To fix the economy we have to fix wages. Increased wages will restore demand. The changes that will increase wages will help restore democracy.
The social contract used to be that citizens in our democracy share the benefits of our economy through increased wages that come from increases in productivity. This broke down and working people's incomes have been stagnant since the Reagan Revolution. (Yes, I'm telling the same story again. It needs to be told, over and over so people can understand what is happening to us. We are feeling the effects of the Reagan Revolution coming home to roost.)
Reagan and the conservatives weakened the government and broke the unions. Government and organized labor were the forces in our society that had stood up for the interests of regular people against the "moneyed interests" and weakening them fundamentally changed the fairness equation of our economy. After the Reagan Revolution working people's share of the benefits from increased productivity turned down:
All of the benefits of improvements in our economy now flow to a few at the top. This results in intense concentration of wealth:
With more and more of the income and wealth going to a top few, We, the People are thought of less and less as citizens and more and more as "the help." But who is our economy for, anyway? Our economy can operate for the benefit of We, the People, or it can operate for the benefit of a wealthy few at the expense of the rest of us. This is the ongoing battle. And history has shown over and over that when economies operate for the few, they don't work.
This is not just about sharing the economy, it is about sharing the decision-making power. In our form of government We, the People are supposed to make the decisions. When Reagan said, "Government is the problem" he was really saying that decision-making by We, the People is a bad thing. When conservatives complain about "big government" they are complaining about We, the People having a big share in decision-making. When they call for "less government" they are calling for less of a share of the decisions-making by us. This means the wealthy and powerful have more of a share -- of everything.
With the income, wealth and benefits of the economy increasingly flowing to a top few, working families tried to compensate for the loss in various ways. Women entered the workforce. Former Labor Secretary Robert Reich explains, "By the late 1990s, more than 60 percent of mothers with young children worked outside the home (in 1966, only 24 percent did)." (Please read his whole post if you have time.)
Then, still not getting by on stagnant wages with rising prices, people worked more hours or added second jobs. Then they started using up their savings.
Finally they resorted to adding debt.
This all finally broke down, demand slowed, and the economy has slowed to a crawl. The 90s financialization and "dot com" bubbles obscured the way things were headed, and then the housing bubble of the 2000s continued the illusion. But debt just kept rising people kept working longer and harder to get by, while the richest few kept getting richer. Finally it all crashed and current attempts to prop it up by helping the wealthy and big businesses are not succeeding. Bailing out big banks and their executives and shareholders and not holding anyone accountable, while letting predatory corporations continue their economy-draining practices has not only kept the worst parts of the "share of the wealth" problem in place, it has undermined people's faith in government and demcoracy. Changes need to be made.
Most people pay for things with income from jobs. If we want demand to rise, then we need to raise incomes. But things are still going in the wrong direction. As CAF's Robert Borosage writes today,
"Over the last decade, we lost one in three manufacturing jobs. Inequality reached Gilded Age extremes. CEOs and bankers pocketed million dollar bonuses while cooking the books and gambling on exotic securities, inflating the housing bubble until it burst. Health insurance companies kept a strangle hold on a health care system that costs twice as much as those in other industrial countries, leaves millions uninsured and provides worse health care."
Who Gets What For What?
This bad economy situation is going to drag on until we make real changes in the structure of who gets what for what in this country. Every incentive in the economy is to try to reduce wages, cut benefits and eliminate jobs. Think about that. People get bonuses and raises and owners get richer if they eliminate YOUR job or at least cut back your pay and benefits. For example, by replacing a worker with a machine, the owner of the machine gets more money, the worker gets nothing. But in the larger economy each time this happens it means there are fewer people in a position to buy whatever goods or services the same companies that eliminated the jobs are in business to provide. And it means that a few wealthy people become more wealthy and powerful.
This is where government comes in. Government is supposed to be the force that speaks for and protects the interests of the people, empowers people through education and rules, set conditions to keep wages high, lay down the infrastructure in which businesses thrive, and coordinates the international competition for industries and jobs. But the Reagan Revolution broke that. We need to restore it.
