Pearlstein Gets It Wrong

Through most of the financial meltdown Steven Pearlstein showed perspicacity. He ended the year with a dud, though, suggesting that pay cuts may be desirable across the board -- not just for auto workers.

I have several problems with the argument. First, let me up front: We Will See Wage Deflation. This will come in the form of wage stagnation (which amounts to wage deflation in the face of some inflation, which we will probably see again in a month or three), or in the more social-psychologically detrimental form of the recently unemployed failing to find work that pays in the ball park of the their former positions. Boo hoo for the buy side derivatives geniuses, right? But they comprise only a small part of the picture. You have to consider all the realtors, construction workers, contractors, furniture sales people, mortgage analysts, financial planners, landscapers, et al. I saw that Talbots in my mall is hiring (even though the chain is shuttering other stores). To go from realtor -- and the life you led with that level of income -- to folding clothes in the mall is a huge step back. And think of all the people scrambling for what little comparable work remains in the sectors creamed by the meltdown.

Wage deflation by fiat or by some widespread voluntary measure will not help anything. In the industries not directly affected by the meltdown, it will not ensure solvency of the company. Rather, it would create greater insolvency in the financial world as the wage-deflated workforce fails to make its collective payments on mortgages, car loans, and student debt.

Further, using biglaw as a model is ludicrous. These are the same overachieving, overeducated, overselfesteemed types of people that created the overblown derivatives market. Comparing biglaw to workers in the broader economy is like comparing a Kardashian with Rodney King in a competition for Biggest Media Whore. The Kardashians are everywhere. I know this even though I have never seen any show that features one of them. That tells you how desperate they are to get attention. They have my attention and I don't even know who they are or what they have done to be famous. Did they cure cancer or something?

On the other side of life, Rodney King was assaulted by the powers that be and was thrust in to the limelight only because someone caught his beating on tape. Biglaw attorneys will do anything to make huge paychecks, annual bonuses, and solidify their standing for one day becoming partner. They would even sacrifice using their immense talent for serving the public. Conversely, "regular" workers are trying to keep afloat and make sure they can live a life of comfort. The powers that be -- the real powers on Wall Street and its lobbyist fifth column -- have mobbed the workers and beat them into the ground. In the coming months, all of this will be caught on tape and given to us in the nightly news.

I wonder if Pearlstein isn't suffering from the same regulatory capture epidemic that has infected the Fed and the other bank regulators.

What annoys me the most about Pearlstein's column is that he gets it exactly backwards. What we need is across the board pay raises. The stock market is so battered, many analysts are looking at solvency rather than profitability. The simple truth of the matter is that most major corporations are either still profitable, or have sufficient cash reserves to carry them through for a couple years.

Why can't these corporations show some patriotism -- after all, they benefit in millions and billions of ways from the American system and culture -- by doing a private-side stimulus package? Give everyone a 10% pay raise this year, corporate America. Not only will you bring people's wages up to historical standards (relative to inflation), but you will save the system as a whole because people can spend half of the pay raise on reducing leverage and the other half on buying stuff. Yes, consumerism would return again, and companies would remain solvent, and the Obamas wouldn't have to stack another trillion of debt onto my son's shoulders. Then, once everything gets bullish again, you can go back to shafting your employees. Problem solved.

My god, I am so irate the more I think about this.