Tag Archives: business

Modern Living Showhouse (Prefab) by pieceHOUSE

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pieceHomes teamed up with Ecofabulous and sustainable prefab builder, OneBuild, to create a modern dweller’s 520 sq. ft. eco-friendly dream home that was on display at the 2011 Dwell on Design Convention in Los Angeles

“The Modern Living Showhouse is a fantastic, innovative example of a highly-functional, beautiful, and affordable execution of residential design using reclaimed and sustainable materials. This is what happens when creativity and good design work together for the greater good of the environment.”Michela O’Connor Abrams President & Publisher, Dwell Magazine

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Crisis of the Middle Class and American Power

Original Main Content of this Article By George Friedman

Founder and Chief Executive Officer Stratfor, a firm that is a leader in the field of global geopolitical intelligence.

Modifications, adaptations, and additions by Faustian urGe are italicized


Last week I wrote about the crisis of unemployment in Europe. I received a great deal of feedback, with Europeans agreeing that this is the core problem and Americans arguing that the United States has the same problem, asserting that U.S. unemployment is twice as high as the government’s official unemployment rate. My counterargument is that unemployment in the United States is not a problem in the same sense that it is in Europe because it does not pose a geopolitical threat. The United States does not face political disintegration from unemployment, whatever the number is. Europe might.

At the same time, I would agree that the United States faces a potentially significant but longer-term geopolitical problem deriving from economic trends. The threat to the United States is the persistent decline in the middle class’ standard of living, a problem that is reshaping the social order that has been in place since World War II and that, if it continues, poses a threat to American power.

The Crisis of the American Middle Class

The median household income of Americans in 2011 was $49,103. Adjusted for inflation, the median income is just below what it was in 1989 and is $4,000 less than it was in 2000. Take-home income is a bit less than $40,000 when Social Security and state and federal taxes are included. That means a monthly income, per household, of about $3,300. It is urgent to bear in mind that half of all American households earn less than this. It is also vital to consider not the difference between 1990 and 2011, but the difference between the 1950s and 1960s and the 21st century. This is where the difference in the meaning of middle class becomes most apparent.

In the 1950s and 1960s, the median income allowed you to live with a single earner — normally the husband, with the wife typically working as homemaker — and roughly three children. It permitted the purchase of modest tract housing, one late model car and an older one. It allowed a driving vacation somewhere and, with care, some savings as well. I know this because my family was lower-middle class, and this is how we lived, and I know many others in my generation who had the same background. It was not an easy life and many luxuries were denied us, but it wasn’t a bad life at all.

Someone earning the median income today might just pull this off, but it wouldn’t be easy. Assuming that he did not have college loans to pay off but did have two car loans to pay totaling $700 a month, and that he could buy food, clothing and cover his utilities for $1,200 a month, he would have $1,400 a month for mortgage, real estate taxes and insurance, plus some funds for fixing the air conditioner and dishwasher. At a 5 percent mortgage rate, that would allow him to buy a house in the $200,000 range. He would get a refund back on his taxes from deductions but that would go to pay credit card bills he had from Christmas presents and emergencies. It could be done, but not easily and with great difficulty in major metropolitan areas. And if his employer didn’t cover health insurance, that $4,000-5,000 for three or four people would severely limit his expenses. And of course, he would have to have $20,000-40,000 for a down payment and cl osing costs on his home. There would be little else left over for a week at the seashore with the kids.

And this is for the median. Those below him — half of all households — would be shut out of what is considered middle-class life, with the house, the car and the other associated amenities. Those amenities shift upward on the scale for people with at least $70,000 in income. The basics might be available at the median level, given favorable individual circumstance, but below that life becomes surprisingly meager, even in the range of the middle class and certainly what used to be called the lower-middle class.

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The Expectation of Upward Mobility

I should pause and mention that this was one of the fundamental causes of the 2007-2008 subprime lending crisis. People below the median took out loans with deferred interest with the expectation that their incomes would continue the rise that was traditional since World War II. The caricature of the borrower as irresponsible misses the point. The expectation of rising real incomes was built into the American culture, and many assumed based on that that the rise would resume in five years. When it didn’t they were trapped, but given history, they were not making an irresponsible assumption.

American history was always filled with the assumption that upward mobility was possible. The Midwest and West opened land that could be exploited, and the massive industrialization in the late 19th and early 20th centuries opened opportunities. There was a systemic expectation of upward mobility built into American culture and reality.

The Great Depression was a shock to the system, and it wasn’t solved by the New Deal, nor even by World War II alone. The next drive for upward mobility came from post-war programs for veterans, of whom there were more than 10 million. These programs were instrumental in creating post-industrial America, by creating a class of suburban professionals. There were three programs that were critical:

1.    The GI Bill, which allowed veterans to go to college after the war, becoming professionals frequently several notches above their parents.

2.     The part of the GI Bill that provided federally guaranteed mortgages to veterans, allowing low and no down payment mortgages and low interest rates to graduates of publicly funded universities.

3.    The federally funded Interstate Highway System, which made access to land close to but outside of cities easier, enabling both the dispersal of populations on inexpensive land (which made single-family houses possible) and, later, the dispersal of business to the suburbs.

There were undoubtedly many other things that contributed to this, but these three not only reshaped America but also created a new dimension to the upward mobility that was built into American life from the beginning. Moreover, these programs were all directed toward veterans, to whom it was acknowledged a debt was due, or were created for military reasons (the Interstate Highway System was funded to enable the rapid movement of troops from coast to coast, which during World War II was found to be impossible). As a result, there was consensus around the moral propriety of the programs.

The subprime fiasco was rooted in the failure to understand that the foundations of middle class life were not under temporary pressure but something more fundamental. Where a single earner could support a middle class family in the generation after World War II, it now took at least two earners. That meant that the rise of the double-income family corresponded with the decline of the middle class. The lower you go on the income scale, the more likely you are to be a single mother. That shift away from social pressure for two parent homes was certainly part of the decline in family incomes.

Income stagnation among the middle class and the resulting inequality of distribution are not mere effects of the current crisis. They play an immediate role affecting both patterns of demand and incentives to compensate (for income stagnation and inequality of income distribution) through debt financing. We need a more focused and urgent effort to explore the policy drivers behind the deindustrialization and labor market changes in the US since the 1970s that *are* the principal causes of our current unfortunate circumstances/crisis.

Re-engineering the Corporation

But there was, I think, the crisis of the modern corporation. Corporations provided long-term employment to the middle class. It was not unusual to spend your entire life working for one. Working for a corporation, you received yearly pay increases, either as a union or non-union worker. The middle class had both job security and rising income, along with retirement and other benefits. Over the course of time, the culture of the corporation diverged from the realities, as corporate productivity lagged behind costs and the corporations became more and more dysfunctional and ultimately unsupportable. In addition, the corporations ceased focusing on doing one thing well and instead became conglomerates, with a management frequently unable to keep up with the complexity of multiple lines of business.

For these and many other reasons, the corporation became increasingly inefficient, and in the terms of the 1980s, they had to be re-engineered — which meant taken apart, pared down, refined and refocused. And the re-engineering of the corporation, designed to make them agile, meant that there was a permanent revolution in business. Everything was being reinvented. Huge amounts of money, managed by people whose specialty was re-engineering companies, were deployed. The choice was between total failure and radical change. From the point of view of the individual worker, this frequently meant the same thing: unemployment. From the view of the economy, it meant the creation of value whether through breaking up companies, closing some of them or sending jobs overseas. It was designed to increase the total efficiency, and it worked for the most part.

This is where the disjuncture occurred. From the point of view of the investor, they had saved the corporation from total meltdown by redesigning it. From the point of view of the workers, some retained the jobs that they would have lost, while others lost the jobs they would have lost anyway. But the important thing is not the subjective bitterness of those who lost their jobs, but something more complex.

