[Marxism] The absence of real forces [was: The low point]

Marvin Gandall marvgandall at videotron.ca
Fri Aug 3 17:55:23 MDT 2007

Sayan, replying to Mark, quoted David Brooks in the NYT:

> "According to the Congressional
> Budget Office, earnings for the poorest fifth of Americans are also on
> the increase. As Ron Haskins of the Brookings Institution noted
> recently in The Washington Post, between 1991 and 2005, ''the bottom
> fifth increased its earnings by 80 percent, compared with around 50
> percent for the highest-income group and around 20 percent for each of
> the other three groups.''
We covered this ground couple of weeks ago. :)

Generalizations about the median pay of Americans - whether it has, in
absolute terms, declined, stagnated, or increased - depends, typically, on
the data sets which are selected, and remains a subject of controversy among
researchers for that reason.

The salient fact, however, is that beneath the statistical skirmishing,
there appears to be widespread agreement that the US rate of wage
improvement has fallen in relative terms compared to previous generations,
and that US workers have consequently become more pessimistic about their
prospects and those of their children.

That would portend , if anything, the weakening rather than strengthening of
the political attachment of the US working class to the system, which has
been based on the "American dream" of of upward mobility and rising living
standards. This seems to be the underlying issue on this thread.

David Brooks notwithstanding, the anecdotal evidence is already pointing in
this direction, as the following articles from the the Wall Street Journal
and Financial Times, just two among many, make clear.

*    *    *

Not Your Father's Pay: Why Wages Today Are Weaker
Wall Street Journal
May 25, 2007; Page A2

American men in their 30s today are worse off than their fathers'
generation, a reversal from just a decade ago, when sons generally were
better off than their fathers, a new study finds.

The study, the first in a series on economic mobility undertaken by several
prominent think tanks, also says the typical American family's income has
lagged far behind productivity growth since 2000, a departure from most of
the post-World War II period.

The findings suggest "the up escalator that has historically ensured that
each generation would do better than the last may not be working very well,"
says the study, which is scheduled for release today. The study was written
principally by John Morton of the Pew Charitable Trusts, which is leading
the series, called the Economic Mobility Project, and Isabel Sawhill of the
Brookings Institution. Other participating think tanks are the Heritage
Foundation, American Enterprise Institute and the Urban Institute.

In 2004, the median income for a man in his 30s, a good predictor of his
lifetime earnings, was $35,010, the study says, 12% less than for men in
their 30s in 1974 -- their fathers' generation -- adjusted for inflation. A
decade ago, median income for men in their 30s was $32,901, 5% higher than
30 years earlier. Ms. Sawhill said she isn't sure why men's wages have
stagnated. "It seems there's been some slowdown in economic growth, it's
possible that the movement of women into the labor force has affected male
earnings, and it's possible that men are not working as hard as they used

The study suggests that absolute mobility -- the rate at which an entire
generation's lot improves relative to previous generations -- has declined.
But within a particular generation, individuals can still get ahead if
relative mobility, the rate at which the rich and poor trade places, remains
high. Poor fathers may have rich sons, and vice versa.

The report also found that between 1947 and 1974, productivity, or output
per hour, and median family income, adjusted for inflation, both roughly
doubled. Between 1974 and 2000, productivity rose 56% while income rose 29%.
Between 2000 and 2005, productivity rose 16% while median income fell 2%,
challenging "the notion that a rising tide will lift all boats," the report

Ms. Sawhill said several factors could explain the divergence: a growing
share of income going to the highest-paid workers, or to profits; an
increased share of labor compensation going toward benefits such as health
care; or a decline in the number of wage earners in the typical family.

*    *    *

Middle America misses out on benefits of growth
By Krishna Guha, Edward Luce and Andrew Ward
Financial Times
November 1 2006

Jack Drake understands better than most Americans how strongly the US
economy has performed over recent years. His job with a media company in
Atlanta involves transcribing conference calls hosted by public companies to
deliver financial information to analysts and investors.

"Almost every day, I listen to chief executives explaining how well their
companies are doing," he says.

But Mr Drake, 42, complains that the soaring corporate profits and robust
economic growth he helps document are not reflected in his own financial
circumstances. His $47,000 (£24,650, ?36,850) annual salary has barely moved
for five years. "Healthcare costs are up. Energy is up. But my income is
standing still."