There are so many things that government could be doing to get the economy working again for working people, small and medium businesses and big corporations that want to make an honest living. Boost the minimum wage, modernize the infrastructure, provide health care, provide free education through graduate level, increase Social Security, help unions organize, impose a democracy tariff so imports don't get around the protections provided by our democracy, and return to taxing the rich who reap the dividends and payout of all the past investment that We, the People made to make business thrive.
And there are larger structural changes we can make. Just brainstorming but what if workers replaced by machines directly got some of the income generated by the machine. Workers laid off this way several times might then have enough income to get by without working! Or what if we cut the workweek from 40 hours to, say, 35 before overtime kicks in. Maybe that would increase hiring, while giving regular people more leisure time. (And keep cutting the workweek as machines and computers do more of the work.)
And, of course, to have wages at all people have to have jobs. One would think this would go without saying but these days it seems there is a need to point out that people are hurting for jobs, because the DC elite seem to have moved on from that. We badly need government programs to directly hire people to do things that help the people of the country. We would have all of this if the Reagan Revolution hadn't weakened government of, by and for We, the People.
Other posts in the Reagan Revolution Home To Roost series:
Tax Cuts Are Theft
Reagan Revolution Home To Roost -- In Charts
Reagan Revolution Home To Roost: America Drowning In Debt
Reagan Revolution Home To Roost: America Is Crumbling
Finance, Mine, Oil & Debt Disasters: THIS Is Deregulation
This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
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What's really needed is real economic growth: i.e. generation of new wealth.
Although the economists will complain, "you're causing unemployment by increasing minimum wage!"
Seriously, though ... Minimum wage is typically just about what the market pays, anyway. It's really hard to conclude anything from studies other than that the effect of minimum wage is marginal.
The real purpose of minimum wage is to pander to low-income voters. Politicians get to show their concern for the little guy, without actually doing anything signifant
So, minimum wages don't really have any significant effect, and living wage isn't a viable solution for helping poor people. The good news is that there are other, better ideas for helping lift people out of poverty.
There is something missing from this demand side story as well. I fear that most of us have fallen into this false dichotomy -- I don't exclude myself -- and thus we are utterly failing to get on with the horrendously difficult challenge of imagining an economy that can work in the real world, given where we are now. Even respectable economists seem unable to think beyond tired old notions.
Here's an article first published in the New York Times during the mid-1980's written by Peter Passell. "In what now seems a golden economic age between the war and 1973 the average family's purchasing power doubled (to $28,200). Twelve years and two oil shocks later it had slipped to $26,400.....It takes the typical middle class family more hours of labor to earn less. While incomes fell 6% (between 1973 and 1985) the average wage of a 40 year old male tumbled 12%. Many middle class families only managed to hang onto their living standards by sending second earners into the job market."
Also, why does a 15 year old kid working at McDonalds deserve a living wage? What will it do the cost of items...prices will drastically increase as the cost of creating those goods will rise. So you may make more, but you'll pay more for rent as demand will increase...
I frankly don't know what else we can do. But looking at the conversations about the economy I don't hear many voices actually proposing something different. And if we do what we did we WILL get what we got. Is an economic model based on unending growth really sustainable? Is that where we want to go? Is the purpose of humanity to keep running in the wheel until the sun goes out?
I know I'm being radically optimistic but then you might be accused of that as well. Right now the only two voices allowed into "serious discussions" on this topic are the republicans (Who favor digging the hole much deeper.) and the democrats (Who favor learning to love the hole). At least you want us to get out of it! My quibble is that knowing which SIDE of the hole we should exit on ought to inform our efforts to climb out.
The fact is that if wages were distributed more equitably across the board, there would be more than enough for all of us to have a "living wage," as in, a wage that actually covers basic living costs and allows people to live comfortably. The reason this must be made into law, as in 'big government,' is because most business owners are looking to cut costs, and they consistently have not taken good care of their workers unless some kind of mandate was in place, such as with a union.
Everyone without a job should be given welfare, and everyone with a job should get a "living wage." That means, even if they don't "deserve it." That's my opinion.
First thing to remind you of: public corporations are owned by shareholders, including lots of little old, retired grandmothers. That horrible, greedy "bottom line" is funding their retirements.
