On the Home Front

Attention that has been focused in this Blog and others on International crises, not the lease of which are the conflicts in the Middle East, Sudan and Indonesia, can be a distraction from the problems we face domestically. The distraction does not, however, make the problems any less real or serious. Indeed, some would argue that the occupation in Iraq and the drumbeat from the Bush Administration, preparing the country for a military assault on Iran, are intended to pull attention away from the failed domestic policies and the deteriorating economic situation in the US.

Two economic sectors have traditionally been reliable indicators of the way in which macro economic policies and Wall Street translate to real world circumstances faced on Main Street in the USA: the Housing and the Automobile Industries. The Housing market represents the major repository of family assets for the average American citizen. Many retirement and mutual funds include real estate backed securities as part of the typical portfolios as well. Admittedly, we are not describing assets of the small segment of the populace whose annual incomes exceed $250,000 and have personal stock portfolios. The Automobile industry represents a bellwether for the state of the labor market and for the vitality of the durable goods market as well. The decisions that average families make regarding the immediate purchase or delayed purchase of a vehicle, and the type of vehicle they purchase, depend heavily upon their confidence in their current and near term future outlook. The plethora of manufacturing and distribution jobs that are associated with and dependent upon the Automobile Industry give us guidance respecting the health of the jobs outlook for the country. So let’s take a look at what the factual reports indicate about the prospects for the domestic economy.

Recent reports from National Realtor Association studies reveal that housing prices are declining in real terms for the first time in eleven years. We know that the housing market experiences ups and downs over time, but over the past decade the “downs” usually have been simply plateaus or lessening rates of increase in prices and values. Soft markets can be identified in various geographic markets as a result of overbuilding and other transitory factors. The current situation is different, in that it suggests a true recession in home values. Without falling into the hyperbole of the “housing boom or bust speculation,” we can focus on some real life consequences from the current trend. The steady run up in prices caused two significant reactions among home buyers. The first was a drive to buy more house than the homebuyer could reasonably afford, on the theory that the rising value would create equity. Lenders ventured into higher risk mortgage products that went beyond variable rate mortgages and interest only instruments, to includesome truly exotic negative amortization products. These high risk exotic products banked upon the steadily increasing home prices to maintain the loan to value ratios. With the real decline in home prices and real estate values, combined with increased interest rates, these incautious homebuyers [many of whom were misled by aggressive mortgage brokers and builder based finance agents] now face potential economic crisis and foreclosures. In short, they face loss of their homes and destruction of their credit rating.

Builder confidence [Builders' Association National Survey] has dropped to a low not seen for more than a decade, and there is a larger than average inventory of properties that would have been readily absorbed by home buyers and speculators in the past years. Since many builders depend upon turnover of stock and sale of speculative properties to support cash flow and the development of new properties, this stagnant period threatens the viability of many small and medium sized home builders. The only real bright spot in these developments is the growth in the home improvement sectors, when home buyers turn to fixing up and staying in their homes rather than attempting to sell their houses and move to a newer or larger property. But the volume of the “Home Depot” sales is unlikely to offset the drop in sales for lumber, plumbing fixtures and other staple components of the home building industry.

The Automobile Industry looks even worse. The UAW is reeling from the recent split in the AFL/CIO that took away a large segment of its membership, a defection by union members who were dissatisfied with effectiveness of union leadership. Ford Motor Company and GM have both announced losses in excess of $1 Billion over each of the past three fiscal quarters. Ford announced that it will be reducing its labor force by more than 30,000 jobs by the end of 2008, and will be shuttering 16 plants [up from 14 plants a few months ago] by 2009. This is a desperate attempt to stem the huge losses as Ford seeks to find its “Way Forward” in the new economic environment. The American automakers are steadily losing market share, but seem oblivious to the factors that drive their demise. Foreign auto makers have focused attention on high quality, fuel efficient vehicles. US automaker fleets are still replete with gas guzzling dinosaurs like the Dodge Durango, Lincoln Navigator and Ford 150 series. Vice President Dick Cheney stated that it is "every American’s right" to own a road hogging, gas guzzling SUV if they want to do so. That arrogant posture may sit well for someone with Cheney’s wealth and the dividends from Halliburton pouring into his family trust. But the average American has to be a bit more pragmatic, even if oblivious to the political and environmental irresponsibility of the Cheney dogma.

The timing for the loss of these 30, 000 jobs is being advanced by a recent Ford offer to buy out any of its hourly workers immediately. Obviously, the losses cannot all come from retirees or even from persons taking an early retirement inducement. And the Ford example is one among many places within the spectrum of the Automobile Industry related employment array. The parties in the Automobile Industry, union and management, have engaged in the same kind of willful denial and delusion that led to the demise of the domestic steel industry in this country.

