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.

Financial Market Meltdown: The Churn Theory

I console myself as I watch the grim headlines spit out by Google News and Yahoo! News each day by remembering that there is value out there. Workers somewhere are building stuff. Consumers out there are buying things. We just have a lot to churn through until the fundamentals appear rational again.

The sources of the churn are many. Incomprehensible derivatives. Too much liquidity. Lax lending standards. Mortgage fraud. Lack of common sense. Corruption.

And that is just a recent list. The churn has other vectors. Globally, we're still trying to integrate the post-USSR countries into the market. China produces, but it does not consume. It keeps its currency artificially weak. Europe is getting old. The price of oil is increasingly unstable.

For the financial meltdown to end, it will require time. During this time, policy makers should contemplate ways to mellow the churn. This will require a plan to stabilize currencies globally, develop alternative energies to power the BRIC economies and American drivers, and try to restore competition to the marketplace free and clear of liens held by political entities. There should be no systemic risk posed by any single company's survival or failure.

Other Uses of Conservatorship

Though I can’t ethically discuss the Federal takeover of Fannie and Freddie, my mind got to thinking about other problematic institutions that would benefit from being placed in a conservatorship. Without delay, let us begin.

Stephon Marbury
Assets: crossover dribble, teardrop in the lane, well-intended Starbury line of sneaks.
Liabilities: gambling on defense, egotism, insanity, silly tats.
Regulator: NBA.
Actions to be taken: Like the government killing off the GSEs’ lobbying, David Stern should remove Marbury’s agent, PR, and posse. A gag order should be imposed upon the point guard himself. The real key to resuscitating the corporation (indeed, NBA players are corporations to be traded, bought, sold, and suffer bankruptcy when no longer relevant) is to put in place the proper psychiatrist and/or life coach. A realistic goal would be Allen Iverson light. Anyone thinking Marbury could be the next Bob Cousy needs to be seen by the conservator-appointed head shrink.

The English Language
Assets: Ubiquitous, adaptable, analytical
Liabilities: Spelling, lacks a word to rhyme with orange.
Regulator: Ghost of Teddy Roosevelt
Actions to be taken: English, the language of global business, will go the way of French and Latin if it does not rectify its inherent weakness. Granted, the word processor age protects against immediate failure by propping up the lexicon with spell checkers. In the long run, however, this fundamental vulnerability must be ironed out for continued viability in the global linguistic market. Teddy Roosevelt worked hard to reform English spelling, but he face the same conservative pressures that metric system proponents have faced.

For the second problem, I propose the creation of a new word, gastrournj, referring to the stomach sensation that one gets after eating an entire sausage pizza and following it up with a two liter of Mountain Dew. Usage example: I thought I was having a heart attack, but the medical resident in the ER shook her head and prescribed antacids and a glass of warm milk to mitigate the effects of delayed onset gastrournj.

Cable News Talking Heads
Assets: none
Liabilities: lies, malice, and the continuing degradation of American culture
Regulator: We, the people.
Actions to be taken: Forget Tim Leary’s “Tune in, turn on, drop out.” What we need to do, in order to stave off the inevitable slide into a country where ad hominem attacks are the only acceptable rhetoric, is to tune out, deep think, and read a book. Only you can prevent dumb.

American Corporate Beer
Assets: worldwide market in the billions per annum.
Liabilities: reliance on hops extract, continued reliance on recipes using recycled urine instead of water and grains.
Regulator: WTO
Actions to be taken: First, the fundamental question is: Can the Belgians save American beer? The answer is no. Like Bill Clinton’s wasted chances to make headway against poverty and inequality during his eight years, experts foresee that the Belgians will squander their opportunity to fix corporate shwag beer. International consultants should be brought in to form a workgroup with domestic craft and microbrewers. It could be called Project Napa, and emulate the way California wineries have become some of the top producers of quality wines. Just think for a moment, why isn’t there a Michelob Lambic? Understand this question, and you will understand the deeply entrenched rot in the corporate boards of American beer.