Economists Lawrence Mishel and Heidi Shierholz of the labor think tank Economic Policy Institute (EPI) have been asking this question in their latest work that is at the root of our various economic crises:
"Why did the richest 1 percent of Americans receive 56 percent of all the income growth between 1989 and 2007, before the recession began (compared with 16 percent going to the bottom 90 percent of households)? Why are corporate profits 22 percent above their pre-recession level while total corporate sector employees' compensation (reflecting lower employment and meager pay increases) is 3 percent below pre-recession levels?"
The answers have become becoming blindingly obvious in the glare of the Great Recession. A concerted effort by business interests in general, and Republicans in particular, instigated a massive transfer of newly created wealth from wage earners to the owners of capital via various measures, including lowering upper income tax rates, restricting employees collective bargaining, rolling back regulations on financial institutions, and the like.
Such a wealth transfer has caused tremendous harm to our economy and society. The major casualty has been recurring recessions since the 1970s brought on in large part by mountains of debt. In fact, most of that debt was taken out by households with declining incomes who took advantage of increasingly available credit to borrow to make up for their income shortfall.
What created the wealth? A huge increase in labor productivity brought on by information age technologies for the most part. Labor productivity has increased 254 percent since 1948. Hourly wages, however, increased just 113 percent. That can be seen in Figure A from the EPI, which presents both the cumulative growth in productivity per hour worked of the total economy (inclusive of the private sector, government, and nonprofit sector) since 1948 and the cumulative growth in inflation-adjusted hourly compensation for private-sector production/nonsupervisory workers (a group comprising over 80 percent of payroll employment).
That transfer of wealth since the 1970s has been well documented in books such as Jacob Hacker and Paul Pierson's, Winner Take-all Politics that documents the massive lobbying effort by businesses to bring in business-friendly legislation and administrations resulting not only in the ownership of much of Congress, but an extremely conservative, corporate-friendly Supreme Court that in Citizen's United now allows unlimited corporate donations to political campaigns, and so corporate control of two of the three branches of government for years to come.
The other side of that coin is blatant attempts by Republicans to suppress incomes by taking away collective bargaining rights of both private and public sector workers, such as happened in Wisconsin. The result is the almost disappearance of the middle class that has been the main driver of growth since WWII.
Big Business chose to raise their own incomes and that of their shareholders, but not their workers' incomes, in other words. Yet Big Business was more than willing to lend consumers money via Wall Street and relaxed banking regulations, so much so that the personal savings rate dropped to almost zero during the Bush II administration, as the Calculated Risk graph clearly shows after peaking in 1980. Those consecutive recessions -- six since 1973 -- have been a tremendous drag on economic growth, in spite of the productivity increases.
According to the Federal Reserve's Survey of Consumer Finances, the percentage of households holding revolving credit card debt rose from 16 percent in 1970 to 71 percent in 2004.
Essentially, economic policy has not supported good jobs over the last 30 years or so," said EPI. "Rather, the focus has been on policies that were thought to make consumers better off through lower prices: deregulation of industries, privatization of public services, the weakening of labor standards including the minimum wage, erosion of the social safety net, expanding globalization, and the move toward fewer and weaker unions. These policies have served to erode the bargaining power of most workers, widen wage inequality, and deplete access to good jobs. In the last 10 years even workers with a college degree have failed to see any real wage growth.
All this has been part of an even larger trend, the maturing of our economy from industrial to a service-oriented economy dependent mostly on consumer demand, rather than capital investment as in the past. The result has been documented by Rutgers Economic Historian James Livingston. Though most economic activity over the past 100 years is generated by consumer spending, it hasn't benefited most consumers.
This has to change. We can no longer tolerate such a diversion of wealth that has weakened our economic and social fabric so much that we have fallen behind the rest of the developed world in education, health care, aging infrastructure, and even environmental protection.
Follow Harlan Green on Twitter: www.twitter.com/HarlanGreen
they stink at measuring things like opportunity cost. we can't sell stuff we ain't got. that's the worst. too many spreadsheets ruling the roost right now. we need some holistic leadership. not quarter by quarter short term harvesters at the helm of businesses.
and for crying out loud, what's the use of having boards of directors when the chair and CEO are one and the same more often than not? where are the checks and balances now? as a shareholder/investor i look for companies that have viable policing..... plenty of insanity to go about right now.
no one seems to give a hoot about anything other than their own personal interest over the next bonus cycle....
