Yesterday, Megan McArdle speculated how our lives will be reshaped now that we live in a No-Growth Economy. I have some ideas. And not good ones.
My husband has been in the finance industry for 13 years. In that time, workers in that industry have seen a MAJOR reversal in fortune. His old firm, like so many others in the finance industry, has cut tens of thousands of workers. My hubby survived several rounds of layoffs and worked double time to make up for the lack of staff, until he was finally cut himself. All these laid off workers have flooded the market and now work for a fraction of their former salaries in temporary positions. And those are the lucky ones.
The entire area, which lived on the spoils of Wall Street, is under stress. Contractors and service workers and other blue collar workers are also hurting now. Yes, it is a good thing that the million dollar stock brokers got a much needed reality check, but Wall Street is made up of far more middle class workers than one percenters. There is no sign that the situation will improve.
Megan wonders if we will deal with the new economic reality by changing our consumption patterns. I'm not sure. I don't think we're there, yet.
Sadly, some are dealing with the stress by bad behavior or by frantically working harder for less money. Young people, known as 22-22-22 workers, are exploited. Freelance journalists are expected to work for free. Women are exhorted to work harder. Working parents cannot expect flexibility. Women bosses are shitty to women who are lower down the totem pole.
Unless the economy rebounds like Lazerus in the next few years, there will be more changes.
Apt. 11d 
The peasants of 1800 did not expect to be noticeably better off than their parents. The children of today still carry the cultural expectation that 2-3% annual income growth is the normal state of affairs. Yes, I know, they haven’t gotten that for quite some time.
I don’t think Megan is fully understanding what “no growth” means. Especially with low natural birth rates and declining immigration, so that the population isn’t growing much either. In a no-growth economy, people would still get 2-3% raises. But the overall pay scale wouldn’t increase. Unless she thinks that in the future, the average 50 year old will earn the same as the average 25 year old, raises will start coming back, even in no-growth.
The economy is in a serious, long-term re-balancing mode, and lots of people are having a really hard time because of it, but things that can’t continue forever won’t.
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Previous generations of retirees were skimming off the top of a rapidly growing surplus. The coming generations may be asking workers to give up what they already have–to live less well than their parents–so that Grandma and Grandpa can rest their bones for a few decades.
See, I can’t see that happening. As soon as the Baby Boomers become a smaller voting block, national priorities will be radically recast. I don’t know anyone who will vote to starve while others go on cruises.
Such reasoning assumes voters are altruistic enough to endure privation for the good of those more wealthy than they. I don’t think that’s realistic.
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I don’t think getting raises as you gain experience counts as growth from the point of view of the overall economy. Many people getting 2-3% raises is what you’d see in a no growth economy and still a huge problem overall. If you start at $22,000 and get 2% raises each year, you hit 70 making $57,000 a year. Even with 3%, you’re still not earning over $50,000 until you reach 50. And those assume no bad years like you would get switching careers.
You need to get both those 2-3% raises for gaining experience plus some economic growth if you want people to earn middle class family-supporting wages while they are still young enough to have a family.
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To add to the gloomy predictions, a more contentious politics in a diverse country may become even more racialized, with the Republicans as the white party and the Democrats as the non-white party. In that case, one would expect, among other things, the Republicans to defend Social Security and Medicare, while cutting spending for anything that benefits the urban poor, and the Democrats to do the opposite.
I’m not actually convinced that such polarization will happen, because I’m not convinced that we are in for a period of prolonged no-growth, but it’s something to think about.
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The Democrats are not the “non-white” party — and there is no trend in the voting patterns of whites:
http://www.washingtonpost.com/blogs/the-fix/wp/2012/11/08/president-obama-and-the-white-vote-no-problem/
Since 1972, the percent of white vote received by the Democrats has fluctuated between a low of 32% (McGovern) to a high of 47% (1976, Carter); After carter, Obama received the second highest percent of the white vote (in 2008, tied with Clinton in 1996).
So, I see no evidence for a trend. It would be interesting to see if Republicans are loosing the minority vote — I do think there’s a trend there, in Indian Americans, who apparently shifted from approximately 30% for Clinton to 70+% for Obama.
