Ten “First Impressions” of US Political Economy

10 November 2010. By David Caploe PhD, Chief Political Economist, EconomyWatch.com

It’s a bit strange coming back for a long visit to the US, 

especially given the disastrous – albeit totally predictable and predicted – election result on Tuesday.

And, like everyone else, I can’t be everywhere all at once,

so my immediate and observations are somewhat limited by where I am – 

basically San Francisco Bay and New York City Metro Areas –

10 November 2010. By David Caploe PhD, Chief Political Economist, EconomyWatch.com

It’s a bit strange coming back for a long visit to the US, 

especially given the disastrous – albeit totally predictable and predicted – election result on Tuesday.

And, like everyone else, I can’t be everywhere all at once,

so my immediate and observations are somewhat limited by where I am – 

basically San Francisco Bay and New York City Metro Areas –

and whom I’m seeing – lots of IT and non-profit people in the Bay Area, and both IT and media types in New York.

So while I can’t claim to be experiencing directly the entire panorama of American political economy,

the encounters with people that I am having, and what they are saying,

about their own situations, and those of their friends and family,

do flesh out in a human way what can be gleaned from – in my case, probably excessive 😉 – consumption of media,

both mainstream and alternative of some sort or another.

Given this, here are ten “first impressions” in no particular order so far.

Hope you find them valuable …

1) There seems to be plenty of “work” available in IT, at least, in both the Bay Area and New York … 

BUT …

2) The proportion of “contract” workers vs. people with full-time jobs in ALL areas, INCLUDING IT, is growing ever higher …

This means that those people who DO have full time jobs 

are working harder, and with longer hours, than ever …

And the people who are doing contract work, 

even if they’re well-paid, comparatively speaking, 

are living in a constant state of insecurity …

3) If they’re American, then they don’t know if they’re going to be able to pay the rent / mortgage, or for how long.

And if they’re “guest workers,” even well-paid people who are generally working on contracts

live in a state of fear about IMMIGRATION issues,

i.e., will they be thrown out of the country, and made to go back to, let’s say, India,

until their new contracts begin in mid-January, after the US holiday season,

which begins in late November with Thanksgiving, and continues through Christmas and New Year’s,

during which almost NO hiring decisions of any sort are made until mid-January at the earliest,

often after the increasingly valued three-day Martin Luther King weekend …

so they feel themselves particularly vulnerable at this time of year …

4) This uncertainty for non-US contract workers, even well paid ones, is no laughing matter,

when you consider the cost of a round-trip plane ticket from the US to India or China,

not to mention questions about realistically planning for housing, 

e.g., how long a lease can they reasonably assume, etc …

5) In that context, while housing prices for SALE are definitely down –

although in the areas I’m in, they were so insanely high to begin with, 

it’s still pretty tough to buy a house in what would generally be considered “desirable” neighborhoods –

the RENTAL market – again, at least in San Francisco & elsewhere in the Bay Area, as well as New York / northern New Jersey –

is REALLY high, and shows NO signs of getting weaker any time soon …

6) This is not as simple as it might first appear …

On the one hand, it’s obvious that people whose houses are “underwater” –

that is, currently valued at LESS than the original NOMINAL price they paid,

leaving aside interest payments, closing costs etc etc etc –

still need a place to live, so they are forced into the rental market …

On the other hand, if people can afford to make pretty high monthly rental payments,

then they should also be able to make payments of the same general level for a mortgage …

But there are two issues here:

a) Getting together the 10 – 20% down payment for a home is usually a LOT tougher 

than the first / security / and sometimes last month’s RENT 

to move in to a nicer place than what they could afford to buy …

b) Even more important, the continuing / growing / visible uncertainty about JOBS 

means people are hesitant about making a 20 or 30 year commitment on a mortgage,

and feel renting gives them both a better place for the same money

AND doesn’t tie them down, even if they have to move more often than they would like …

7) And speaking of jobs, again, you HEAR about a lot of people who don’t have them, but rarely SEE them, 

partially because they are – understandably – reluctant to go out and spend money,

so they are starting down the road of becoming INVISIBLE to not just other Americans, but themselves as well …

8) Given this whole scene – lots of people without jobs,

while those who have them, either full-time or contract, are working harder than ever for the same money –

there is a LOT of tension in the air, even in the Bay Area, 

where “coolness” in ALL dimensions is considered a sine qua non,

while New York City – never a relaxed place to begin with – is more tense than ever,

with people seemingly, at least to me, on much more of a hair trigger than even before …

9) At the same time, the “shopping infrastructure” in both areas 

seems even more built up than when I was here last year at this time …

Lots of new malls, strip and otherwise, and heavily fixed up ones as well,

with Trader Joes / Target / Whole Foods seemingly everywhere,

and even down-scale grocery stores having a much more upscale appearance,

probably because they HAVE to in order to compete with the more up-scale chains …

That said, a lot of both up- and down-scale shopping places seem fairly empty, at least during the day,

except, of course, Target, which is the cream of down-scale,

and seemed to me to be crowded at every time of day,

full of people of all ethnicities and, it seems, income levels as well … 😉 …

10) While there are more details, I’ll end with one thing that has struck me, 

although it’s purely an impression, and can’t say it’s backed up by any definitive data, hard or soft:

A lot of increasingly necessary ELECTRONIC COMMUNICATION services – 

cell phones / Internet access / cable or satellite tv –

seem to be maintaining strong price discipline,

and their price levels do NOT seem to be going down at all …

Now whether this is true or not, I can’t say for certain …

But if it is, it does raise a VERY disturbing spectre that we have talked about in a number of different settings –

including the UK as a whole, at least before the brutal cuts of the Conservative / Social Democratic government,

and in the area of global container shipping, which, remember is NOT covered by the famous Baltic Dry Index –

namely the agonizing combination of high prices and low / slow / no growth known as stagflation.

If companies are indeed unwilling to cut prices significantly for US customers,

then while they may be willing to go out of business,

at least they’re going to go down fighting …

And that would be a VERY bad combination indeed,

because there’s nothing on the American horizon – 

including in IT, for reasons we’ll talk about in a future Feature –

that seems likely to create the sort of high-value-added / Schumpeterian advancing sector jobs that are being created, for example, in China …

Which, of course, is one reason Obama and the Democrats got killed in last week’s election,

even tho the economic mess is largely the creation of Republicans from Reagan to Cheney / Bush,

a dynamic which Obama foolishly and wrongly decided to continue, as we have pointed out so many times …

If indeed stagflation is the US future, 

then it seems likely to be around for a good long time,

because an outsize proportion of the society’s resources 

are STILL being used to prop up a bloated financial sector that STILL refuses to lend, while handing out immense salaries and bonuses –

and THAT is going to be a problem for not just Americans, but the entire world …

David Caploe PhD

Editor-in-Chief

EconomyWatch.com

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