Companies like Walmart and McDonalds's have made their investors rich by squeezing
costs and holding down prices. But it turns out that low costs means low wages,
and as this model spread it contributed to the now-impossible-to-ignore migration
of income and wealth from workers to owners of the capital and symbol manipulation
skills that such a system demands.
Now these internal contradictions have come home to roost. Workers who were
squeezed down to bare subsistence can't afford to buy what American companies
are selling. But they can demand a bigger piece of the pie via the ballot box
and direct action. In May, for instance, McDonald's headquarters was swamped
by protesters demanding $15/hour starting pay.
And raising the minimum wage in general has become a political winner. Here's
the current administration's
take on the subject:
In the 2014 State of the Union address, President Obama called again on
Congress to raise the national minimum wage, and soon after signed an Executive
Order to raise the minimum wage for the individuals working on new federal
service contracts.
Raising the minimum wage nationwide will increase earnings for millions
of workers, and boost the bottom lines of businesses across the country.
While Republicans in Congress continue to block the President's proposal,
a number of state legislatures and governors, mayors and city councils, and
business owners have answered the President's call and raised wages for their
residents and employees.
Meanwhile, forcing the 1% to share the wealth via higher
taxes is back in vogue. In the most recent democrat party presidential
debate, everyone on the stage promised new social programs to be financed
by making the rich "pay their fair share."
Broadly speaking, this is normal and natural. Resources are limited and there
will always be give and take over who gets what. It's also poetic justice.
The corporate/political class ignored the obligations that come with aristocracy
and is now paying the inevitable price. Markets,over long periods of time,
work these things out.
But in the near term, anyone buying US equities based on the hope that the
past decade's surge in corporate profitability will continue is in for a shock.
If workers are going to get higher wages, then the rest of the pie -- comprising
corporate earnings -- is by definition going to shrink, leaving less for shareholders.
Walmart's
recent massive earnings miss is, then, a sign of things to come rather
than a company-specific hiccup. The following chart (compiled by friend and
DollarCollapse reader Michael Pollaro) shows US business sales (red line)
already falling towards recession levels. Combine this ongoing trend with
sharply-narrower profit margins as wage costs rise, and the result will be
a few years of consistent earnings disappointment. Not the kind of thing
that fuels a bull market.
