View Full Version : The American (and European) middle classes are nearing their use by date

04-04-2005, 04:50 PM
Interesting pair of posts culled from another board regarding the financial and socioeconomic horrors that may soon be visited upon the US.

"Gulag prisons built today for debtors tomorrow

Now that the outsourcing frenzy has inspired a small economic boom in India, tech companies looking for a source of cheap, skilled labor are turning to places like China and Estonia. But this strategy, like all strategies based on exploiting labor in developing nations, is doomed to fail. When those geeks and their countries start dominating the market, U.S. companies will find themselves scrambling to come up with business plans that don't depend on ripping off third-world hackers.

Fact is, you can't just keep moving your outsourcing hot spots from nation to nation eventually you've got to come home. And that's why the Republicans are working now to create the domestic economy of tomorrow: one that won't require any revamping of business models that depend on underpaid professionals in engineering and the sciences. Nothing brings us closer to this exciting future than last week's passage of the bankruptcy bill, a pernicious piece of federal legislation that destroys financial safety nets for working- and middle-class people while allowing the rich to shield their wealth from debt collectors.

The bill eradicates what are called "clean slate" declarations of bankruptcy under Chapter 7, which allow people who've suffered tremendous financial setbacks to erase most of their debts and start over. Now the majority of people who file for bankruptcy will be forced to do it under Chapter 13, which means they'll have to pay back a portion of their debt no matter how dire their circumstances.

Who wins in this situation? Credit card companies, of course, which have sunk millions into getting the bill passed and whose propagandists argue that it will help the poor. Because the credit industry can now rest assured that it will recoup most losses when debtors go bankrupt, Visa and MasterCard can extend credit lines to people who might previously have been perceived as too risky. In other words, we're replacing a good safety net with a bunch of big, grinning loan sharks.

Here's where things get interesting: the people who will be most affected by the bankruptcy bill are those whose income is above the median in their state but who aren't fabulously wealthy. People who make more than the median low- and middle-income types have to file for Chapter 13, while those below it can still file for Chapter 7. Meanwhile, anyone who's making huge payments on houses or cars can deduct those payments from his or her income. So if you own a lot of big-ticket items, under the new bill it's very likely you'll qualify to file for bankruptcy under Chapter 7. The people who get needled are the middle and lower-middle class, precisely the group whose members have the skills for the jobs that recently got outsourced to China.

So what will we do with all those destitute middle-class people wandering around living in their cars because they had to file for bankruptcy under Chapter 13? We can't just let them fall off the grid, because then they'll never repay those credit card companies that wanted so badly to pass the bill in the first place.

So my idea is that, with the help of a Republican Congress, tech outsourcing and credit card companies could create some pretty interesting partnerships in this not-so-distant future of debt-riddled, desperate professionals. First, Visa could set up a series of debtors' prisons to keep those Chapter 13 zombies corralled while they work their way out of bankruptcy. And then Silicon Valley companies could make deals with Visa for cheap IT drones. Tech giants would outsource a bunch of their quality assurance to the debtors, give Visa some kickbacks (which, of course, wouldn't be credited toward the workers' debts), and generously allow their captives to work at substandard wages in order to climb never-endingly out of bankruptcy. It's a perfect system.

And that, kids, is how we'll rescue the tech economy from foreign takeover. With the help of the credit industry, we can outsource to our own poor."

And rather more insightful

"Big companies have outsourced manufacturing and services, and soon they'll be able to outsource consumption too.

India and China have a combined population of roughly 2.3 billion. The US is a little under 300 million. So even if only 6% each of India and China become middle class, they will easily be able to replace the US as a consumer "global engine of growth." Actually, the true necessary figure is probably even smaller, say 3-4%, because not everyone in the US is middle class, by a long shot.

Let's think this through for a moment. India and China are already replacing the US in terms of manufacturing and services. But the world still needs the US consumer, right? Well, for the moment. But what happens when there is no more lending from China and Japan to fuel US credit buying, and no more job prospects because all the work is in India and China? The bottom will fall out of the US dollar and the currencies of India and China will explode in value. At that point, even if only 6% of India and China is able to afford Nikes and Sony Walkmen and TV sets, with their newly valuable currency, it will be enough to keep the bottom lines fat in big multinational companies.

Just as the US worker was dropped in the 80s and 90s, so too the bloated, maxed-out US/Western consumer will eventually be obsolete.

But what about the massive poverty, the social horror, the beggars in the streets in India and China? The short answer is, so what? These people have been squatting in loincloths near the Ganges for thousands of years and they can continue to squat there for thousands more. All these countries need is that magic 3%-6% living in modest middle-class conditions to keep global capitalism humming. The other 94% can go to hell, or more accurately, stay there, where they already are. There will be no need to deal with the massive poverty, except maybe to hire some of the poor to shoot the other poor when they get too close to gated communities in Bangalore. And those gated communities are already being built. The change is almost upon us."

04-04-2005, 09:21 PM
(1) student loans already survive bankruptcy anyway -- if we want to portray young professionals as struggling debtors -- they're not the most sympathetic political class -- but who knows, maybe yuppies mired in debt will lead the country leftward

(2) but seriously, there will be no going leftward b/c once the dollar crashes the country will become nakedly imperialistic -- (a) u.s. will repudiate debts and no other country will be able to do a damn thing about it unless they're prepared to fight a war -- and repudiation of debts on such a massive scale will amount to flushing the toilet on the entire world economic system, i.e., hard to envision what things will even look like once we come out on the other side, though certainly u.s. will still be a bad spot due to lack of capital investment in real processes of manufacturing in this country -- and will there even be capital to invest once the crisis is over? -- will there even be anything like the current world system? -- and (b) a resource war in central asia b/w china & u.s. seems inevitable at some point

of course i'm prone to imaging doomsday scenarios as i frankly understand nothing about economics

05-04-2005, 12:25 AM
Just as the US worker was dropped in the 80s and 90s, so too the bloated, maxed-out US/Western consumer will eventually be obsolete.

of course no one is going to lament the passing of "the bloated, maxed-out US/Western consumer"

even so it's staggering the contempt that US elites have for their fellow citizens

yeah we all hate americans, i.e., not only do americans based in nyc and sf hate the rest of america = the so-called elites that the pseudo-populist republican party rails against = we're not actually elites, we're just a tad more sophisticated -- barbarians savvy to the nature of the game

but the capitalist elite despises americans -- they've sold the entire country down the river, moved all production to other countries, first manufacturing, now customer service, now engineering, now computer programming -- this is the same capitalist elite that bankrolls both major political parties

and yet at the end of the day, is anyone going to mourn the demise of "the bloated, maxed-out US consumer"

i omitted "western" from the quotation b/c even though germany has much higher rate of unemployment, it makes all the difference that in germany corporate management owes a fudiciary duty to workers and employees -- whereas under american law the only duty owed is to shareholders

thus germany still has a manufacturing base, still makes products that the rest of the world wants to buy

america's only competitive exports are hollywood movies and hip hop -- and we'll see how much longer these retain their market share

07-04-2005, 06:06 PM
of course i'm prone to imaging doomsday scenarios as i frankly understand nothing about economics

I wouldn't worry about it, I don't think anyone understands economics. I see doomsday scenaries all the time too. Check out a couple website that I read regularly that deal with this: