Last night, my wife told me a frustrating story about something which had happened during her day. She had called a medical office which had been sending invoices demanding payment for services rendered. On at least one previous occasion, Beth had asked if they had ‘run’ our secondary insurance, which usually takes care of any problem. Trust me, this is not an infrequent occurrence.
From her side of the story, the person on the other end of the telephone line was borderline belligerent, and, using Beth’s words, “seemed to being doing me a favor by taking my call.” The upshot of all of this unpleasantness was we didn’t end up owing the practice anything, as usual.
I completely commiserated with her. This sort of thing is painful for me. I mean, in a service driven economy, isn’t it strange how poor the service often seems to be?
As I have written in this newsletter in the past, my family jokes about how I always seem to receive the worst service. My meal is always the last one to arrive at the table in a restaurant, if it gets there at all. It is so bad, in fact, I ordinarily apologize to others for the poor service the table is about to endure due to my presence.
Unfortunately, this isn’t unique to restaurants. It happens pretty much everywhere and all the time. It used to really unnerve me how “something so simple can be so difficult.” However, I have been able to remain far more composed over the years in most situations. The key word there is most. I didn’t use the word ‘all’ for a reason.
This has a point.
Yesterday, in our Investment Committee meeting, we discussed the potential impact of tariffs and the Administration’s seemingly frantic behavior on the economy and future monetary policy. At some point, the conversation took a turn from purely short-term economics to longer-term societal issues.
It was an intellectually stimulating conversation.
Do you want to know why good service is so hard to find in our economy? It is due to the shrinking of the vaunted American middle-class. There, I have said it.
The Middle Class
Now, we have all heard the phrase “middle-class,” but what does that really mean? After all, by definition, the middle-class would be those in, well, the middle. The middle 3 income quintiles. The old 26th through 75th percentiles. Voila.
Officially, however, middle-class households are defined as those which have an income which is two-thirds to double the median household income in the United States.
- In 2023, this would have been households earning between $53,740 and $161,220. Obviously, that is quite the spread in absolute terms.
- According to Pew Research, in 1971, 61% of Americans lived in middle-income households.
- In 2023, the percentage had fallen to 51%.
Perhaps more importantly, in 1970, middle-income households accounted for 62% of the total income in the United States.
Conversely, in 2023, they only controlled 43%. By comparison, the numbers for upper-income households was 29% and 48% respectively.
Of course, the percent of Americans living in upper-income households has increased over time, almost by definition. On the flipside, the percent of Americans living in lower-income households has also risen slightly.
When you bundle up all of the data, you can come to the following the conclusion (which plenty of other data supports): in the United States, income is increasingly concentrated in fewer households, and the relative purchasing power of the middle-class has declined as a result.
How do you think the middle and lower-income households feel about this? That 19% of the population controls 48% of income? And that latter number seems to be increasing every year?
How do you think they perceive the American Dream? Attainable or fiction? If the latter, why would they care about how well they perform their duties at work? What would be the incentive? I mean, overall, as a group?
The American Dream
- 41% of respondents said it was once achievable but no longer is.
- Finally, the remaining 6%, real malcontents this lot, said it was never attainable.
Perhaps more frustratingly, only 39% of 18-29 year old’s and 43% of 30-49 year old’s felt that achieving the American Dream is still possible. Gang, that this the so-called future of the country, and they increasingly don’t believe in American exceptionalism and upward mobility.
Other surveys aren’t even as sanguine as these depressing numbers.
As a result, why do they really care about providing me with good service? With getting my order correct? Seriously. When I might represent, simply by looking at me, what they think is keeping them from attaining the American Dream?
In these instances, the powerless become the powerful. What difference does it make to them if my water glass sits empty for a while? If I get a small fry instead of a large one? That is if I get a fry at all! Or if it takes them 6 hours to return my many messages to set up a doctor’s appointment? Trust me, I wasn’t so great at maintaining my composure in that instance.
Hmm.
Therefore, wouldn’t it be good, long-term, to winnow out the chafe, the inefficiencies, the waste and the fraud in the Federal government? That is, to level the playing field somewhat? To make the game more fair at that level? We can start there and tackle the private sector later, huh?
To be sure, there will be some short-term pain for Joe Q. Public. No argument. However, what about the higher priced consultants, attorneys, financiers, researchers, NGOs and other ‘”professional” types which depend on government contracts, largesse and bloat for their economic well-being?
Inherent in the ideal of the American Dream is the concept of fairness. Making things “fair” will take time and will require some pain. If that is the Administration’s ultimate aim, it could produce some beneficial long-term results. The positive energy people will release by not thinking the system is rigged and “cheating” them would/could/should outweigh the economic pain of getting from “here to there.”
Further, by not funding waste and inefficiencies in the present, the Federal Government will have the ability to fund necessities in the future.
I mean, do you want your Social Security checks in the future? Or do you want to ensure consulting firms like Booz Allen, which gets 98% of its revenue from the Feds, hit their quarterly earnings target in the present?
Clearly, I am using Booz Allen as a proverbial strawman here. There are many other firms which receive a substantial/sizable portion of their revenue from consulting and “professional” fees from Washington.
In the end, we didn’t arrive at this point in the U.S. economy overnight, where so many people feel as though there is little opportunity. It will take time for the pendulum to swing back the other way. When it does, the economic results will be fantastic, much better than having Washington throw money out of helicopters. After all, it is amazing what the American worker can, and will, do when they think they are getting a “fair shake.”
Perhaps then Beth and I will have conversations about how awesome the service was/is and I don’t have to apologize in advance for something I didn’t do.
Thank you for your continued support. As always, I hope this newsletter finds you and your family well. May your blessings outweigh your sorrows on this and every day. Also, please be sure to tune into our podcast, Trading Perspectives, which is available on every platform.
Chief Economist and Pollyanna
Please note, nothing in this newsletter should be considered or otherwise construed as an offer to buy or sell investment services or securities of any type. Any individual action you might take from reading this newsletter is at your own risk. My opinion, as well as those of our Investment Committee, is subject to change without notice. Finally, the opinions expressed herein are not necessarily those of the rest of the associates and/or shareholders of Oakworth Capital Bank or the official position of the company itself.