Mr Drake is among millions of educated middle-class Americans seeing their
pay stagnate and blaming that on technology and globalisation. "It would be
hard to outsource my job because there is so much specialist knowledge and
business jargon involved," he says. "But it is used as an unspoken threat to
keep wages down."

Mr Drake plans to vote Democrat in next week's congressional election. But
he has little faith in either party to protect the economic interests of
ordinary Americans. "I want the Republicans out but I don't see the
Democrats coming up with any good ideas," he says.

The experience of people like Mr Drake helps explain why the Republican
party is not getting the political credit that policymakers in the
administration of President George W. Bush think it deserves for the state
of the US economy. At a time when the party is already under siege over
Iraq, failure to win credit for economic growth could prove costly.

The nub of the problem for the Republicans is this: since 2000 there has
been a striking disparity between growth in productivity and gross domestic
product on the one hand and growth in wages for the average American worker
on the other. Economists call this phenomenon median wage stagnation.

Median measures give the best picture of what is happening to the middle
class because, unlike mean or average wages, median wages are not pulled
upwards by rapid gains at the top. As the joke goes: Bill Gates walks into a
bar and, on average, everyone there becomes a millionaire. But the median
does not change.

Between 2000 and 2005, the US economy grew by 12 per cent in real terms and
productivity, measured by output per hour worked in the business sector,
rose 17 per cent. Over the same period, the median hourly wage - the wage
the average American takes home - rose only 3 per cent in real
(inflation-adjusted) terms. That compares with a 12 per cent gain in the
previous five years. Real median family income fell every year from 2000 to
2004. It increased last year but is still lower than it was in 2000.

Jared Bernstein, an official in Bill Clinton's administration and now at the
Economic Policy Institute, says the gap between productivity and median wage
growth "is the most significant economic challenge of the day". He adds:
"Workers have a right to be concerned about the large and growing gap
between productivity growth and their pay cheques. They are working harder
and smarter, baking a bigger pie more efficiently, but ending up with
smaller slices."

Median wage stagnation is unlikely to be the only reason the Republicans are
not getting credit for strong economic growth - angst over Iraq is almost
certainly poisoning voters' views on a wide range of unrelated subjects. But
it is fair to say that the Republicans would be in a stronger position if
the average worker's pay had better kept pace with overall economic growth
since Mr Bush came to power.

In his first speech as Treasury secretary, Hank Paulson admitted that median
wage stagnation was a problem, saying that "amid this country's strong
economic expansion, many Americans simply are not feeling the benefits". Ben
Bernanke, chairman of the Federal Reserve, has also aired worries about wage
and income trends. He told senators in July that "inequality is potentially
a concern for the US economy...to the extent that incomes and wealth are
spreading apart, I think that is not a good trend."

But while the basic facts are undeniable, there is heated debate as to
whether there is anything unusual about the recent period of median wage
stagnation - and whether it is explained by different policies pursued by
Democrat and Republican administrations or by economic trends and cycles
that politicians can do little to correct.

Gene Sperling, a former chairman of the Clinton council of economic advisers
who is now at the Council for Foreign Relations, draws a pointed contrast
between the Bush years and the later Clinton years. "From 1995 to 2000, as
America became more productive, typical workers, even low-income workers,
were sharing in the wage gains," he says. "Over the last five years, there
has been the continuation of productivity growth but with a historically
small share of the gains going to typical workers."

Republicans see this comparison as fundamentally unfair. Ed Lazear, current
chairman of the Bush council of economic advisers, says it is common for
productivity and real wages to diverge in the first half of a business
cycle. "Wage growth sometimes lags productivity growth, especially coming
out of recessions," he says. Then, as the cycle matures, "real wages begin
to catch up with productivity".

What is different this time, he says, is that unforeseen increases in the
price of oil from 2003 onwards robbed workers of what would otherwise have
been decent real wage gains, based on the expected rate of inflation.

There is undoubtedly some truth in this but it is not the whole story. To
see why real wages for the average worker are not keeping up with
productivity, it is necessary to break the gap down into component factors.

One partial explanation for the gap between productivity and median real
wages is that total compensation - including non-cash benefits - has grown
faster than wages, in part due to rapid increases in health insurance
premiums. "Anything that just looks at cash wages is incomplete," says Greg
Mankiw, a Harvard professor and former chairman of the Bush council of
economic advisers. "On the other hand, no question there is increasing
inequality between high and median income people - no adjusting for
compensation would change that."

Unfortunately, there is no good and timely measure of median total
compensation that includes all these non-cash benefits. At the mean average
level, hourly compensation has grown steadily since 2001, but still much
less than productivity.