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the Republicans to defend Social Security and Medicare, while cutting spending for anything that benefits the urban poor, and the Democrats to do the opposite.
That’s about 1/2 true. The Democrats certainly haven’t tried to cut Social Security and Medicare spending. Some Democrats have tried to cut them, but so have some Republicans. And, I’ve said it before, but I may as well repeat it. Arguing the government provided health care is bad for the country for those under 65 and mandatory for those over 65 is not logically or morally defensible. I think Romney’s switch on healthcare will be seen as destroyed the “small government” position in the long run.
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I also think the NY times article saying greater profits but no jobs suggests that it isn’t that we’re just in a “no growth” economy, but that the profits of our growth are being more and more unequally distributed.
Some of this change is an evolution in the marketplace. As an example, I’d argue that librarian/archival work used to involve content knowledge and indexing based on that knowledge (careful selection of important indexing words and collection/collation of them) so that people could find content. With Google, that changed for the internet first, when they started developing algorithms for finding information with knowing what the information was. Pictures still can’t be indexed that way, but there’s a lot of effort being applied now to bring them into it. As this happens, you end up with all the profits for the duration going to Google and, more specifically to the development of big algorithms, rather than lots of people doing similar work and having the work (and pay being well distributed). One could say the same for contract lawyers who review documents.
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Couple things catch at me here: 2-3% wage increases and the finance industry circling the drain for many employees.
2-3% wage increases: we like em! People really, really like having a progression in their lives from worser to better. Now, an awful lot of things happen because people like them. Can this go on? Hard to tell.
I think it’s true, if you’re a tax preparer or an accountant or librarian or teacher, that you get better, up to a point. The studies about teachers suggest they get better up to about eight years in. We give them more money if they get master’s degrees, despite the utter absence of any evidence that the degrees make them more effective. In my own work life, I think I got better until I was about fifty, and that I haven’t really improved since. “Journeyman” was the phrase, once. Sheetrock finishers probably don’t get any better after about Year 3. Givers-out of samples at Costco may get better for the first three months?
My kid’s day care, some years back, had incautiously put into her contract that she would get the Federal cost-of-living increase every year into one woman’s contract, she stayed 25 years and was making almost $50000 when she left – double what the young women who typically kept the job for three or four years made. She was good, but not twice as good. It was a huge financial strain on the organization, and the board was very happy when she left.
The guys who scrabble for work at the local latin market every morning all hope for $16 and will settle for $12, no matter how long they have been at it. A lot of the jobs which have carried yearly increases are jobs which have had them because people like them more than because their employees improve, and there will be a lot of pressure downward.
Financial industry circling the drain. Tall Paul Volcker gave a speech once and said the country had historically been paying 1 1/2% of GDP for financial services, and that more recently it had crept up to around 4 1/2 per cent, and he doubted that it could be afforded, or that that much financial services work was optimal. I am not one who thinks bankers are greedy and useless vultures! We need smart financial allocation. There was a lot of tail-chasing of more and more exotic derivatives, whose utility in allocating finance, well, escapes me. So I’m inclined to think that we are on our way back down to something closer to 1 1/2 per cent – if that happens we’ll be cutting the share of GDP going to financial services to less than half what it’s been in the fat years.
No more arbs doing lines of cocaine off the naked bodies of young ladies in the private rooms of Wall Street restaurants while their stretch limos idle at the curb? Cry me a river! Still having thoughtful analysts looking at whether a company is a sensible acquisition? I hope so. Will the change be that efficient? Likely not…
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And furthermore: “The entire area, which lived on the spoils of Wall Street, is under stress. Contractors and service workers and other blue collar workers are also hurting now.” – I live in the burbs near DC. We’ve lived very nicely on the production of memoranda and regulatory services… And the Global War On Terrorism. NYTimes had an article last week telling us that the seven fat years are over and the seven lean years are beginning here. There’ve been a number of areas which were once prosperous because of an industry, and then it all goes south. I went to Southern Maine once and went to a graveyard: lots of stones up to 1850, almost none after. What happened? They opened the Erie Canal, and Maine wheat could no longer compete. Gone. Detroit. Gary. I think it’s good if you don’t get too dependent on one industry, but I don’t have much smart else to say.
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