Posted by Trixie on Monday, February 17, 2014 Under: Economics
The stock market is setting records. Corporate profits are at an all-time high not in small part because wages are at an all-time low with high (under)unemployment keeping downward pressure on incomes. The past few years have been a boom for Wall Street and a bust for Main Street. Predictably, inequality has skyrocketed to levels not seen since 1929, just prior to the Great Depression. But that's only part of the story. The wheels of growing inequality were set in motion decades ago: stagnant wages and soaring household debt.
What we're told is that workers receive a wage that exactly compensates them for their added value to total output. You know, because free markets are perfectly efficient. In other words, if you make more goods/services, you get paid more. And any deviation from this model -- ie, income/wealth inequality -- means that you're not working hard enough, not skilled enough, not educated enough...or simply not pulling on your bootstraps for long enough to make income magically fall from the sky. If you are one of the 47% 76% of Americans who are living paycheck-to-paycheck, it's because you've not earned a higher living standard. So "just des(s)erts" and all that.
The only problem? It's simply not true. And it hasn't been for over four decades now for anyone who cares to pay attention. American workers have been increasingly producing more and more output per hour and not getting paid for it:
Ironically, the "free market" model worked between 1948 and 1972 exactly the way we've been told it would. Mainly because of strong unions, full-employment policies, high public investment, and a much higher marginal tax rate on top earners. And then sometime in 1973 we said: Nah, we're not going to do that anymore. Because -- oh, I don't know -- you really were getting your "just deserts". And Mr. Market did not like that. So the gap created by decoupling wages from productivity gains increasingly widened by the decade. And inequality along with it.
So where did the productivity gains go? You guessed it -- straight to the top. There are many reasons for economic inequality, but you can't get there without gains from productivity growth going to our corporate overlords. Given that the wealthy have a much lower marginal propensity to consume, the astute reader will ask how we've been able to grow the economy without the masses having the disposable income to purchase their own output. After all, a rich household may own 4 cars, but they won't purchase 4 thousand. The answer is simple: super easy bank credit, which a bank creates out of thin air.
As previously shown, total compensation (green line; wages plus benefits, including rising healthcare costs) representing 80% of the workforce have stagnated since the early 70s. Personal consumption (blue line) remained on a steady upward climb as one would expect from a growing economy. Household debt (red line), however, explodes most notably from the 80s on until it hits a brick wall in 2008 for obvious reasons. Then we bail out Wall Street because "shared sacrifice" and "eat your peas", only to be told that "you're on your own" as 95% of economic gains since the 2009 recovery (such that it is) goes straight to the the top 1%. Win/win, Mr. Market! This also accounts for the massive gains seen by our financial overlords, especially since the deregulation of Wall Street in the late 90s (thanks Clinton).
So now what? Well, politicians would clearly like you to believe that the real issue is way too little Social Security trust funding going on 30 years from now such that benefits need to be cut immediately because -- wait for it -- over the last 30 years a huge share of the nation's economic growth has gone to the top one-hundredth of one percent. They don't mention the latter though. Or that the minimum wage should be lowered to $4/hr from its current $7.25 rate -- meaning an increase of government subsidies for private sector wages -- doing away with all this recent crazy talk of raising it to $10.10, which would create jobs and lift 4.6 million Americans out of poverty. And you have to pay attention to those that want to decrease the minimum wage because on a different day, usually the next, it's these same people that will demand cuts to government assistance programs that they -- wait for it -- specifically engineered increases to in order to subsidize private sector wages. They don't mention the latter though.
Or? Or maybe the solution is that rich people's low propensity to consume may not be all that much of an issue after all. The economy is quite capable of, and already is, adjusting to a new consumer landscape that caters to the upper echelon:
In 2012, the top 5 percent of earners were responsible for 38 percent of domestic consumption, up from 28 percent in 1995, the researchers found.
Even more striking, the current recovery has been driven almost entirely by the upper crust, according to Mr. Fazzari and Mr. Cynamon. Since 2009, the year the recession ended, inflation-adjusted spending by this top echelon has risen 17 percent, compared with just 1 percent among the bottom 95 percent.
Theoretically, if this trend continues, there is no reason why we couldn't have an economy of primarily low-wage workers providing goods and services exclusively for the rich. Foot massages and car elevators for the 85 people that currently hold as much wealth as the bottom half of the global population; Big Gulps for everyone else. And I'm only half kidding. As Paul Krugman once said: "So am I saying that you can have full employment based on purchases of yachts, luxury cars, and the services of personal trainers and celebrity chefs? Well yes. You don't have to like it, but economics is not a morality play, and I've yet to see a macroeconomic argument about why it isn't possible."
So America, eat your peas Big Gulps beans since you've earned little else, if anything, according to our overlords. These are tough times, just look at the persecution of billionaire venture capitalist Tom Perkins, who thinks saying mean things about our rigged by-the-rich-and-for-the-rich system is comparable to that of the Holocaust. Oh, and raise the retirement age to 70, says CEO of Goldman Sachs, who was paid more than $16 million in 2011 as just a banker "doing God's work." Even after bailouts, he presses on, self-stapled to a crucifix.
Look people, a thriving and healthy working/middle class and democratic society doesn't just happen by the "natural forces of free markets" since that outcome is what we'd usually refer to as feudalism; it gets legislated into existence. By you. Because if you don't, someone else will the minute you look away for decades, and it won't be in your best interest. So yeah, free markets government policies ensure that a rising tide really does lift all yachts. Presumably disposable ones so that you'll get the opportunity to build 'em. For like 85 people. All 3.5 billion of you.
In : Economics
Tags: inequality wages
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