The Year of Disillusion

Richard Fernandez:

2016 may remembered as the year when disillusionment became universal. David Goldman argues the doubt started when global investors discovered that the American land of economic miracles was overhyped back in 2008. “The world used to believe in the United States,” Goldman wrote.  “America was the world’s only superpower back in the mid-2000s.”  The world’s money came and got sucked into the subprime mess.

Donald Trump argues that America’s problem is that it has sent its wealth overseas. Exactly the opposite is the case: America’s problem is that the world’s wealth came to America, and bought subprime mortgages. At the peak of the housing bubble America imported capital each year equivalent to 6% of GDP. Everyone from China’s central bank to Arab sovereign wealth funds to German provincial-government banks bought American mortgage debt until the housing bubble crashed. Virtually all of the world’s available savings came to the United States….

Then came the inevitable crash. Home prices collapsed and well-paying white collar jobs disappeared. The brother-in-law who made $150,000 a year as a mortgage broker in 2007 was unemployed in 2009 and driving a FedEx truck in 2010–or doing nothing at all, as the labor force participation rate collapsed. …

Americans became downwardly mobile, as I showed in a March 1 essay, and along came Donald Trump to tell Americans that their misery was all the fault of illegal immigrants and rapacious foreigners. Not so: during the decade before the 2008 crash, Americans were being paid for being Americans. Their forefathers had built the world’s strongest democracy and most open capital markets, and they were living off the rent they charged to foreigners to come in and use it. Meanwhile Americans under 25 somehow sank to the bottom of the international rankings for skills in literacy, math and technology. If you’re paid simply for being American, why not spend your high-school years with Grand Theft Auto?

Cruel disillusionment may now be in store for the Chicago Teacher’s Union.  Bankrupt, its pensions underfunded, its healthcare plans unsustainable from years of mismanagement, the union is doing what it has always done, using political strength to get more money. It worked in the past so the union has gone on strike to force the Illinois legislature to raise taxes because education is important; education is a right.

Chicago Teachers Union vice president Jesse Sharkey has probably thought long and hard about whether it’s a good idea for his union to go on strike Friday; the risks are high. But in hearing him talk about it last week, you couldn’t tell.

“We are going to strike over things that judges might consider illegal, but we consider moral and right,” he said at a public-sector union conference in New York. “There might be judges that disagree with us…” He shrugged. “But we disagree with them.”

The CTU unlike the foreign investors still believe in the Stash.  Or maybe they think there is no option but to keep believing.  As the Wall Street Journal reports:

CPS, which faces a $1.1 billion budget deficit and billions more in pension debt, already has halted salary increases, imposed three furlough days and made other cuts to schools. It reached an agreement earlier this year with union leadership on a proposal that included salary increases, but a larger union bargaining team rejected it, partly because it required employees to contribute more toward their pensions and health insurance.

The union and its allies say the only way to get a fair contract and improve struggling schools is to pressure lawmakers to approve new revenue, either through a tax increase or other changes.

The California public employee unions apparently believe in the Stash too and are playing the same game. The legislature is on track to raise the minimum wage in California to $15 an hour, ( New York to follow suit) which will effectively give government employees a $3.6 billion raise. “The University of California, Berkeley, Center for Labor Research and Education projected the ripple effect of a $15 minimum wage on higher earners could raise pay for 5.6 million Californians by an average of 24 percent. Latinos would benefit most because they hold a disproportionate number of low-wage jobs, the university researchers said.”

What’s not to like? But if the mythical Stash isn’t real or used up it will meanstagflation, a situation where everything costs more without producing any real growth.  It could already be here. “Overall, for the first time in this recovery, a broad and significant rise in core economic costs is slowing job creation, real consumer spending and profitability,” said Jim Paulsen, chief investment strategist and economist at Wells Capital Management.  It’s an easy concept to understand in the context of the CTU. The teachers get paid more, as do union officials, but the quality of education remains about the same or actually declines in provision.  Higher costs, zero real growth.

In that case the CTU folks will find their pay checks seem bigger but buy less. “The number of able-bodied Americans entering the labor force has surged since last fall. But… circumstantial evidence in the latest U.S. jobs report suggests many of these newly employed workers have found part-time work with mediocre pay.”  Like Obamacare daily life will be “affordable” yet crushingly expensive.

One of the constituencies which may finally be waking up to the fact that liberal politicians won’t keep their promises are non-white voters.  After eight years of Obama it may  be dawning on them that they’ve gotten nothing in exchange for their votes.  Black America is much worse off than before.  Not surprisingly Common Dreams writes, “Hillary Clinton’s Support Among Nonwhite Voters Has Collapsed.”

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