Every day, there is another example of the conspiracy of silence that pervades the traditional media's description of the current economic crisis. Sure, de-regulation, greed and pure stupidity has a lot to do with it. But, in truth, the underlying reason for the collapse has been a persistent war on the wages of American workers. Call it -- egads -- class warfare.
What is astonishing, and aggravating, is that much of the traditional media continues to point the finger at workers -- those wild-spending people who just bought all those yachts, fur coats and mansions in far-away countries. And, now, shame on them, those wild-spending workers are doing something awful -- they are saving money.
This morning brings another example, courtesy of The Wall Street Journal (subscription):
Rick and Noreen Capp recently reduced their credit-card debt, opened a savings account and stopped taking their two children to restaurants. Jessica and Alan Muir have started buying children's clothes at steep markdowns, splitting bulk-food purchases with other families and gathering their firewood instead of buying it for $200 a cord.As layoffs and store closures grip Boise, these two local families hope their newfound frugality will see them through the economic downturn. But this same thriftiness, embraced by families across the U.S., is also a major reason the downturn may not soon end. Americans, fresh off a decadeslong buying spree, are finally saving more and spending less -- just as the economy needs their dollars the most.
Usually, frugality is good for individuals and for the economy. Savings serve as a reservoir of capital that can be used to finance investment, which helps raise a nation's standard of living. But in a recession, increased saving -- or its flip side, decreased spending -- can exacerbate the economy's woes. It's what economists call the "paradox of thrift."
U.S. household debt, which has been growing steadily since the Federal Reserve began tracking it in 1952, declined for the first time in the third quarter of 2008. In the same quarter, U.S. consumer spending growth declined for the first time in 17 years.
The article goes on to describe how people are now pulling back from spending and doing with less. But, nowhere in the piece do we read about the most important factor that lead to people piling up debt: the lack of wage growth.
I have been doing a presentation around the country about the short-term and long-term reasons for the economic crisis facing workers. Here is the slide (courtesy of the Economic Policy Institute and Change To Win) that I think is perhaps the most graphic, clear explanation of why we are where we are. It measures productivity versus wages:
Basically, the basic bargain was roughly this -- if you worked hard and became more productive, you would see that sweat of the brow in your wages. And from the post-war era until the 1970s, that deal basically held -- as you can see from the lines that are basically close together until the 1970s.
Then, the lines diverge -- dramatically. You can see it yourself. If the lines had continued to track closely together as they did prior to the 1970s, the minimum wage would be more than $19 an hour. The minimum wage!
So, in short: people had no money coming in in their paychecks so they were forced to pay for their lives through credit -- either plastic or drawing down equity from their homes. There are lots of reasons that this happened -- greed, the attack against unions, de-regulation, dumb trade deals.
But, the point is: we will never fix the economic crisis, whether through short-term economic stimulus and certainly not through tax cuts, until paychecks are re-inflated. Dramatically.
I outlined a whole set of solutions to bailout American workers but the main one is simple: raise wages. Dramatically. And end -- and I know some people cringe at the term -- the class warfare that has been underway for the past three decades.
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Because some people thought it would be better to insulate the public education system from intellectual competition FOR POLITICAL REASONS
this has to end... you can talk about low wage workers under financial stress.. but if you don't fix the substructure, you'll be whining about this problem for decades.
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The minimum wage should be just over $19.00 an hour now if a small family is to escape poverty. Why suggest anything less than a real, living, non-poverty wage?
The solution to this is very simple:
Legislatively tie the minimum wage to what the United States Department of Labor and its Bureau of Labor Statistics would determine a real living--- non-poverty--- wage to be, based upon real cost of living factors... if $19.00 is the where the minimum wage should be for a small family to live out of poverty, so be it; legislate it at that level.
Suggesting a sub-poverty-level minimum wage should be abhorent to every progressive.
Alan L. Maki
Director of Organizing,
Midwest Casino Workers Organizing Council
However, there was an inverse aspect to this, as I recently read somewhere. Just as the wage stagnation caused an increase in borrowing, the increase in borrowing caused wage stagnation. If your paycheck isn't going as far as it used to, why go through the effort of confronting your boss for a raise and risk rocking the boat, when you can just borrow gobs of money at nearly zero percent? It's the path of less resistance. Of course, it's not a wise path, since that extra money isn't yours to keep; you'll have to pay it back, and with interest.
The availability of easy credit and wages hitting a wall in 2002-2005 were definitely connected.
Now that financial institutions are more stringent in their lending standards, it'll be interesting to see if there's noteworthy upward pressure on wages after the recession abates. (Whenever that is.)
I also wonder what the graph would look like if you could tweak it somehow to show the cost of living as compared to wages and productivity during the same time period?
Being one of those corporate workers mentioned in a previous comment, I think that the stagnation of wages combined with cost of living increases personally impacted workers like me tremendously: My health insurance costs alone for my family have me taking home less money today than I did pre-9/11, even though my salary has modestly increased during that time period. So while on paper I make more money than I did 8 years ago, the real impact to my pocket book has been the exact opposite. Today I haven't really any spending money each month... It all goes to pay the bills and feed and clothe my family... and I don't have an extravagant life style as evidenced by our two more than 10 year-old cars and only a $200 limit credit card.
http://eye-on-washington.blogspot.com
Why did productivity and wages diverge? Trade imbalance! Plot the trade U.S. deficit on your wage/productivity chart. It's no mere chronological coincidence when the W/P divergence occurred.
Absolutely nothing, that doesn't directly reduce the trade deficit, will work to turn around the economy.
The per capita amount of the current trade deficit is more than enough to explain all the economic hardship on all sides!
Yes, and then deregulation and the whole nation hitching its wagon to the Dow Jones average. THe old ways of exerting pressure on business to pay more just dont seem to work anymore.
It was quite unsettling as I sat in a software sales pitch last month when I realized, OH if we buy this program, 70% of my job will be done by computer. That never happened before.