The U.S. inequality problem in one graph

This is an updated version of an Economic Policy Institute chart I’ve posted before.  It shows that from 1948 through 1979, the hourly wages of American workers rose almost as fast as worker productivity.  From 1979 on, productivity continued to rise, although at a slower rate, but wages hardly increased at all.

If you include the increased debt, including student debt, that most families have taken on, the average wage-earner’s buying power may be even less than in 1979.

What happened?  The EPI cites three things:

1. A greater share of national income to holders of financial assets and a smaller share to wages and salaries.
2. A greater spread between wage-earners and highly paid managers and professionals.
3. A greater increase in the prices of things wage-earners buy (consumer goods and services) than in the things they product (consumer goods, but also capital goods.

What is the answer?  The EPI says the U.S. needs stronger labor unions and enactment of pro-labor government policies, including a higher minimum wage, higher taxes on top incomes and a jobs program based on repairing the nation’s infrastructure.

LINKS

The Agenda to Raise America’s Pay by the Economic Policy Institute.

First Day Fairness: An agenda to build worker power and ensure job quality by Celine McNicholas, Samantha Sanders and Heidi Shierholz for the Economic Policy Institute.

Understanding the Historic Divergence Between Productivity and a Typical Worker’s Pay: Why It Matters and Why It’s Real by Josh Bivens and Laurence Mishel for the Economic Policy Institute.

The Survival of the Richest by Nomi Prins for TomDispatch.

Why doesn’t technology make us all better off?

We Americans long enjoyed the world’s highest material standard of living, and we were told that was because of the superior productivity of American industry.  That sounds like common sense.  If you want more, you need to produce more.  Obviously.

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But about 30 or so years ago, this changed.  Our productivity continued to increase, but our wages and salaries didn’t increase along with it.

Why?

Some say that the problem is technology.   Automation means that fewer wage-earners are needed, and our work had less value.   So naturally there are fewer jobs, and employers generally don’t have to pay as much to find people to take these jobs.

Fewer wage earners are needed.  Needed by whom?  Our work has less value.  Value to whom?

They are less needed, and of less value, to the corporate boards and wealthy stockholders who own the technology.  Or, to put it another way:  Capitalists, not workers, own the means of production.

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It’s true that the average factory worker or retail clerk did not personally create the technological innovations that made it possible for them to do more with the same amount of work.  But neither did the average corporate executive or corporate stockholder.

If technology is owned and controlled by a small financial elite, then the applications of technology will be such to benefit that elite.

It is possible that, in acting in their own interest, the elite will do things that are good for society as a whole.  It also is possible that they will do things that are bad for society as a whole.

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When that happens, we the people need to understand that their power and ownership is not based on divine right or impersonal economic laws.   It is the result of corporate structures and legal rights established by law, and laws can be changed.

Some radical thinkers, such as Stanley Aronowitz, David Graeber, Richard D. Wolff and Gar Alperovitz, are reviving the idea of worker ownership and public ownership of the means of production, which is not the same thing as government ownership.

More moderate reformers think it is just necessary to change the balance of power within society.

The important thing, as I see it, is to stop letting priorities be determined by the “job creators,” the ones who own the machinery, the research laboratories and the so-called intellectual property.   The question is not whether they need us.  The question is whether we need them.

LINKS

Of Flying Cars and the Declining Rate of Profit by David Graeber for The Baffler.

Why Wages Won’t Rise by Robert Reich.

The Great Decoupling of the U.S. Economy by Andrew McAfee on his blog.

Global lessons on inclusive growth by Jason Furman for Policy Network.

The Most Important Economic Chart by Atif Mian and Amir Sufi for House of Debt.

The wedges between productivity and median compensation growth by Lawrence Mishel for the Economic Policy Institute.

 

 

The rising tide no longer lifts all boats

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President John F. Kennedy used to say, “The rising tide lifts all boats.”  What he meant was that economic growth benefits everyone.   The chart above shows that this once was true, but is no longer so.  The links below give some possible explanations as to why this is the case.

http://houseofdebt.org/2014/03/18/the-most-important-economic-chart.html

http://www.nakedcapitalism.com/2013/08/productivity-rose-7-7-post-great-recession-workers-have-seen-none-of-it.html

Pay vs. productivity growth around the world

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The gap between growth of workers’ productivity and workers’ wages exists in a number of countries, but the gap is much wider in the United States than in other advanced industrial countries.

I took the second chart from an on-line article by an analyst who thinks this is a good thing, not a bad thing.  This analyst thinks it means that U.S. manufacturing is becoming more competitive internationally.

The failure of wages to keep up with productivity could be a good thing if it meant that the profits of U.S. industry were being plowed back into modernizing factories and infrastructure, expanding industrial research and creating new industries.  Do you see any sign this is happening?  Or is this just income being redistributed upward?

Click on US Manufacturing Restores Competitive Vigor for the source of the second chart and an optimistic view by Joseph G. Carson on the AllianceBernstein Blog on Investing.

Click on Signs of Factory Revival Hard to Spot for a skeptical view in the Wall Street Journal.

“I’m working harder and falling behind”

For the past decade, the incomes of average Americans have been flat while the productivity of the American economy continued to increase, and the United States continued to produce more goods and services per person.

Millions of Americans, including anybody who follows this web log, know this all too well.  But according to Time magazine, the news is starting to reach inside the Washington beltway.  Republican Majority Leader Eric Cantor gave a major speech on this subject to the American Enterprise Institute.  His answers—school choice, federal help to parents in paying for school, family-friendly work policies, tax simplification and so on—touched only on the fringes of the problem.

The challenge to the Obama administration is whether they can come up with something better.

Michael Scherer of Time magazine, like so many in Washington, thinks impersonal economic trends are the problem.

Part of the shift can be attributed to increased income inequality owing to globalization and new technology — the wealthy becoming much wealthier, while the rest stayed the same. Part of it can be attributed to increased corporate profits, as new markets opened overseas and new technology lowered costs. Some of it has to do with how the figures are calculated. But the most important political takeaway of the chart is that at the turn of a new century, much of the U.S. stopped feeling the benefits of a growing national economy.

If the problem is the inexorable force of globalization and automation, which make the work of ordinary Americans objectively worth less and the worth of the elite objectively worth more, there is not much to be done.  But the question is: worth less to whom?   I acknowledge that the world’s richest 0.01 percent do not think they have any need for people like me.  Then again, I don’t see that people on my level need them.

But maybe the problem is that the corporate and governmental system is rigged to benefit people at the top at the expense of people at the bottom.   To the extent that this is the true explanation, the way forward is clear.   It is to un-rig the system.

Click on The Most Important Chart in American Politics for Scherer’s article in Time on the political implications of stagnant family incomes in the midst of rising productivity and output (GDP) per person.

Click on A Lost Decade in American Politics for background on productivity, GDP and family incomes by Jake Berliner of NDN, an economic research organization..

Click on Eric Cantor’s ‘Make Life Work’ Speech for the full text of his speech Tuesday.