Forum Post: “one person’s wage is another person’s cost.

Explaining how this happened, the economist Joshua Bivens reminds us that, “one person’s wage is another person’s cost. Further:

“A key reason why, for example, lawyers and surgeons saw rapidly rising living standards over the past three decades is precisely because the wages and salaries of the majority of American workers did not rise as rapidly. Because the wages of autoworkers and landscapers grew slowly, cars and lawn-care services became relatively cheap, boosting the living standards of workers not concentrated in those professions. Lawyers, surgeons, and financial professionals could enjoy goods and services that were made cheap because the workers them saw such slow wage growth, all while seeing their own salaries move briskly ahead…having the already privileged grab a growing share of the pie over time simply leaves less of it for everybody else, and given the overall rate of income growth over the last 30 years, the only way that low- and middle-income families could have seen more income growth is if very high-income families saw less…more at the top means less at the middle and bottom.” [3]

The related sharp trends of slow growth and upward distribution of wealth and income since the late 1970s reflect a number of policy choices that have served the rich and powerful at the expense of ordinary working people and nearly everyone else across the neoliberal era:[4]

•Letting the value of the minimum wage be eroded by inflation. •Slashing labor standards for overtime, safety, and health. •Tilting the laws governing union organizing and collective bargaining strongly in employers’ favor. •Weakening the social safety net. •Privatizing public services. •Accelerating the integration of the U.S. economy with the world economy without adequately protecting workers from global competition. •Shredding government oversight of international trade, currency, investment and lending. •Deregulating the financial sector and financial markets. •Privileging low inflation over full employment and abandoning the latter as a worthy goal of fiscal and economic policy.

The Inequality Tax

These richly bipartisan policies increased poverty and suppressed wages at the bottom and concentrated wealth at the top. They reversed the nation’s trend toward greater relative equality between the late 1940s through the early 1970s. Among other things, they cut the link that used to exist between overall growth and the reduction of poverty. “If the relationship between overall GDP growth and poverty that prevailed between 1959 and 1973 had held up,” Bivens calculates, the U.S. poverty rate “would have been driven to zero by the late 1980s. Sadly, it didn’t hold up and instead progress in reducing poverty was halted in its tracks.” As a further indication of the extreme “inequality tax” imposed by the rich and their government on the rest of us over the last generation, Bivens and the Economic Policy Institute find that median U.S. family income today would be $9,220 higher if economic growth had been as equitably distributed during the last three decades as it had been between 1948 and 1973.[5]

It hasn’t been about everybody getting rich with the rich just getting rich faster. It’s been about the rich getting richer at the expense of everyone else and especially the poor.

Inequality Crash

The regressive, neoliberal policy regime of the last three plus decades culminated in the Great Recession, sparked by the bursting of a housing bubble that resulted from the de-regulation of the financial sector and the reliance of millions of ordinary Americans on artificially inflated real estate values and soaring household debt to compensate for poor earnings. Thanks to flat wages and weak social expenditures, the tepid expansion of the early 2000s (the weakest upward business cycle on record) depended on an unsustainable upward climb of home prices. The epic collapse that followed generated millions of foreclosures and devastated savings and net worth across the working and middle classes. It brought an official unemployment rate that reached 10 percent (real unemployment went considerably higher) and the longest recession since before World War II.

The crash was foreseen by many, including elite financial interests who failed to warn poor households on the dangers of taking out more debt to buy homes. And it didn’t have to happen – at least not on anything like that scale of the meltdown and depression that resulted. As Bivens noted in his study Failure By Design: The Story Behind America’s Broken Economy last year:

“Policy makers found plenty of resources to throw at tax cuts aimed disproportionately at corporations and the very rich and at wars abroad. And when partisan politics demanded it, resources were also found to enhance Medicare coverage by adding a prescription drug benefit – but only when bundled with flagrant giveaways to pharmaceutical companies and other corporations. If even a fraction of these resources had found their way into well-targeted interventions to boost the job market, the decade could have been very different, with wage growth supporting living standards instead of debt….”

But faster wage growth, Bivens notes, would have “threatened the only economic indicators that performed above-trend in the 2000s: growth in corporate profits.”[6] And that was unacceptable to the corporate and financial elites who dominate policy by virtue of their wildly disproportionate wealth and power in the United States’ plutocratic dollar democracy.

The Rich Have Gotten Back What They Lost

That power casts its shadow over the painfully slow, all-too jobless “recovery,” a reflection of the low demand that results from persistently flat wages and weak public expenditures. This is the long economic “rot” of regressive neoliberal policy – economic decay that caused and survived the Great Recession.

It is true that the nation’s wealthy Few took a major wealth and income hit during the 18-month period between the beginning of 2008 and the middle of 2009. But there was little reason to shed tears for the American rich in the wake of the recession, itself caused by the policies and practices of the economic elite. “As millions of non-rich Americans lose their jobs,” senior Wall Street Journal writer Robert Frank noted last year, “many of the rich are already recovering from the financial crisis, thanks in part to the government bailout of Wall Street and the Federal Reserve’s support of financial markets and cheap money.” As a reader of Frank’s Wealth Report blog wrote last year: “The rich have gotten back what they lost and the rest of America is still in the purple fart cloud of the last bust.”[7]