As the permanent corporate jobs declined, more people were starting over. Some of them were starting over every few years as the agile corporation grew more efficient and needed fewer employees. That meant that if they got new jobs it would not be at the munificent corporate pay rate but at near entry-level rates in the small companies that were now the growth engine. As these companies failed, were bought or shifted direction, they would lose their jobs and start over again. Wages didn’t rise for them and for long periods they might be unemployed, never to get a job again in their now obsolete fields, and certainly not working at a company for the next 20 years.

The restructuring of inefficient companies did create substantial value, but that value did not flow to the now laid-off workers. Some might flow to the remaining workers, but much of it went to the engineers who restructured the companies and the investors they represented.

Statistics reveal that, since 1947 (when the data was first compiled), corporate profits as a percentage of gross domestic product are now at their highest level, while wages as a percentage of GDP are now at their lowest level.


The problem from restoring profitability in the period of 1970’s to 1980’s was not a question of making the economy more efficient — restructuring did do that, as intended — the problem was a question of where the value from improved efficiencies accumulated. The upper segment of the wage curve and the investors continued to make money. The solid and large middle class fragmented into two: a segment that entered the upper-middle class, while another faction sank into the lower-middle class.

American society on the whole was never egalitarian. It always accepted that there would be substantial differences in wages and wealth. Indeed, progress was in some ways driven by a desire to emulate the wealthy. There was also the expectation that while others received far more, the entire wealth structure would rise in tandem. It was also understood that, because of skill or luck, others would lose.

What we are facing now is a structural shift, in which the middle class’ center, not because of laziness or stupidity, is shifting downward in terms of standard of living. It is a structural shift that is rooted in social change (the breakdown of the conventional family) and economic change (the decline of traditional corporations and the creation of corporate agility that places individual workers at a massive disadvantage).

The inherent crisis rests in an increasingly efficient economy and a population that can’t consume what is produced because it can’t afford the products. This has happened numerous times in history, but the United States, excepting the Great Depression, was the counterexample.

Obviously, this is a massive political debate, save that political debates identify problems without clarifying them. In political debates, someone must be blamed. In reality, these processes are beyond even the government’s ability to control. On one hand, the traditional corporation was beneficial to the workers until it collapsed under the burden of its costs. On the other hand, the efficiencies created threaten to undermine consumption by weakening the effective demand among half of society.

The Long-Term Threat

The greatest danger is one that will not be faced for decades but that is lurking out there. The United States was built on the assumption that a rising tide lifts all ships. That has not been the case for the past generation, and there is no indication that this socio-economic reality will change any time soon. That means that a core assumption is at risk. The problem is that social stability has been built around this assumption — not on the assumption that everyone is owed a living, but the assumption that on the whole, all benefit from growing productivity and efficiency.

If we move to a system where half of the country is either stagnant or losing ground while the other half is surging, the social fabric of the United States is at risk, and with it the massive global power the United States has accumulated. Other superpowers such as Britain or Rome did not have the idea of a perpetually improving condition of the middle class as a core value. The United States does. If it loses that, it loses one of the pillars of its geopolitical power.

The left would argue that the solution is for laws to transfer wealth from the rich to the middle class. That would increase consumption but, depending on the scope, would threaten the amount of capital available to investment by the transfer itself and by eliminating incentives to invest. You can’t invest what you don’t have, and you won’t accept the risk of investment if the payoff is transferred away from you. The take away is that “reasonableness” must prevail as to the extent, but transfers of wealth should ensue as a part of the solution.

The agility of the American corporation is critical. The right will argue that allowing the free market to function will fix the problem. The free market doesn’t guarantee social outcomes, merely economic ones. In other words, it may give more efficiency on the whole and grow the economy as a whole, but by itself it doesn’t guarantee how wealth is distributed. The left cannot be indifferent to the historical consequences of extreme redistribution of wealth — Correct! So, let’s avoid the extreme redistribution and focus on finding the correct amount that ameliorates the problem at hand (which will improve sales and garner more aggregate profit) while retaining enough incentives to invest and risk take. The right cannot be indifferent to the political consequences of a middle-class life undermined, nor can it be indifferent to half the population’s inability to buy the products and services that businesses sell.

