The Rich Don't Need The Rest of America

Friday, August 13, 2010

The Rich Don't Need The Rest of America

Frustrated American Worker

By: Roshawn Watson

Fortunes of many American companies and investors use to be closely tied to American workers and consumers. However, this is no longer the case. Many of the financial elite have become increasingly less financially dependent on America. This decreased dependence has widened the schism between the have and have-nots and pushed some of the non-wealthy to the brink of obsolescence.

Who Moved My Cheese?

In the runaway bestseller Who Moved My Cheese, Spencer Johnson, M.D argues that change is inevitable. Cheese is a metaphor for anything that we want in life. For instance, cheese could be jobs or money. Spencer advocates that even if we do "obtain some cheese," it is imperative to prepare for change rather than get caught by surprise when it occurs.

There has clearly been a shift, and Americans are struggling to navigate the dramatic changes. With the economy in its current state, the job market has been quite challenging. Companies and investors are increasingly looking for ways to increase bottom lines. Workers are sometimes the casualties. As we know all too well, all it takes is the stroke of an administrator's pen to eliminate thousands of jobs nationally while simultaneously improving profits. Sometimes such layoffs are coupled with establishing offshore facilities that costs much less. Many of the American wealthy have decentralized their fortunes in this manner, making them increasingly disconnected to the fates of Americans. Consider that the economic viability of the wealthy is more tied to their assets rather than income from a job. Thus, it is conceivable that if those assets are not based in the U.S., then there is decreased financial incentive to improve the U.S. economy.

Does money flows towards where it is treated best?

In Will the Economy Collapse in 2011?, we discussed how money flows to where it is treated most kindly. For instance, nationally we have the most growth and prosperity in states with no income taxes. Often the wealthy determine the composition, magnitude, and of the location of their income based on economic incentives. The globalization of the workforce is probably one of the best known examples. One product of having a global labor force is that Americans sometimes competing against better skilled foreign workers available for cheaper prices. Similarly, Wall Street investors can make tremendous wealth through investments that are unconnected to the American economy. Thus, an American workforce is NOT required for American investors and corporations to prosper.

Additionally, since economists believe Americans are too frugal now, many American businesses have systematically embraced other markets. Perhaps you would be surprised to know just how much of Aflac's insurance business is done in Japan (about 75%). Recently, its second quarter profits were up 85% compared to last year, mostly attributable to a strong yen (they actually loss money in the US). The point is even with the world's largest economy, U.S. dollars may not be good enough incentive to keep American businesses catering predominantly to the U.S. market. Note, by putting those dollars to work in places like India and emerging markets, there is much more immediate and substantial growth potential.

As the largest consumer market globally, the U.S. will surely not be abandoned. However, the economic landscape is constantly changing. Those of us unable to "find the cheese" are being left behind financially, which is very frightening. Simultaneously, the rich have returned to boom levels and many have deliberately insulated themselves from our temperamental markets and may no longer have financial motivation to assist the American economy.

This quote summarizes the situation perfectly, “(a) member of the elite can make money from factories in China that sell to consumers in India, while relying entirely or almost entirely on immigrant servants at one of several homes around the country.”

With the financial decoupling of the rich from the rest of the country, many American works are just replaceable.