Another partial explanation is that prices of consumer goods have risen
faster than those of domestically produced goods in general, so a given
increase in output productivity buys fewer additional consumer goods.

Mr Bernstein and Larry Mishel, also at EPI, estimate that these two factors
account for a little less than half of the total divergence between
productivity and real median wages since 2000. The other half reflects
growing inequality among wage earners and a shift in the share of national
income captured by labour and capital.

In the 1980s, the story of wage inequality in the US was one of the poor
falling further and further behind the middle class, while the rich pulled
ahead. Now the poor are keeping pace with the middle, but the rich keep
pulling away.

Thomas Piketty, a professor at Paris Jourdan Sciences Economique, and
Em­manuel Saez, a professor at Berkeley, estimate that the share of total
income captured by the top hundredth in the US doubled from 8 per cent in
1980 to 16 per cent in 2004. In fact, the gap between the middle and upper
income brackets grew more rapidly in the late 1990s under Mr Clinton than it
has subsequently under Mr Bush. The difference is that in the late 1990s the
rising tide in the labour market was so strong that it lifted all boats,
even if some rose a lot higher than others. In the early 2000s some remained
stranded while others went up.

Mr Mankiw says: "Nothing special happened since 2000. Increasing inequality
happened some time in the 1970s." The late 1990s was the "exceptional
period" - with real wage gains across the income spectrum - but only because
the economy was "going through a bubble". This "was not something that could
be sustained".

Democrats, however, claim labour market gains under Mr Clinton were largely
the result of sound economic policies, including the elimination of the
budget deficit, which encouraged business to hire.

A fundamental feature of the late 1990s economy was a dramatic shift in the
share of national income going to labour, which surged from 56.7 per cent in
1997 to 58.2 per cent in 2000 - and then fell dramatically from 2001
onwards, reaching a low of 56.8 per cent in 2005. Meanwhile, profits soared,
reaching 13.6 per cent of GDP in the second quarter of 2006 - close to an
all-time high.

Mr Lazear argues that the US is today where it was in 1997 - when the
labour/capital share began to swing back towards workers. Nominal wage
growth has accelerated this year - certainly at the average level, probably
at the median too - with an extra boost to real incomes recently from
falling energy prices. "We have seen the turnround," he says.

Others are not so sure, particularly since unemployment is widely expected
to rise from its low of 4.6 per cent, reducing pressure on companies to
compete for workers with pay rises. "I hope Lazear is right," says David
Autor, an associate professor at MIT. "I don't think it is at all normal
five years out of recession for there to be this divergence between
productivity and real wage growth."

It is possible that over the next few years labour as a whole will capture a
bigger share of income from corporate profits. It is also possible that it
will not, since globalisation may have permanently changed the relative
bargaining power of capital and labour in the industrialised world.

But even if average wages start to catch up with productivity gains, median
wages may grow at best sluggishly, reflecting an increasing gap between the
average American and the high-salaried elite. Glenn Hubbard, dean of
Columbia business school and another former chairman of the Bush council of
economic advisers, says most explanations for this revolve around the
"familiar culprits - globalisation and technology".

Increased global competition has eaten away the economic "rents", or excess
returns, earned by US manufacturing workers, he argues. Meanwhile, the
growth of global corporations and markets allows "superstars" - whether in
business, finance, sports, law or entertainment - to apply their talents
across a much bigger base, increasing the economic return to their skills.

The most potent force, though, may be technology rather than globalisation -
though the two are inextricably linked. Larry Katz, a Harvard professor who
worked in the Clinton administration, says information technology is
essentially "complementary to workers at the top, a substitute for workers
in the middle" and of minimal relevance to those at the bottom of the income

"The question is: what's your remedy?" says Mr Hubbard. Most economists
favour increased investment in education; Mr Hubbard thinks the government
should fund personal retraining accounts for workers.

Yet education is likely to be only half a solution, since the big increase
in financial rewards to education is at the very top - to MBAs and law or
medical degrees - and these are not easily spread through the population.
Many pro-Democrat economists favour higher taxes at the top to redistribute
the economic gains more widely.

The difficulty that orthodox economists have in coming up with effective
ways to spread the benefits of growth opens the door to protectionist
populism. This month, median wage stagnation is a problem for the
Republicans. Longer term, though, it may prove an even bigger political
challenge for the Democrats. This will be the subject of a feature in
Friday's FT.

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