The most significant actions made by governments can sometimes tend to be unintentional. The GI Bill was designed to limit unemployment among returning serviceman; it inadvertently created a professional class of college graduates. The VA loan was designed to stimulate the construction industry; it created the basis for suburban home ownership. The Interstate Highway System was meant to move troops rapidly in the event of war; it created a new pattern of land use that was suburbia.

The most significant actions made by management and investors (the Free-Market Private Sector) can also tend to be unintentional or, too often, just simply not a matter of consideration or concern. Restructuring of American companies was designed to improve efficiencies and available profits; it inadvertently created untethered workers, the loss of a solid middle class, and reduced expectations to the promise of the American Dream.

It is unclear how the private sector can deal with the problem of pressure on the middle class. Government programs frequently fail to fulfill even minimal intentions while squandering scarce resources. The United States has been a fortunate country, with solutions frequently emerging in unexpected ways.

It would seem to me that unless the United States gets lucky again, its global dominance and domestic social peace/fairness are in jeopardy. Considering its history, the United States can expect to get lucky again, but it usually gets lucky when it is frightened. And at this point it isn’t frightened but angry, believing that if only its own solutions were employed, this problem and all others would go away. I am arguing that the conventional solutions offered by all sides do not yet grasp the magnitude of the problem — that the foundation of American society is at risk — and therefore all sides are content to repeat what has been said before.

People who are smarter and luckier than I am will have to craft the solution. I am simply pointing out the potential consequences of the problem and the inadequacy of all the ideas I have seen so far.


STARCKphan Website Launches Visual Encyclopedia Of Philippe Starck Designs

Faustian urGe Introduces A New Website — STARCKphan — To Satisfy An urGe To Share The Design World of Philippe Starck

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Faustian urGe has for years intermixed a passion for design along with political rants, socio-political analysis, and opinions. While this urGe has led to several postings about Philippe Starck designs for yachts and a few other assorted creations, it has always been a desire to present the full gamut of Starck’s talents and design ventures to readers. The problem has been that such a compendium is much too large for a blog post, or even dozens of blog posts! The solution? A new website devoted entirely to sharing the library of Philippe Stark’s design history.

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STARCKphan,” where you may explore a visual encyclopedia of design projects and efforts by today’s foremost+famous+infamous+renowned+vilified designer+architect+intellect: Philippe Starck. I say that I am a Philippe Starck fan who appreciates his work and agrees with his politics. My friends say I am brainwashed and/or obsessed. Perhaps it’s all true. Either way, my goal with this site is to provide a visual repository of Starck’s work.

Starck’s designs are innovative, sexy, playful, stimulating, provocative, fun, compelling, daring, and sometimes surrealistic — to me, everything great design should be about. I did not always subscribe to this position. Once-upon-a-time my design ethic was cold and logical… or rather, rational design. Modernism and brutalism were my comfort styles. That is… until… I experienced Starck’s designs through his original design for the Royalton Hotel In NYC. Through Starck’s work, I came to appreciate the design additions of emotion+intelligence+playfulness+humor. Life for me has gratefully never been viewed the same since then.

Design — all of it: good, bad, indifferent, plebeian, generic, crass, etc — defines the context of our lives. It is the visual stage upon which we all exist, even if not consciously aware of the fact. Design reflects our priorities as individuals and as a people. For me, I appreciate the exciting stimulation along with an inherent acknowledgment of responsibility for the world’s well-being that Starck employs.



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Transmission Problems With The Economic Engine Of Prosperity For All

Several decades ago, as I completed earning a university degree in Economics, I contributed to a white paper for the White House and detailed in several newspapers the fact that U.S. living standards were only being maintained because most households had two earners, and I lamented this fact signaled the decline of America’s ability to provide generation after generation with a steadily improving life — that it signaled a sputtering in the economic engine of progress.

Back then, I believed that a monetarist policy at the Fed combined with a supply-side policy instituted by the Reagan administration would be just the right formula to clean out the engine valves and boost the octane fueling the economic engine.

