Are the 'fundamentals' of the Economy or is the American Worker Strong?

I admit, I was taken aback by Senator McCain's statement upon the announcement of the Lehman Brothers and Merrill Lynch failures, that the fundamentals of the American economy were strong. As a longtime member of the United States Senate, let alone of the Commerce Committee, Senator McCain should possess not just rudmentary knowledge of economics, but should be fairly well briefed on current economic issues and that there was no basis for such a statement..

Two days or precipitous stock market drops, the failures of two major financial institutions and the imminent failure of AIG (the bail out saved AIG), heaped on top of previous bank failures, government spending to back up loan guarantees, etc. means there is something amiss with the basic functioning of our economy. When the financial markets are in severe dissarray a capitalist system is in trouble. You can only suck so much capital out of a system before it runs dry.

The correction, which sounded stilted and forced when I heard it first hand and saw the look on Senator McCain's face as he back-pedaled, was that it is the worker who is trong and wil endure. Now, traditionally the 'worker' is the labor force. The top of the labor force are Transportation, Production and Construction sectors - high earning jobs that contribute directly to the economy with new infrastructure, products, housing, commercial buildings - sectors that increase the revenue base. Currently the transportation sector has 7.3% unemployment, production has 8.0% unemployment and construction leads all sectors with 8.7%. For each of these sectors the numbers are up 2.0-3.7% over this period last year (US Dept of Labor Aug. 2008). Service personnel, the entry level labor rank, now faces 7.0% unemployment, compared to 5.8% just a year ago. When you compare these high numbers with hose of professional (3.3%, up from 2.6% last year) and management (6.1%, up from 4.6% last year) - you can see that the American worker is suffering.

If I look at the wage situation of workers, those who actually have jobs, real wages are down significantly even as actual wages are slightly up from last year. Increased costs of housing, fuel, durable goods and groceries show that inflationary costs of living have far outstripped very nominal wage gains.

Under a sound capitalist structure, even in an inflationary cycle, the worker (a curious term to put at the forefront, since our economy is not labor-based) can fare well if there is sufficient capital infusion, healthy investment, and reasonable interest rates. To the extent the economy is strong and investments are being made in infrastructure, housing starts and new commercial enterprise - the 'worker' earns top dollar and is able to modestly invest. But, today savings rates are abyssmal, and dabbling in the stock market is not for hte feint of heart nor for anyone unwilling or unable to remain in the market for the long term. So, on top of facing record high unemployment levels in key labor markets, those workers who are employed do no have particular job security, and their wages cannot continue to meet increasing costs of living. In short, if something doesn't give and give fairly soon, the 'worker' who is ostensibly sound in the mind of Senator McCain, will begin to feel the freefall to lower class existence.

I'm not asserting Senator McCain is 'out of touch' the overused handle applied to anyone running for president or vice president right now. But, the reality is, the information is out there, is actually at the Senator's fingertips, and instead of admitting the economy is particularly unsound right now and a long term correction is needed, he instead chose to say the worker will prevail and succeed. It is actually the job of the President to do develop, support, revise, sustain - as applicable, policies that will stabiilize the economy, and when the economy is unstable, as it is now - to map out a plan toward stabilization. Economic policies, regulatory policies, all impact to some degree the overall health of our economy. Choices are made that change the playing field of capitalism in this country and well beyond its borders. Market participants, far from wanting a level playing field (althought hat is always what they say they want) - want one slanted in their direction. The removal of regulations on virtually every aspect of American comerce have not so much opened markets as they have limited who can operate within them successfully. Failing to regulate entities or allowing them to branch out beyond traditional parameters of business operation, particularly within the financial markets only served to strenghthen certain entities, such as Lehman Brothers, on paper. In terms of real wealth, in terms of real contribution to the economy - these steps have weakened those at the top of our economic mass.

We should have learned when energy companies speculated in the financial markets and created shell corporations to hide debt. The money shnifted from production of oil, natural gas, etc - to market speculation. Phantom assets were leveraged and when the loans were called in - there were no actual assets to pay them back. That was eight years ago. In the interim our government, including agencies under the President's span of control and to a certain extent Congress, has allowed financial institutions not to serve clients and make investment, but basically to hedge against themselves. Just as energy companies 'created' their own competition and created false shortages to move up market prices and increase profits, financial institutions were allowed to get into the untenable and ultimately intolerable situation of leveraging their own welath against their clients' and shareholders. When winning, this strategy can work in the short term, but when the market is down the losses are devastating.

So, no one who has even a rudimentary understanding of regulation and the financial markets, let alone of the bigger picture of our economy across all sectors and as balanced against the international monetary markets, knows this is a freefall, and that it was a preventable one. One pull on the reins here to better reguloate lending and lending rates. locking the barn door firmly there to ensure financial institutions didn't have obvious conflicts of interest with investment decision - and we would be in a different place. The reality is, even with massive deregulation over the last 25-30 years, there were still tools available that have gone unused. Our economy was like a box with a false bottom meant to hold extra money in reserve, but we didn't require those who could create the false bottom to actually place money in it, we just told them they could add the hidden layer and let everyone know it existed. The inference was that there was extra money, there was additional investment, a buffer, but the reality was that it was just a hollow, false bottom.

The AMerican worker had nothing to do with how this economy has tumbled. The American worker has little or no leverage to detmine or remove regulations (although corporate America still trots out unions in droves to support mergers, removal of regulation, etc. with the false promise of better wages or job security that evaporate with the first down-sizing). You can't blame corporations for merging and then consolidating and eliminating jobs when that is the most efficient and expedient means to their end of higher earnings. You can blame government for allowing this process to be played out in excess and against the best interest of our economy. So, no, the fundamentals of our economy are not strong and the American worker may be sound and strong - but he and she are operating in a losing proposition, an unregulated economy that has allowed market concentration, market power, price manipulation, conflict of interest, collusion, etc. to be reintroduced. That the worker has any power to shape our economy is a fiction, and an unconvincing one at that. When competition was truly present, it was possible for the market to self-regulate. but there have been so many indicators across virtually all markets (energy, financial, etc.) of classic market failures that the R word needed to surface a long time ago. Re-regulation. Using existing tools to monitor and rein in abusive market behaviors, and to the extent necessary ,creating new tools to most effectively manage all sectors of the economy today is what it needed and what is quite overdue.

Frankly, I am surprised Senator McCain didn't have a laundry list of necessary reforms at hand. I am interested to hear specifics from both Senator McCain and Senator Obama about how to begin to dig us out of our current economic mire, and how to rebuild on solid ground with necxessary protections to ensure speculation isn't tolerated. The current crisis has concentrated some wealth into the hands of a few who managed to profit before the bottom fell out and to hold on to their money (probably investing heavily elsewhere or in solid areas here). It has diluted the overall wealth of Americans and most specifically of the American worker. The current crisis has saddled all of us with ongoing tax liability to fix systems we did not break but whose health we depend upon in many ways.

Now is a time for unrelenting questioning on this issue and we must insist upon answers and upon the taking of concrete steps to rebuild the basic foundation of our economy. We cannotr trust our elected officials to lead us out of a crisis they will not even fully acknowledge, so it is really upon us to insist upon knowing what exactly we are all facing, together.