Economics 101: "The Top" and "The Rest"
by Jonathan Gregg

In a recent article on Businessweek.com, a piece titled “The Jobs Report, What Weakness?” has this spiffy little tidbit: “The headline number on nonfarm payrolls rose 157,000 on the month, undershooting economists' median estimate of 175,000." Which is funny, because while my wife is always complaining that my memory is horrible and that if I ask her where my socks are one more time…

In the drawer…where they ALWAYS are dear!

… it’s not so horrible that I didn’t vaguely remember hearing something like this before. So I went to my favorite handy dandy little search engine, Google…

wonderful search engine by the way, but with a stock price at 200 times earning…well, that’s a different rant

… and went looking for past headlines. Here’s what I found in a December 2003 piece on the Council of Development Finance Agencies website: “A month of tepid job growth has economists surprised, puzzled and looking for a villain.” If you look back at 2002, economists were shocked, absolutely shocked, that once again the ”job numbers” weren’t up to their expectations.

Here’s a news flash fellas: you have been wrong for three stinking years now, it’s time to revisit the model!

And, to make things even more fun, not only has job growth barely kept pace with population growth during the third year of our “recovery”, but wage growth also hasn’t kept pace with inflation, at 2.7% and 3.5% respectively.

On the other hand, top MBA programs reported pretty decent employment numbers for 2004; for example, the University of Pennsylvania’s Wharton school saw placement of 90% and 6% salary growth at graduation. And, lest we future MBAs “despair” at those numbers (after all, how dare they not include the moon and the stars!), my informal conversations with current students show that they think the early signs of favorable job opportunities are positive this year. Even during the ‘dark days', otherwise referred to as 2002-2003, the top schools often saw placement numbers in the high 70% or better at graduation. This placement percentage increased significantly within three months after graduation.

Executive pay has also been holding up quite nicely, with Forbes calculating that the average Fortune 500 CEOs total compensation has been revealing an 8% increase. As an added bonus to healthy pay increases, CEOs almost never get “fired” unless they do something criminal. Instead, they merely “retire”, with all the sweet compensation that goes along with that. What factory worker in Detroit wouldn’t kill for that deal!

Further illustrating this split between “the top” and “the rest”, Nordstrom had a rocking Christmas, while Wal-Mart had to issue an earning warning. Now, I don’t know about you, but I’m guessing that “the top” mainly shop at places like Nordstrom, while “the rest” frequent Wal-Mart.

"So Why Should We Give A Flip?"

As a prospective MBA applicant who is weighing his choice of schools, one might expect that I would be just fine with this situation, after all, “my” segment of the economy seems to be holding up quite well...but I’m not. The reason is, there’s no “my” economy, no “my” jobs market, it’s all interconnected.

Even if the top of the jobs market holds up, “the rest” are going to get restless, because just like me, they have a wife who loves to get “pretty things”, or husbands who like boy toys, and little ones who are enamored with the latest Furby/Barney/Sponge Bob/maybe this whole economy going to crap thing really isn’t that bad if it means I don’t have to sing “pineapple under the sea” anymore!

And dear reader, what happens in a democracy when "the many" get pissed enough at "the few"? You got it- the few don’t stand a chance. And, I don’t know about you, but I really don’t enjoy the prospect of dropping 100k on my education just to see most of the “R” in my ROI get taxed away by a return to 75%+ marginal tax rates. So it’s in everybody’s interest, and especially those at the top, to make sure that the majority don’t get too pissed.

To do that they need to ensure that things don’t get too unequal and that those at the lower end of the socioeconomic ladder have a realistic hope to gain the skills and access needed to move up. That latter point is especially important as people are willing to put up with a surprising amount of inequity if they believe they have a legit chance to work hard and make it to the top. We don’t need socialism; we just need to ensure that there are enough rungs at the bottom of the ladder that folks won’t want to “get the rich” because they believe they might be “the rich” some day! And, funny thing is, economies do especially well when lots of people are motivated and working hard to move up, and not so well when they have given up hope and have lost that spark.

"So, how do we solve this problem, Mr. Gregg?"

Well, “the top” needs to invest in “the rest”. Not only for their own good (though that is a noble cause), but also to increase our own economic well-being. We need to fund real schools with motivated, accountable teachers working for enough pay so that the best and brightest are attracted to the field. We also need to provide more support for those that are working to better themselves. It’s absolutely asinine that we can afford to pay farmers to destroy crops, but we can’t afford to help a single mother trying to go to school to learn valuable skills and better her own life and provide a future for her kids. After all, one of the best predictors of economic success is one's level of education; and a good predictor of what level of education one will attain is what level one's parents attained. By simply providing support, the economy at large would get a boost from a more productive worker, and the government (and the more "well off" that paid the most taxes) would see an immediate ROI through the mother’s higher taxes, as well as potentially higher revenue when her child gets a better job from his increased education.

By implementing this, we will be able to support the bulk of the population; the unfortunate who have yet to make it to the “top”. They will have access to the skills they need to get the “good” jobs, and therefore will be motivated to work hard towards a better life. In doing so, the majority will stimulate economic activity by paying more taxes and providing opportunities for those at “the top” to get filthy stinking rich.

And believe me, after my wife got her new jewelry catalog, I NEED to be filthy stinking rich!

We are all dependant on each other, and if we don’t all help each other grow, we will eventually pull each other down.

Comments