[Marxism] Any Long-Term Solution to the Economic Crisis Requires Raising Wages and Redistributing Income

Greg McDonald sabocat59 at mac.com
Fri Dec 26 05:32:47 MST 2008


Mark Naison: Any Long Term Solution to the Economic Crisis Requires  
Raising Wages and Redistributing Income

Source: Special to HNN (11-26-08)

[Mark Naison is Professor of African American Studies and History,  
Fordham University.]

The roots of the current economic crisis in the United States are  
strikingly similar to those which provoked the Great Depression of  
the 1930's. In each instance, the economic collapse followed a long  
period of economic expansion in which profits far outpaced wages,  
leading to massive speculation in unregulated financial products and  
the stimulation of consumer demand by having wage earners to take on  
large amounts of personal debt. When the speculative bubble  
collapsed, as it did in 1929 and 2008, weakening or destroying major  
financial institutions, consumer demand could not keep the economy  
afloat once credit was no longer available. In 1929, this produced a  
three year economic contraction that led to a third of the nation's  
labor force being unemployed and the steel and auto industry  
operating at less than 30 percent of its capacity. In 2008, we are  
not at that point--- yet. But we are seeing a profliferation of store  
closing and bankruptcies among major American retailers, a wave of  
home foreclosures, and the impending collapse of the American  
automobile industry. With all of these leading to further job losses,  
and further drops in consumer demand, it is hard to see where the  
power to reverse the economic free fall will come from.

The current strategy, of both the Bush Administration and the  
incoming Obama administration, seems to be to inject funds into the  
collapsing banking system to make sure credit is available, and  
develop a stimulus package that will put income into consumers hands  
through a combination of job creation and transfer payments (food  
stamps, unemployment insurance). All this is probably necessary to  
prevent the economy from shrinking at the rate it did in the early  
Depression.

But because consumer credit will never again be so freely available  
through the major instruments used to promote it in the last 20  
years- primarily credit card debt and second mortgages on homes- it  
is hard to see how American consumers can again become the engine of  
economic growth unless working class and middle class incomes start  
growing at the rates they did between 1945 and 1970. Some of this  
income growth can be encourage by lowering tax rates on middle class  
incomes and developing a program of national health insurance, but  
any long term solution requires a national wage policy to address  
income inequality and improve the bargaining power of American workers.

Even Larry Summers, President Obama's new economic advisor,  
recognizes that economic inequality is one of the major causes of the  
nation's economic collapse. According to today's NY Times, Summers is  
now arguing that the lack of middle class income growth is "the  
definining issue of our time" and using the following parable to  
illustrate his point:

" To undo the rise in income inequality since the late ’70s," Summers  
argues, " every household in the top 1 percent of the distribution,  
which makes $1.7 million on average, would need to write a check for  
$800,000. This money could then be pooled and used to send out a  
$10,000 check to every household in the bottom 80 percent of the  
distribution, those making less than $120,000. Only then would the  
country be as economically equal as it was three decades ago."

Since no such voluntary program in income distribution is ever going  
to take place, how do we assure that working class and middle class  
incomes rise sufficiently to be a source of consumer demand as well  
as provide a decent standard of living to most Americans?

I have two policy suggestions which would ecourage such an outcome:

First, that the federal government impose an income standard on any  
bank, insurance company or manufacturer that receives a federal  
subsidy that its highest paid executives make no more than 10 times  
the salary of that company's lowest paid worker. Two highly  
successful companies, Ben and Jerry's and Costco, operate with such a  
standard, and there is no reason that it could not prevail throughout  
American industry. This would give company managers a strong personal  
incentive to raise wages throughout their enterprises and would  
prevent huge portions of corporate income from being directed into  
executive compensation.

Secondly, the Congress and the incoming administration should revise  
labor law to make it much easier to organize unions, encouraging  
unionization drives in the lowest wage sections of the American  
economy, especially retail trades, food processing, agriculture and  
the hotel and restaurant industry ( including fast foods). Strong  
unions will assure that workers get a fair share of corporate profits  
and that low wage workers can become consumers without incurring huge  
amounts of debt.

Only policies such as these can create an economy where consumer  
demand rests on a firm enough foundation to promote economic growth  
without uncontrolled debt and speculation.

Promoting econmic equality is not only a strategy for national unity  
in times of hardship, it is the only way out of the mess we are in.





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