Now, in the second decade of the twenty-first century, it requires well more than two earners working to equal the wages of a one-income household of 40 years ago. In fact, wages have plummeted so low that a two-income household is now (on average) 15% poorer than a one-income household of 40 years ago.

Wages & Standards

With the year 2000 as a base, real wages peaked in 1970 at around $20/hour. The average worker today earns $8.50/hour — more than 57% less than real earnings in 1970. Moreover, as the average wage directly determines society’s standard of living, it may accurately be said that the average standard of living in the U.S. has plummeted by more than half over the last 40 years.

The green line shows average wages, discounted by inflation calculated with the same methodology for all 40 years, properly comparing any data over time… applying identical parameters to it each year.

Then, there is the blue line: showing wage data discounted by the “official” inflation rate. Why two inflation deflators? What’s the problem? The methodology used by government to calculate inflation in 1975 is different from the method used in 1985, which is different than the method utilized in 1995, which is different than the method of 2005.

Technology & Standards

To be certain, technology has improved such that the “standard” has shifted and provided a lifestyle unimaginable or unattainable in the past; i.e., today, nearly all persons of age have a personal cell phone and internet access (hence access to instant communications); access to music proliferates on numerous mobile devises (not just families able to afford large stereo systems, or further back, their own music chambers); and the list goes on.

As they say, though, all things are relative. And, thus, to say that one has access to “absolutely” more of something now, or to something that never previously existed, is not to say that they have access to more or better… relative to what their predecessors had relative to their own time. Standards change.

If the death rate from cancer devolved back to that from 1960, would it be correct to say that’s acceptable because even then it was better than the survival rate from the 18th century? Of course not. Standards improve, and if the average person in a period can’t maintain their relative position over time in that moving standard, then we have declined as a society. Here is where America rests today.

99 To The One

Back to the chart; inflation for the last 40 years has hidden the 57% collapse in the standard of living for the average person. Nonetheless, if you’re fortunate enough to be at or successful enough to have earned a place at the top of the income charts, the situation is significantly reversed in your favor. While average American workers have seen their wages plummet by 57% over the past 40 years, in just 15 years (1992-2007) the 400 wealthiest Americans saw their incomes rise by 700%.

Now we have the complete picture: wages crumbling steadily lower year after year, decade after decade for “The 99%,” while earnings skyrocket for “The One Percent.” Is that acceptable? I don’t know… is going back to the cancer death rates of 1960 acceptable to you because that’s still better than it was in 1700?

Transmission Problems

Suffice to say that even after our massive economic/financial collapse of 2007/2008, our economic engine is running strong as the economy has fully recovered… as an engine (output and profitability exceed the high before the collapse). However, as could be observed after recovery from the 2000/2001 recession, ours is no longer an engine of economic progress broadening prosperity. The problem it seems is with our transmission, as the power of the engine is not distributed to improve the standard of life for all — or even just the majority — of Americans.

To this point, the causes of our transmission problems are equally obvious in terms of categories, although the actual analysis of those causes is more complex and beyond a simple blog post.

1) Taxation repression. As has been noted in this Presidential runnup, Romney’s 15% income tax rate because he doesn’t “earn it” though work but through investing his funds in the right slot machines on Wall Street is inherently unjust and inequitable. Billionaires now maintain the largest fortunes in history — while ordinary people who “earn” their income have been turned into “the working poor” paying significantly higher tax rates than the slot machine winners on Wall Street.

2) Systemic/structural unemployment. Technology always eliminates jobs faster than it creates new opportunities. With time though, technology tends to offer up more and better jobs, historically, given a long enough time horizon to adjust to the technological leap. In the meanwhile, gaps and dislocations occur. Given contemporary, unceasing acceleration in technology, our economy is in effect “permanently” reducing jobs (and creating structural unemployment). Today, the technological change and productivity increase is nearly continual…along with job redundancies.