....Quantitative Easing by the Fed to bail out the crooked Banksters caused big devaluation of the dollar so that today in the last several years your grocery bill has doubled to include all commodities that the public must buy to survive.
Federal Reserve is answerable only to the BANK of England which is owned solely owned by the House of Rothschild. Their MOTTO to saddle the public with debt from cradle to grave. The Bankers motto: to force FORECLOSURE thru the courts as quickly as possible..
In the last 4 years the 1% have increased their holdings, cash, property, net asset value by 40%, the working public are now in the red. So the cry one hears today is ITS OFF to Work I go to make $8.35hr for 27 hrs with no benefits as my good paying job was OUTSOURCED to China...oh whoa is me.
And this is where we need to focus, because use of the term "maturing" is misleading. It implies a natural and unavoidable process, a simple outcome of the growth that comes with aging and evolving. But it would be more helpful and accurate to state "the DEGRADING of our economy from industrial to a service-oriented economy." Because we DID IT TO OURSELVES as a matter of conscious and deliberate policy.
The policy is to embrace BOTH economic growth and a desired level of government spending, at any cost, without regards to either future consequences or to societal benefit. Under an an international gold standard, the pressures to balance trade and to balance budgets force some level of compliance with the restraints of reality. Money, being tied to gold, cannot simply be created at will. But when the tie to gold is severed, credit can be expanded at will, creating an illusion of prosperity that MUST eventually come to an end.
So let's consider that in light of our "maturing" economy. Note on the graph, the divergence occurs right when we left the gold-exchange standard in 1971. This marks the beginning of the age of globalization/financialization - a period where we departed from the idea of PRODUCING as much (or more) as we consumed. The transition (so-called "maturing") from an economy based in investment/production to one based in debt/consumption does not come without logically detrimental consequences.
This transition to a FIRE economy will naturally benefit the 1% disproportionately. It is an economy based in credit expansion and monetary inflation, and one that is only made possible by discarding the balancing mechanism of an international gold standard and embracing fiat money. Without gold to balance global trade, it becomes increasingly unbalanced, leading to credit bubbles, sovereign debt and financial crises.
This trend, resulting in large part from the use of the dollar as global reserve currency, was predicted as early as 1960 by Robert Triffin. Further warnings on globalism were given by Sir James Goldsmith in the early 90s. All the predictions are coming to pass. For those examining economic history, there are no surprises here (except for the fact that things aren't even worse than they are).
http://www.plata.com.mx/Mplata/articulos/articlesFilt.asp?fiidarticulo=161
It was a lie?-----Is the new GOP agenda the same lie---on steroids?
It was a mistake that did just the opposite of what it was supposed to do.
It allowed the wealthy more opportunity to remove a larger percentage of wealth away from workers and out of America...
I believe Big business and the banksters need to be answering why was America abandoned after the GOP and past presidents de-regulated the financial corporations and gave the wealthy taxcuts to the top 1%? WHY WASN"T THAT MONEY REINVESTED IN AMERICA?
Groups like ALEC have been the model---to effectively,,more or less,,,,blackmail the American people by purposely pulling money out of the American economy to cause as much pain and sufferring on the American family as possible...---Speculators sent on a mission to push higher gas prices---using their extra bush tax cut money to kill the American solar panel markets----and help China corner the market while blaming dems for trying to create and compete for any of that anti-oil and gas agenda...Why won't big business help Americans?
Why do they hate us?
Yes. Without any mechanisms to keep investment domestic (changes in tax code, trade policy, etc.) those tax cuts will create jobs in China, not here.
But simply taxing them more won't help, either, because that may only serve to raise consumer prices and accelerate offshoring even more. In addition, stimulus is unlikely to work because consumers are either paying down debt or buying imported goods - neither creates jobs.
Answers and fixes are not coming from either party. (Buddy Roemer excepted.)
http://www.youtube.com/watch?v=5iAIM02kv0g&feature=related
2) The slice of the cost of labor dedicated to wages needs to be translated into the goods which can be purchased with those wages. The writer skipped over the fact that the gains in productivity were largely translated into lower prices to keep up with foreign competition, allowing workers to buy more with their dollars - an effective raise for all consumers.
2) That analyisis has been done before. It turns out that cheap consumer electronics don't make up for the ever rising costs of housing, education, and health care. That's why, in 1970, a man with a highschool diploma could work with his hands 40 hours a week and feed a wife and child. Today, two college educated people working 55 hours a week each have to add things up over and over to see if they can even afford a child.