I assume your system where wages are distributed equitably across the board is administered by some central authority that decides who gets what. Have you ever considered what might happen if the people running that system aren't all kind, honest people? What if some of them are unscrupulous, influence-peddling politicians?
You say government should not interfere and set minimum wages, things like that. But the corporation doesn't even exist except as a creature of government interference. Corporations are entirely creatures of the government. They exist only within the laws and regulations. They are nothing but a bundle of contracts that enable pooled investment, and are granted that existence by the laws the government passes. So they do whatever We, the People say they do and it is entirely up to us and our responsibility to set these rules -- to be anything we want them to be.
I wonder why you think corporations even exist? Would they exist except that We, the People want them to serve our -- OUR -- interests?
And no, there wouldn't have to be a 'central authority' that decides who gets what. We simply give everyone welfare and mandate a living wage. Guess what, we already have unscrupulous, influence-peddling politicians. We already have most of the wealth funneled to the top--to the very people who need it the least. This is, objectively, inefficient for the well being of our society.
Money is a utility, it is a means of efficiently trading and distributing resources. When you fully detach it from the real world resources and real world needs of the people consuming those resources, you get into trouble. And printing money to infinity to meet infinite debt is unsustainable and does not help distribute our resources in the ways they would be best put to use.
The idea that we can consume ad nausea and it doesn't mean anything, is over. What we put in our bodies matters, and what we dump in the Earth has an effect. We can play the "I've got mine" game and fight over what's available all day, but we've been doing that for centuries. And the hallmark of a civilized society is how it treats the least of these, those that don't deserve "a handout," and those that do concerning basic human needs.
Also, the problem may not be lack of demand which is indirectly causing unemployment. One less noted cause is the overvaluation of the dollar. Not having an overvalued dollar helps to reduce the high rates of unemployment because there is an uptick in demand for U.S. goods and services which become cheaper.
If you think of the overvalued dollar as a tariff, every item shipped from the U.S. to China has an automatic 40 percent tariff added on to it when it enters China. Also the overvalued dollar means that American labor is expensive. This is why GM and Ford move some of their operations to Mexico. We should draw from this that the less the value of the dollar, the cheaper U.S. labor becomes -- yet it doesn't change the wages at home. It just means that our exports are much cheaper.
With corporate contributions at an all time high, who do you really think is running America?
Hint-the people who give the most money would be my first guess.
Then you realize all the charts show is that it's harder for the average guy to make a living. Well, duh, we knew that. And then he does what I see progressives do all the time -- he makes a tremendous logical jump from "there's a problem" to "and, therefore, we must adopt my solution to the problem."
The problem comes with Liberals who want a one-size-fits-all fix along union or minimum wage lines. The majority of businesses do not have CEO's, senior management or even wildly talented employees with extortionate pay. Punishing them for the actions of the few bad actors makes no economic sense.
For those of us who are the principals in a small business, even the possibility of the possibility of a threat to forcibly increase wages insures we increase our productivity through technology rather than human capital. The last thing the US needs right now is something which unnecessarily depresses jobs growth.
By all means "means test" the relative value of CEO wages to the average on a per-company basis. However, you must make sure the remedies are only applied to those companies which fall way over the norm.
We focus on that which improves our community--period!
I know of too many situations where many people remain on layoff, while others are working 72 hours / week or more. This is because the cost of benefits packages make it cheaper to literaly work someone to death than to hire additional help. The solution is to either change the overtime base to double time or apply time and a half to the cost of benefits as well as wages.
Finally, for those at the bottom of the economic ladder, the standard deduction and dependent deductions need to be raised dramatically (say to $20,000 for a couple and up to $10,000 for each dependent). With a family of four receiving $40,000 without an income tax liability, then the marginal rates over $40,000 can be much steeper to pare down the debt and deficit.
Your fast food will be delivered by Robbie the Robot.
This is what ACTUALLY happens, not right-wing "if only people would do so-and-so" stuff.
Then we will get all the things we want.Why don´t we start an internet mobilization in this direction, Dave? this is the only thing that will make a real difference
Cheers
As compared to now, where the wealthy get to decide who runs.