 In our past, we as a society offered up income support and training programs to assist in the transition. Most importantly and effectively, we dealt with this structural unemployment by shortening the work week every few decades…until our current time. The basic work week at the Dawn of the Industrial Revolution was 7 days a week, 12 hours a day — an 84-hour week. For 200 years, our government steadily shortened the work week to our current 5 days a week, 8 hours a day — a 40-hour week — and our society grew steadily more prosperous.

Refusal of our government to shorten the work week (which is really voters’ economic and historic memory lapse put into practice by the reps they elect) is a systematic path that maintains massive unemployment — the strongest downward driver of average wages. Voters support and reinforce this process with a mantra of less government and hopeful/naive belief in the sanctity and divination of unfettered “free markets.” I’ve read other columnists and economists in Europe refer to their own version of this mantra as “Merkel’s Economic Taliban.”

3) Oligopolies. It is elementary (meaning basic Econ 101) capitalist theory that monopolies and oligopolies are cancers to be prevented. By definition they are caustic and anti/non-competitive — they have absolutely no productive place in any capitalist economy. Yet today, the global economy is overwhelmingly enmeshed with gigantic, non/less-competitive oligopolistic entities…the revered multi-nationals. Diminishment of our societies is an inevitable result.

4) Indebtedness. Most Western governments are well past the Rubicon in indebtedness. Nonetheless, it makes no sense to completely hollow-out and starve economies with some form of Milton Friedman-Hayek/Mises Austrian Economics Austerity (as done in Greece and Spain and Italy) — only to end up with an even larger default in the end. Had bond vigilantes accepted a 50% haircut at the beginning of Greece’s debt-crisis, Greece’s economy would have remained intact, and they would have salvaged a larger share of their debt obligations (rather than the 75% default with which they ended). In the end, around the world, all sovereign debt bond holders will take a haircut. It’s a fact. Reality. OK. Build up reserves and get ready for it. Once done, we can implement a proper system of running surpluses in good years and deficits in economic down years…and we the people will have to accept that this is as it must be.

It is time to address and correct this tragedy of the collapse in our standard of living…time to address the transmission problems with the economic engine of prosperity for all.

Productivity, Profits & Wages — Two Charts That Tell The Story

Bush Vs. Obama: Employment & Public/Private Sector Payroll Jobs

Two graphs compare public and private sector job losses (or adds) for President George W. Bush’s first term (following the “dot-com” stock market bust), and for President Obama’s current term (following the housing bust and financial crisis).

Note: Many differences exist between the two periods. Though both followed the bursting of a bubble (stock and housing), the housing bust also led to a severe financial crisis. As Reinhart and Rogoff document, recoveries from financial crisis are usually extremely sluggish: “The Aftermath of Financial Crises“.

Click on graphs for larger images.

The first graph (above) shows the change in private sector payroll jobs from the beginning of Mr. Bush’s first term compared to Mr. Obama’s current term.

Obama – more recovery over shorter period.

The employment recovery during Mr. Bush’s first term was very sluggish. Notably, private sector employment was down 913,000 jobs at the end of W’s first term.

Recovery during Obama’s presidency has been sluggish, too. We are still down 247,000 private sector jobs from when Mr. Obama’s term started; though, significantly, this situation will likely turn positive in just a couple of months.

Obama will end his first term in office with more private sector jobs existing than when he took the oath. We then have to make up for the jobs lost at the end of W’s term.

A big difference between Mr. Bush’s first term and Mr. Obama’s term has been public sector employment (see second graph, above).

The public sector grew during Mr. Bush’s term (adding 900,000 government jobs), but the public sector has declined dramatically since Obama took office (less 590,000 government workers).

Let me make that clear: the free-marketeer anti-government conservative grew government payrolls dramatically during his first term… while the socialist/”communistic” pro-government liberal saw government payrolls shrink. Hummm…

It appears the public sector job losses are slowing, and it looks likely that the decline in public payrolls will probably end mid-year 2012.

So, if Republicans don’t screw it up, this year should see significant job growth overall, with most of it in private sector jobs and no more losses of public sector jobs.