Why the middle class jobs are really disappearing

You’ll often see articles written by the political elites which attribute a number of things to the decline in middle class jobs and median wages.  Favorites are replacement by new technology, outsourcing, or a skills gap which allows the “highly skilled,” i.e. top 10% of the workforce, to increase their wages dramatically to the exclusion of everyone else.

The one real reason that median wages and middle class jobs is declining has nothing to do with any of these things.  It is simply the decline of small business.

http://www.kauffman.org/newsroom/2012/05/number-of-new-firms-continues-to-slide-according-to-new-census-bureau-data

Small Business

For far too long, our country has been stomping out small business to appease the moneyed interests and allows big corporations to control large swaths of the economy.  This works great for the top 10% of earners because all of the money earned at these corporates is filtered there, particularly to the top 1%.  The fed makes this worse by artificially boosting asset prices such as bonds, stocks, and real estate which are predominantly owned by the wealthiest already.

How have we been doing this?  The sad secret is that both Republicans and Democrats have their own corporate interests and stomp out small business in their own way.  The most obvious signs to the older generation is the lack of the old lemonade stands manned by kids.  It is natural to assume that they must all be video game addicts or something, but the sad truth is that the government has gotten a lot more strict in enforcing FDA approval for these things.

lemonade_stand

I’m sad to say that this is simply the tip of the iceberg – there are much less visible small business killers out there, and it’s only getting worse.  New regulations are simply designed by big corporations to cement their positions as the regulatory capture has become the norm.  Dodd-Frank was written by the big banks in order to ensure that the too-big-to-fail 4 would dominate the banking industry for decades to come.

Who read the 4000+ pages of the affordable care act?  Only specialists from the top insurance companies, who put in everything they wanted and got it.  The Democrats didn’t read it because they were too busy trying to ram anything through after they lost their 60th senate seat over the issue, and the Republicans wanted no part of it.  The result?  The elderly are worried about the gutting of Medicare Advantage plans, the boomers and other heavy health users saw deductibles rise, those employed by big business saw insurance premiums rise, those with marginal or temp work like me simply can’t afford health insurance at all ($240 a month?  Really?  I have a temp job with no benefits at $19/hr that is only projected to last through February!).  Not to mention that the Obamacare website requires that you report your estimated earnings to the IRS – which is extremely difficult to project when you have marginal work, heavy commissions, or if you try to run a small business and simply have no idea if you’ll make a lot of money, a little, or nothing at all.

Technological change is a favorite for the politico’s to attack for 2 reasons … 1. It plays upon people’s natural fear of change (everyone remembers industries that were outdated) and 2. These changes actually tend to benefit small businesses over entrenched ones as in the dot-com boom.  The sad thing is that technology is the only thing that actually tends to increase the standard of living of the average person over time – who wants to wait in a long bank line instead of going to an ATM?  Do we really need to force people to?  Actually no, because technology tends to reduce transaction costs which opens up new small business opportunities.

Outsourcing is a very common fear, playing on a natural fear of foreigners, and it does have an effect on some of the jobs here.  However, protectionist solutions have often been tried and they tend to have a lot of negative consequences that are hard to notice.  Big companies like Nike got their start simply by outsourcing shoe production, allowing them to sell quality shoes a lot cheaper and helping people in third world countries to get something better than subsistence farming could offer.  I wish I could argue against this more definitively but it’s a difficult issue that would be lengthy – so I’ll just stop by saying that protectionism is a common misdirection by the political class to get us to stop focusing on how much their crony capitalism is draining from the rest of us.

The skills gap is a common theme amongst elitists because they like the old idea of the American Dream – the idea that they’re on top because they are better and smarter and work harder – and that if you’re struggling then there must be something wrong with you.  The sad truth is that 1 in 3 college grads end up living with their parents and unable to find decent jobs because there aren’t enough to go around.  Back in the boom of the 2000’s, I was never unemployed for more than 3 weeks before finding work – as a Mechanical Engineer in commercial construction.  After I finished my MBA – with a focus in Finance and Entrepreneurship, you’d assume my skill levels were higher.  However, it took me 1.5 years to find my next job – a temporary job in upgrading a refinery.  Decent money, but I moved out to Indiana for a year just to get laid off and move back. I tried running a small business myself but it is downright scary at times because you can’t afford to be totally legal with all of the insane taxes and requirements out there – you just have to hope that you land a big enough project so that you can afford to go fully legit.  These diverse skill sets would be useful to any small business, but the big corporates aren’t even interested in looking at what someone in my generation has to offer.  If they want an Engineer – they’ll get someone with exact experience or a new grad and nothing else (I’ve tried at Caterpillar where my brother is a successful mechanical engineer, but they through out my “new grad” claim because they said a new MBA doesn’t count, and they through out my other applications because I never worked in oil and gas.  Same with any other field – finance, accounting, tax – you can’t reinvent yourself anymore because the formulaic corporations are flooded with applicants and they highly favor the new grads.  For the new grads who don’t get picked, and there are a lot, they can never compete against the next batch of new grads and end up working part time and not using their degrees.

Small business is the only tried-and-true growth engine for wages and employment.  We need to do something drastic in this country to fix the system, but its a fixed and gerrymandered 2-party system where both Republicans and Democrats are filled with sold-out elitists who just want to bleed us dry.

I should leave it at that for now.  I still do follow a number of finance blogs and think about getting a PhD in economics some day – and I’m still a gold bug.  I think gold is a market that is being heavily manipulated lower by large central banks and the bullion banks, who can print up “paper” gold contracts while the real physical gold continues flowing east, and when real reserves are low enough the breakout will be as dramatic as when the currency pegs of the Mexican Peso and the Thai Boht failed in the late 90’s.  I expect the referendum in Switzerland to pass, requiring that the SNB holds 20% of assets in gold within their borders, because it is a popular initiative amongst a population which heavily favored strong currency policies for many decades.

Enjoy your weekend.

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About johnonstocks

I've been trading stocks since 2003, active on Motley Fool's discussion boards and using first Hidden Gems, then Global Gains. I no longer have the newsletters, but I keep up on the WSJ and read David Rosenberg everyday at gluskinsheff.com. Education: CFA level 2 candidate MBA-focus in Finance, Marshall, University of Southern California - expected Dec 2010. BS Mechanical Engineering, UC San Diego, June 2002
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