Stock Tip: Be Worried. Workers are Consumers.

stockmarket showerRepeat after me: Workers are consumers. Consumers are workers.

We’re slouching toward a double dip, and the stock market is imploding, because consumers – whose spending is 70 percent of the economy – have reached their limit.

It’s not just the jobless who can’t spend. It’s mainly people with jobs. Median wages continue to fall. Weekly wages in July for Americans with jobs were 1.3 percent lower than eight months before.

America’s median earners are now earning less (adjusted for inflation) than they earned ten years ago.

Every CEO of every company that continues to squeeze payrolls (Verizon, are you listening? Ford?) needs to understand they’re shooting themselves in the feet. Where do they expect demand for their products and services to come from?

They’re doing the reverse of what Henry Ford did back in 1914 – paying his workers three times what the typical factory employee earned at the time. The Wall Street Journal called his action “an economic crime” but Ford knew it was a cunning business move. With higher wages, his workers became his customers, snapping up Model-Ts and generating huge profits.

Many on Wall Street are scratching their heads, trying to understand why the stock market is plummeting. After all, they tell themselves, corporate earnings are still near record highs.

But it’s becoming clear those earnings can’t be sustained. Corporate earnings are the highest they’ve been relative to worker wages and benefits since just before the Great Depression. And the richest 1 percent of Americans are getting a higher percent of total income since just before the Great Depression.

Get it? It was only a matter of time before the boom on Wall Street turned into a bust. Economic booms cannot continue without American workers participating in them.

Robert ReichForeign consumers have helped sustain earnings, but that won’t continue, either. The European economy is sinking and China is pulling in the reins on growth.

What will happen to the Dow Jones Industrial Average when corporate earnings revert to their historic average relative to American wages? I’ve seen various estimates. They’re not pretty.

Robert Reich
Robert Reich’s Blog


  1. pigdog67 says

    Also if workers have an income above subsistence they can be suckered into a 401k. Or if they are smarter they can wisely invest their savings themselves. This helps companies get free financing. However the multinationals have lots of cash. They can survive a long depression. WW lll creates a lot of uncertainty for them. Free trade periods always have ended in world wars. The romans tried horrific repression and that worked for a while. I am sure they called it a war on terror. I do not want to fly on an airplane anymore. It is too much hassle.

  2. says

    I’ve been saying this ever since this debacle began:
    Corporatists export jobs. They pay the workers in those countries too little to hoist them into the middle class – even in countries whose middle classes are less vibrant than ours used to be. Then they sit there scratching their heads and wonder why no one is buying their products and services. So they lay off more workers and/or export more jobs.

    Get a clue, corporate America. Only people with money will come knocking at your door. And you’re making sure that there’s precious little of that commodity out here in the boondocks.

    It would be funny if it weren’t desperately hurting so very many people.

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