Gary’s Note: In an economic meltdown, many middle class people will slide into poverty as the occupations they used to have become unnecessary. You could be one of them and your job may never come back. David Calderwood shows how it happens…and that it may be happening a lot here soon. 

Will You Be Middle Class Much Longer?

By David Calderwood
Revolutionary Language
October 29, 2009

Many people write of the imminent destruction of the U.S. middle class (of which I consider myself a member) but few have explained specifically how this occurs. Understanding the mechanism seems important if I hope to avoid the fate of most of my peers.

An insight on this question came from an unexpected quarter.

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A gentleman by the name of Fernando Aguirre, who posts on Internet forums and his blog as FerFAL, has written voluminously about his experiences as an Argentine citizen during and after the economic cataclysm that wracked his country in 2001. I first found a long forum post, and then a Google search of “FerFAL” revealed a larger web presence, including a recently published book.

Mr. Aguierre shares his thoughts on all sorts of related subjects, from food storage to guns to politics (he appears to really like Rep. Ron Paul). I personally found a great deal of value among what I’ve seen so far.

One brief passage struck me, however, because it related to the mechanism by which middle-class people become poor during an economic meltdown. The mechanism may be obvious, but it is important to see how theory actually worked in the real world.

Mr. Aguierre shares (in “Part IV”) how, while studying architecture following the 2001 crisis, a social studies teacher illustrated Argentina’s middle class’ slide into poverty. Quoting the teacher from memory, Mr. Aguierre writes,

This reads like a premonition.

The USA’s middle-class includes lots of people whose careers rest on higher education and specialized certification. While plumbers, electricians, factory employees and truck drivers typically are among the middle-class, most of those populating suburbia are accountants, middle managers, sales people, financial consultants, teachers, nurses, writers, etc. In other words, as manufacturing and now building activity contract, more of the middle class is made up of the college-educated in white-collar careers.

Factor in our current economic pickle and it’s easy to see the most likely path ahead.

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With the economic expansion built on mass optimism and debt rolling over, conditions are now fertile for questioning the college degree system as jobs for the college-educated evaporate en masse. The ability of technology to replace white-collar jobs is widespread, and an increasing need to cut costs is finally driving its use, just as changing economic (and regulatory) conditions also drive the replacement of manpower with robotics in the factory.

Across the economy, the need to cut employment costs (not just payroll, but payroll taxes and benefits) is resulting in mass layoffs of sales people and white-collar office staff. When one considers how much work can be replaced now by accounting software, electronic sales presentations, flatter organizational structures, and “news persons” filing reports for free on the Internet via blogs, it is obvious that vast numbers of middle-class Americans teeter on the precipice of unemployability, not just unemployment.

When the “unique” skill sets that commanded $50,000 to $100,000 (or more) annual salaries turn out to be in vast oversupply, the only course left is to compete with those with neither a college degree nor technical education for jobs that can’t support a middle-class lifestyle.

Hands-on service occupations like nursing and medicine are also far from safe. At the end of the day, it is productivity that pays for such work to be done, and when vast numbers of people cannot find economically productive work, economic reality will land on these occupations, too.

When the economic tide goes out, all boats sink into the mud.

Too many people were goaded into illusory occupations by tax subsidies for higher education, government (rather than market) demand, and other distortions like the credit-without-prior-production of the central bank. Political pandering and central planning replaced the natural balance of an economy growing organically through the honest signals of the price system.

As long as there was enough optimism and ignorance to sustain the illusion, the distortions only grew larger.

Though the ignorance largely remains, there’s no more blind denial left to sustain the burden of all that wasted effort. If your job disappears, it may not come back.

This time it really is different. The final stages of that blind denial included fiscal imprudence that bordered on insanity. The mirage economy can’t return until after the pendulum has swung its full travel to the other side of the arc. That path leads through the valley of a crushing economic depression, one that will radically and permanently alter the lives of middle-class Americans who are almost universally unaccustomed to hardship.

Regards,
David Calderwood

I’m sure it was an honest mistake.

Seems the effects of the stimulus have been overstated.

“My bad,” says the White House…

“An early progress report on President Barack Obama’s economic recovery plan overstates by thousands the number of jobs created or saved through the stimulus program, a mistake that White House officials promise will be corrected in future reports.”

In a couple of cases a lot of very temporary call center jobs were created, sometimes counted twice, and then almost immediately destroyed. Other times workers merely got raises, which were counted as newly created jobs.

But honestly, why would we expect anything different? This is what happens when easy money flows out of from the feds. Misallocations, theft and lies…surprise!

Actually, Shooter, it turns out that next door to Detroit in Flint, Michigan, they’re being proactive…and it also turns out that it really doesn’t take much effort to erase the signs of human habitation. Nightline shows houses being flattened in 20 minutes…flat! By the next morning the wreckage has been carted away and only some scraped dirt remains.

The intention is to clear away 6,000 of the 10,000 abandoned homes in the city.

Rush Limbaugh was very upset to hear about this: the physical diminution of an American city… But this is the sort of thing one has to expect. Eternal growth just isn’t in any of the cards dealt out by this iteration of reality. Things integrate…then they disintegrate.

Cities grow, then some calamity strikes them and their populations melt away. At least Flint has the courtesy to clean up after itself.

In the recent past, industrial urbanism would be “renewed.” This meant very ugly modern buildings and subsidized “instant ghetto” housing would be erected after older structures had been abandoned and demolished. This time — at least in Flint — the plan is to let nature reclaim the lots instead of putting up depressing buildings to hold welfare recipients.

I’m told that they tried the same sort of thing here in Baltimore. When a block would reach a certain level of abandonment, the city would swoop in and demolish the entire block. But this piecemeal approach would leave other sort of inhabited blocks surrounded by the rubble.

My first impression of Baltimore was that the central, white-inhabited neighborhoods — Fells Point, Little Italy, Canton, Federal Hill and Mount Vernon, the home of Agora Publishing — and a couple of outliers like working class Hampden or wealthy Roland Park would be truly wonderful places if only most of the rest of the surrounding city could be bulldozed. Doing it block by block just doesn’t cut it. You have to trim all the necrotic tissue at once.

“But where would all the people go?” I’m not really too sure. But I feel it’s time that the industrial urban sprawl ceases to exist purely to house the economic wards of the state. The land and the people squatting on it at taxpayer expense need to find better use.

I never said the process would be pretty, however. But collapses aren’t supposed to be pretty. They’re violent reallocations of people and resources. Business as usual can’t go on. The mistakes have piled up and now the entire structure has to fall. After the unsustainable mess collapses, the rebuilding can start.

Well, I hope today’s Shot seemed vitriolic enough for ya. If anyone has any reactions, please send them to gary@whiskeyandgunpowder.com. I will happily read them.

Until those missives pour in, however, I will be reading Fernando Aguirre’s fascinating account of life in Argentina when things went pear-shaped.

Regards,
Gary Gibson
Managing Editor, Whiskey & Gunpowder