What happens when we accept only half-truths in economic cycles? Unless we are honest enough to make small timely adjustments based on honest economics, this saga will be repeated.
I wouldn’t say the average American guy is responsible for this predicament, because not everybody is an economist.
But, the wrong and opportunistic definitions of the economic cycle are.
There are two steps to this “wage” cycle: We are enthusiastic about its first leg. But, we conveniently and purposely ignore its second leg.
The CEO culture in this country also don’t want us to think about it, because they want to maintain their unrealistic, luxurious lifestyles, whatever happens to the nation. By conveniently closing our eyes during the second part of the cycles in the past, we also indirectly and unknowingly helped such antisocial people.
1. THE UPTURN IN THE ECONOMIC CYCLE: THE WAGES HAVE TO INCREASE TO KEEP PACE OF THE COST OF LIVING
No wonder we are all for it. Who wouldn’t like more money in hands? And, it is justified due to increasing costs that have become part of the cycle.
2. THE DOWNTURN IN THE ECONOMIC CYCLE: THE WAGES IDEALLY WOULD HAVE TO DECREASE TO KEEP PACE WITH THE FALLING COST OF LIVING
Nobody wants to talk about this, read about this or know about this because we fear that once reduced, the wages won’t come back.
LET US IMAGINE IT WORKS ONLY IN UTOPIA, DISTANCE OURSELVES FROM IT AND HAVE AN IMPARTIAL LOOK AT WHAT IS HAPPENING:
In economic downfall, the employer also is equally affected. But if the wages remain the same, he cannot maintain profitability as his profits also shrink in dollar terms. Remember there are few takers for his goods and services too.
So he fires his employees to keep afloat – something not good in the long-term as productivity and production decrease, which may not return when the upturn in economy starts. Most of the time the business also disappears with a “For Rent’ notice hanging in front of the premises one fine morning.
Hats off to some of the union leaders in NY who asked their members to agree for a wage-cut so that their fellow members can remain in jobs.
Same to the only one employer in whole USA, again in NY, who said he won’t be firing his employees but will be opting for lower salaries, starting with himself.
WHAT ARE THE ADVANTAGES OF ACCEPTING LOWER SALARIES (THAT INCLUDES CEO SALARIES) DURING DOWNTURNS?
1.Jobs won’t disappear.
2.Lower wages (actually no additional frills to the base salary) means lower spending, “ALL” businesses automatically have to lower their prices.
3. Businesses are able to survive the bad periods without fatal injuries.
4. An earlier return of the boom cycle and corresponding increase to wages.
It all depends on our honesty to learn economic truths and follow them. We can listen to Democrats, Republicans or anybody in between and find zillion excuses.
But refusing to accept realities and make small adjustments which would have cost only 1% or less have landed us in a bigger mess each time and finally into recession and 100% loss.
BUT IT ALL DEPENDS ON A HONEST GOVERNMENT TOO.
Agreed, it cannot work if America continues to elect dishonest people to seats of government. Bush administration purposely messed up vital economic data from Hurricane Katrina onwards. That added to our miseries already caused by foreign wars instigated by foreign infiltrators in our government agencies.
LET US IMAGINE WE HAVE A HONEST GOVERNMENT.
It is assumed that every job has a base salary as agreed by the employee and employer – justifiable for a comfortable living. No, I am not talking about the booty collected by Wall Street’s felons and robbers. Nor I am talking about the pittance being doled out in foreign factories.
The honest government publishes cost of living statistics.
So, if cost of living goes up by 0.5% the base wages also go up by 0.5%. This is already being done.
But, if cost of living goes down by 0.5% the base wages also goes down by 0.5%. This is not being followed.
Instead, both the employer and the employee equally thinks firing and job losses are the normal response to economic cycle. It need not be, if both are honest to themselves.
(I agree that first participants in the first down cycle will suffer a loss. So this kind of exercise will be ideally started in the plateau between downward and upward parts of the cycle. At any rate, anything that wards off a jobloss is theoretically acceptable.)
And when salaries don’t go down with the economic downturn, the businesses refuse to bring down their prices on goods and services, claiming the people can afford to pay for it. But nobody realizes that it is an artificial affordability and that carpet is being drawn away under their own feet.
Such artificial propping up of wages does not mean that economy is not going to take the downward dip.
The employer may have recourse to foreign manufacturers and service providers. But, that only destroys our jobs and manufacturing base permanently.
SO, IT ALL BOILS DOWN TO HONESTY
1. Honesty on the part of the government to publish the correct economic statistics.
2. Honesty on the part of the employers to accept justifiable salaries for themselves and to give additional wage increases to employees’ base salaries according to the percentage the government calculated – during periods of economic booms.
3. Honesty on the part of the employees to agree to forego a small percentage of such additions when the government’s data shows falling costs – during periods of economic downturns.
4. Honesty on our part to plan our lives around a BASE SALARY which is assured so that periodic increases and decreases outside the base salary won’t affect us in any way and job losses won’t be necessary.
5. Honesty on the part of ALL businesses to price products and services based on economic realities rather than adamantly stick on to “it is always boom” surrealism.
6. Honesty of all of us in building reserves in good times to tide over bad times without serious damages or family break-ups.
– Spouses have a very important role in this decision-making, so that head of the household can divert a part of the income to reserves in good times.
– Except for some patroleum companies, very few companies in USA build up reserves for future uncertainties.
Family breakups and company bankruptcies help only a few professionals who make money out of it.
It is a just a question of:
gaining maximum +0.5% during some quarter years and losing maximum -0.5% in others on the one hand (base salary remaining the same)
being thrown on the street one fine morning losing almost everything on the other hand.
The first option is not difficult because we are already practicing the first leg of it. The second leg won’t be difficult once we start practising it.
DO NOT MISTAKE THE WORDS “base salary”: It is not equivalent to the low salaries in foreign countries. We cannot subsist on $100 per month. Nor does it mean equal salary for all jobs or the the federal minmum wages. Base salary is assumed to be decent salary based on American standards for each job category. It never varies after the first full cycle except when it is updated periodically to keep pace with time and economy.