(This photo from the Business Insider is by Justin Sullivan.)It is a sad fact that most CEO's and investors can't see past what the market will do this week or this month, and this short-term view is causing disastrous results for the economy as a whole. That's because they have convinced the Republicans in Congress to continue policies that, while it enhances the short-term enrichment of the rich and corporations, damages the economy -- causing huge unemployment, a shrinking middle class, and falling wages.
But there are a few of those business leaders that are able to see the truth about the damage being done. One of those is Warren Buffett, who has been calling for fairer tax and economic policies for a while. Now it looks like he is being joined by another business leader -- Google chairman Eric Schmidt (pictured).
Recently, Mr. Schmidt gave Henry Blodget of the Business Insider an interview, and he had some very interesting comments. These comments show he is beginning to come to grips with economic reality. Mr. Schmidt said:
The stagnation in middle-class wages is not just a middle-class problem. It's an economic problem. And it's one of the main reasons that global economic growth is so lousy.
Why do stagnant middle-class wages hurt the economy?
Because the middle-class folks whose wages are stagnant are the global economy's biggest spenders.
And when they don't have money to spend, their lack of spending hurts not just them but all the companies that depend on them for revenue. Put differently, one company's expenses (wages) are another company's revenues. So, collectively, when companies are cutting wages, they're also cutting their own future revenue growth. Right now, companies are so focused on cutting wages — by paying their employees as little as possible and replacing them with technology whenever possible — that wages as a percent of the economy are now near an all-time low. And this weakness in wages is the big reason demand in the economy is so weak. Very few corporate executives and investors seem to understand this. Instead, they act like it's a law of economics that they have to pay their employees as little as possible, so they can "maximize profit." And, in the process, they hobble the economy.
He is absolutely right. It is the middle class that drives the economy. Middle class spending decides whether there will be job creation or job layoffs. And a shrinking middle class with stagnant or falling wages can only hurt the economy.
The Republican policy of funneling more to the rich while ignoring the middle and working classes is misguided, and it hurts the economy -- keeping it from a true recovery. We must toss out that failed policy, and go to one (like we had before) where the middle and working classes also get to share in rising productivity. It would not only be fairer, but it is the path to a healthy and thriving economy -- an economy that would benefit everyone, including the rich and the corporations.
