News flash from Reuters:
‘Shares of Target Corp. tumbled 13.1% after the big-box retailer forecast a surprise drop in holiday quarter sales.’
While sales figures looked good for October, shoppers are having a hard time keeping up the pace. From Seeking Alpha:
‘Credit card balances rose by $38B during the quarter and 15% Y/Y, the largest boost in more than 20 years.’
Wages have been trailing inflation for 19 straight months. Diesel fuel — the stuff that powers our economy — is becoming scarce, with the average price at the pump up to US$5.35/gallon. Producer prices — as opposed to consumer prices — show a lot more inflation coming down the pike.
Retailers are wondering if Santa will come this year…
Our subject is the destruction of the US’s middle class. How? Why? Let’s look:
An incident from long ago…
Our first office in Baltimore was in a very down-at-the-heels neighbourhood. The building was a dump. But the city had offered to sell it to us for US$100.
As it turned out, we paid too much.
Not far away was the area known as ‘Lil’ Italy’, which was known for its good restaurants. It was also the safest part of the city; the Italians had baseball bats, and during the riots of 1968, for example, they stood guard. Nobody got hurt. No windows were broken in Lil’ Italy.
Between our office and Lil’ Italy was ‘housing projects’ — high rise horrors where ‘poor’ people lived. The area was so dangerous that even the cops locked their car doors when driving through.
One day, we decided to take the whole staff — about six people — to lunch in Lil’ Italy, which meant walking by ‘the projects’. While doing so, a police car suddenly pulled up.
‘What the hell do you think you’re doin’, said the cop, yelling through the open window. ‘You should know better. If anything happens to you, I’m going to call it a suicide.’
At least the Baltimore police still had a sense of humour back then.
But here is the backstory on ‘the projects’.
One of the on-going conflicts of modern public life takes place between the know-it-all elites…and the middle-class, ‘common’ man. The know-it-alls are typically better educated, more media savvy, able to stand on a platform and give blah-blah answers to questions they know nothing about.
‘Baltimore was like the maternity ward for the American row house’, explained a friend yesterday.
‘The row house was a great success…for the builders and for the families that lived in them. They didn’t take up much space…but they left people with space of their own…usually including a backyard where they could have a few vegetables, keep a few chickens…and have a backyard barbecue.
‘Then, along came the urban planners. They thought people — especially poor people — should live in high-rise tenements. So, in vast urban improvement campaigns, they tore down the row houses and put up big-box warrens for people to live in.’
How did that work out? Take a look. Here is what happened to the ‘projects’ near our office.
The Baltimore row house was where the middle class lived. The husband went to work in the factories and warehouses. The wife stayed at home…and scrubbed the white marble steps on the weekends. It was not a perfect set-up, but they were clean and safe…and what people wanted. And from the end of the Second World War to the 1970s…Baltimore’s middle class prospered. Wage earners sell their time, and time became more and more valuable.
But now, here in Charm City, the middle class has practically disappeared from the houses that once knew them. They’ve moved to the suburbs — largely to escape the crime and taxes of the city. The factories have mostly gone cold and silent too. In their places are high rise office towers, more or less emptied out in the COVID hysteria of 2020.
Elite planners always think they know best. Their victims? The middle class.
In business, they bring the latest business school BS. In government, they push whatever claptrap is trending in elite circles. And in the investment world…they pile on. Dotcoms…mortgage finance…ESG…cryptos — whatever the fad is, they’re on it, developing products that are sold to investors as the ‘next new thing’.
Thanks to their fake dollars — introduced in 1971 — real middle-class incomes peaked in 1975 and have been flat or falling ever since. Thanks to their wars — against drugs, poverty, Vietnam, Iraq, Afghanistan, Russia — thousands of middle-class young people have been killed, mutilated, or impoverished…and US$31 trillion was added to the national debt. And now, thanks to their inflation and energy policies, the American middle class may be doomed. Prices will rise. Incomes will lag even further. The poor will get more and more free stuff from the government. And the rich will find ways to protect their wealth…and even grow richer (when the Fed begins pumping out money again, they’ll be first in line to get it).
But the people in between…the millions of people who earn their money honestly…who bus and tote…who toil and spin…who schlep and sweat, what happens to them?
Middle-class Delenda Est
On Friday, we looked at how the Roman Empire destroyed its middle classes. War and inflation have always been the leading ways to ruin a country. Both hit the middle classes especially hard…and then, without a strong middle class, the country itself stumbles and falls.
You can see the phenomenon today in high-inflation countries. In Venezuela, the rich could dodge inflation with bank accounts in Miami. The poor had nothing to lose. But the middle class was almost wiped out.
In Argentina, the process is less dramatic. But there too, inflation is said to be approaching 100% per year. The rich are moving their money to safety (after so many years of financial crises, they know what to do). The poor rely on welfare payments (moving between dozens of confusing ‘plans’). And the middle class, where can they move? What can they do? They sell their time. What do they do when time becomes less valuable?
For The Daily Reckoning Australia