathy or empathy. After all, these lesser beings in the districts have the “dignity of work” so why should the One Percent be concerned?

frog in a pot of waterWill we reach that point or will our society wake up first? Will be get to the bottom so gradually that, like the frog in the pot of water, we are doomed before we realize it?

Or will Mr. Simon and other CEOs like him learn from companies like Trader Joe’s and Costco, which pay their employees above minimum wage and provide benefits? Because they are smart, not greedy, these executives reap the benefits of their pay policies in reduced turnover, improved productivity and superior goodwill in the public eye.

Have we reached a tipping point? We can only hope.

 

3 thoughts on “When Does the Economy Hit Bottom?

    • They have been brainwashed to believe that rich people are “Job creators.” As though Microsoft hires more people because Bill Gates is a billionaire. Most folks don’t understand that a corporate budget and an executive’s salary are two different and separate things. Also, they think that when they finally make their millions, they’ll want to keep it and not have it taken away by the greedy government.

  1. Aline,

    I agree with your post completely, and I will add to it. Another thing that is going on in the market is wage deflation for white collar workers. Companies are realizing that there are a lot of people out of work so that a position that would have traditionally averaged about $85,000 – $90,000 is now coming in at $75,000 tops. It is an ugly world out there!!!

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