Opinion – Guess what’s weakening the U.S. middle class | The Japan Times – John Gelmini

The answer to Dr Alf’s question is that President Obama has done nothing for the American middle classes other than harm.

They have suffered partially because of the reasons cited in the article and partially because of disintermediation, which transfers value traditionally shared with middlemen and middle managers directly to business owners and directors who enrich themselves at the expense of all their employees.

We see the phenomenon with people going into bookshops and scanning product codes and then buying directly from Amazon.
The result of this and the rise of more internet based businesses which pay little or no tax is that shopkeepers and local suppliers are squeezed out.

President Obama in common with many other world leaders has done nothing to educate people in the middle classes to learn languages, become more culturally aware and think more creatively even to the point of leaving the country and setting themselves up in business somewhere else.

The American concept of a “chicken in every pot” and a God-given right to wealth and opportunity is alluring but an economy which favors the “Big Battalions” and high-tech start-ups does not favor those in the middle, unless they get much more with it and much more nimble.

President Obama has brought in Corporation taxes that are higher than those in the UK, Singapore and many other places and has saddled many smaller businesses with red tape in the form of Obamacare, which adds to wage costs and renders companies less competitive.

John Gelmini

For Many U.S. Families, Financial Disaster Is Just One Setback Away – Real Time Economics – WSJ

This is an excellent must-read article from WSJ. Check it out!

via For Many U.S. Families, Financial Disaster Is Just One Setback Away – Real Time Economics – WSJ.

Here’s an overview:

About 70% of U.S. households are struggling with at least one of three problems with their balance sheets—low incomes, insufficient savings or debt, according to an analysis of government data by the Pew Charitable Trusts on Thursday.

According to Pew there are four reasons that family finances are so fragile:

  1. The economy is growing, but the typical family’s paycheck is not.
  2.  Many families’ incomes tend to lurch up and down, impairing financial (and emotional) stability.
  3. Americans aren’t saving enough
  4. The nation’s growing wealth pile isn’t being shared.

Whilst this article should be of interest to most American families, apart from the wealthy, there are important implications when considering the relevance of the findings to European families.

Firstly, I believe that the data is directly relevant to UK families who are equally stretched, with fragile and high risk finances. On the back of a UK government sponsored property boom, families are feeling the warm glow ahead of the election. But the UK government has not done enough to promote exports and national skills, with austerity cuts leaving the country divided and at risk. UK households are at risk when interest rates start climbing. Irrespective of who wins the election in the UK, the average UK family is similar to the US.

Secondly, I want to consider Southern Europe. In Greece, Cyprus, Italy, Spain, Portugal and France, matters are typically much worse than in America – most countries are not growing but contracting, now with falling prices (depression). In Greece and Spain, youth unemployment is circa 60%. Because of austerity, many families are trapped in poverty, with collapsing public services and a likelihood of death at an early age. Many Southern European families have no or a seriously inadequate income; savings are expended or tied up in family property which they are unable to sell because of collapsed asset prices. As for debt, either borrowings is unavailable, or wealthier families have existing debts which they are unable to repay.

Thirdly, let me try to contrast modern Germany.  Ordinary families in Germany can compensate for low incomes by taking on multiple jobs – indeed it’s this sort of labor deregulation that Germany would like to see in Southern Europe. By and large, families are much more wary of taking on debt in Germany, so that there are reasonable savings for a rainy day. However because German savers are risk averse, their savings are earning little interest and they have a deep fear of inflation. Meanwhile, many of the large banks in Germany are deeply exposed to loans to Southern Europe – if these loans are written off or written-down, then German families will suffer.

Whether you live in America, Southern Europe or Germany, ordinary families are deeply exposed but in different ways.

Let me turn this to an open question:

Surely, it’s about time that the political classes got a little more honest about the real risks to family finances?

Thoughts?