The layoff and loss of pensions by thousands of Delphi employees highlighted the fact that one cannot produce competitive motor vehicle products in the US with a labor force cost of over $65 per hour, when the same product can be manufactured elsewhere for less than half that cost. Even when importation and shipping costs are added, the resulting products will have a significant price advantage. The result is that Toyota can sell a competitive product at 5-10% below the cost of a comparable US vehicle and profit because the actual cost to Toyota may be 30% less. Add that to the Toyota focus on fuel efficient models and it is easy to see why Ford and GM are in such trouble. The production jobs being lost are ones paying $65 to $130k or more. They are disappearing rapidly.

The jobs created by the Bush Administration over the past 6 years consist largely of lower paying jobs, and a large number of artificial jobs in the “homeland security” industry created by the Administration to under gird its fear based political agenda. [The recent National Security Briefing Report confirms that the country is less safe from terrorism that it was before the 9/11 World Trade Center Attack, and that the occupation of Iraq has exacerbated rather than lessened the problem of terrorism worldwide.] The ironic ethnocentricism and bigotry that is being promoted by the Far Right, by demonizing Mexican undocumented workers is a strange phenomenon. [There is, in fact, no demonstrable increase in risk or connection between the illegal immigrant problem and "national security" than the risk that existed a decade ago. The predominant crime problems associated with illegal immigration from Mexico and Central America related to human traffiking and drug related incidents, not terrorist attacks.] These workers are taking the low wage and unskilled jobs that are increasingly the only ones available in the developing economy. There may be some subconscious or subliminal resentment that these jobs are being swallowed up, together with the resentment that the primary jobs that are available are those that were previously thought "undesirable."

While we hear many “man on the street” comments about the importance of “national security” being a high priority, the FACT is that we are no safer than before the 9/11 attack. The Bush Administration seeks to capitalize on the issue of Homeland Security, but is the least desirable or rational alternative to which that citizen should turn for protection. The record of actual performance demonstrates the failure and incompetence of the current policies in making us safer from the threat of terrorist attack. Other than the incitement and belligerent rhetoric of the Bush preemptive war doctrine, we are at no greater risk of terrorist attack than we were prior to 9/11. To the extent that there may be greater risk, that risk is caused and enhanced by the very parties who claim to be the protectors of our national security. And fear and insecurity leads to economic stagnation. People tend not to spend freely when they feel uncertain about their future.

The improvements that we see in the Dow Jones Averages for the Stock Market must be interpreted. The media either fails to inform or assist our understanding of the meaning of these "indicators," or deliberately defers to the Right Wing spin that distorts and confuses. In the economic climate that we currently face, return on shareholder investment has to come from either increased revenue above the cost margin, or from reducing costs. Since the highest cost factor in most production and service businesses is the unit labor cost, the prime target for reducing costs is to lay off employees, cut wages, cut benefits or other steps that negatively affect the resident of Main Street. In an economy where housing values are declining, job security is tenuous at best and wages are not increasing above the inflation level, the prospect of generating revenues from increased sales is not great. So when one sees the stock market push upward, it is more than likely to precede or coincide with significant reductions in jobs and benefits for the average American. The corresponding result, however, is an increase in the stock portfolio of the wealthy.

Under the current economic circumstances, the ones most likely to see real gain are the participants in the “Ownership Society” that is the true constituency of the GOP and the Bush Administration. The wealthiest 5% who are not dependent upon daily job security issues, those who hold stock portfolios in pharmaceutical, chemical and munitions manufacturing companies, those who participate in the corrupt practices of influence peddling and lobbying for large special interest groups and the participants in war profiteering and non-bid government contracts arising out of disasters like the Iraq occupation and Hurricane Katrina are all participants in the “Ownership Society.” But they are not the residents of Main Street USA.

When the November election comes, the crucial question is whether we will succumb to the politics of fear that has us distrusting and distancing ourselves from our neighbors. The alternative is to look toward our neighbors and look out for the economic well-being of our neighbors and vote for the candidates that understand and respect the crisis that looms on Main Street USA. Those who are currently in control of Congress and the White House have proven that they either do not comprehend or do not care about Main Street. The proof is not in opinion or hyperbole, the proof is in the objective facts described above [and these are only a few examples of the deteriorating situation] and others that are playing out each and every day. As stated before, we will get the worst government that we are willing to accept, and only the best government we are willing to work to create and sustain.