Letter: ‘The only person hurt is the little guy’
I have a point to make about what I am seeing in corporate America and its effect on the middle class. Please let me tell it in story form.
Imagine you’re in a 1980s corporate boardroom, where a heated discussion is taking place over retirement plans and how to replace employer-managed pensions with employee-owned (and funded) savings.
"If we convince our employees that investing in stocks and mutual funds (401(k) IRAs) can generate much more money for their future than any company-owned retirement plan and we offer to match a small portion of their contributions, they’ll bite," one says. "We could even contract out the administration of it and save more!" yelps another, and bang, corporate America’s retirement system has changed.
One naïve executive (comic relief) states, "our employees have helped us make this company what it is. Stocks can be very unsafe, what about our loyalty to them and their futures?" "I don’t believe in loyalty. We pay them to do what they are told." (I heard this once from my boss, an Army reserve major!)
Mr. Mc (middle class), a valued and loyal employee (his appraisal said so), in a few years will look at climbing stock numbers on TV and believe his future is secure. He thinks "past performance is not an indicator of the future" is nothing but a slogan in ads.
Meantime, in the present, we go global, destroying old economic laws like supply and demand or the connections between a stock’s value and a company’s worth. Laws of supply and demand no longer contain equations like a high demand here creates high employment here. Demand is met cheaply overseas and companies with massive amounts of liquid assets created at our expense earn billions on their investments, rather than hiring or expanding.
This yields pay for CEOs often three or four hundred times that of their employees. Mr. Mc’s pension expands also, right? Wrong. While CEOs’ pay rocketed and corporate earnings hit new highs, Mr. Mc’s pension is funded by deflated stocks, losing value like a leaky tire loses air. Funny thing, when liquid assets (cash) are high and borrowing is cheap, the need to raise capital through stock is low. If 2003 was named the jobless recovery (not my words), then 2011 must be the profit-taking recession for corporate America. It seems the only person hurt is the little guy.
Does this have the makings of a thriller or even a conspiracy movie? I think so. Will Mc and you recover? Turn on the news; we will all eventually see how this ends.