At Arm's Length - Financial Commentary about Money, Investing, and How It Affects the Average Investor

At Arm's Length: 09.04.05

Call it Coincidence

Call it coincidence. At almost the exact same time Hurricane Katrina was heading towards the history books with its pummeling of the gulf coast states, the Census Bureau was reporting that for the fifth straight year the poor have remained not only aggravatingly impoverished but have actually fallen further down the economic ladder. This was definitely in evidence as the parade of survivors in New Orleans and adjacent areas became a televised embodiment of those that have been left behind by this administrationšs polices.

Those policies are centered around tax cuts, ones that never had the desired effect of raising all economic boats while clearly benefiting wealthier Americans. To listen to the administration tell the story though, the outward signs of job growth has more than made up for any decline in compensation and benefits to the family class. The Census Bureaušs report does not offer opinions as to why these folks remained largely under paid and under insured but some conclusions can be drawn.

The recovery that so many claim is well under way is not on firm ground. From an economic standpoint, the end of the recession should have led to in increase in wages. Companies would have in a normal reocvery, begun to sense that the markets are growing stronger and as a result begin to ramp up production. That increased activity usually leads to the rehiring of workers to produce the goods that would normally be in demand. This, unfortunately, doesnšt happen all at once.

The lag time is usually predictable and expected. Except in this case. As business activity picked up, productivity was streamlined and it was held ever tighter by cost controls designed to increase in profits. So far so good. But rather than spend it on capital development, business hoarded the cash. The result of such short sighted policies is seen in large stock buybacks and oddly enough, in the claim that to move forward, the company must renege on its pension promises, health benefits and anything else that usually makes the employee a consumer.

The report noted that companies have actually moved in the opposite direction as the job market supposedly tightens. In 2000, 63.6% of the companies offered health insurance benefits to their employees. That number fell to 59.8%, which left 16% of the population with no coverage. Many of them can be seen wandering through the floodwaters, sitting on rooftops or are otherwise stranded.

The previous week's articles.

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