Tuesday, May 08, 2018

COTW: Wage Suppression

Most informed Americans know about the growing income gap between the fabulously wealthy 1% and the rest of us.  Here is a chart to remind you of the problem:

Because of steadily increasing productivity since WWII, conventional economists have been somewhat at a lost to explain the stagnation of middle class income.  Forced to grope for answers, the explanation being offered by less doctrinaire authors is not unexpected to those who are critical of the capitalist system: wage suppression.  That has an ominous connotation, since it implies a conscious effort on the part of the owners of capital to stifle wage growth.  The chart below shows shows that in the three decades following World War II, hourly compensation of the vast majority of workers rose 91 percent, roughly in line with productivity growth of 97 percent. But for most of the past generation (except for a brief period in the late 1990s), pay for the vast majority lagged further and further behind overall productivity.  Workers are producing more without being paid more, thus increasing the amount of surplus value capitalists can reap.

charts credit: Economic Policy Institute

This decoupling coincided with the passage of many policies that explicitly aimed to erode the bargaining power of low- and moderate-wage workers in the labor market. Instead of a Dickensian federal minimum wage of only $7.25 an hour,  the minimum wage would now be at $18.00 an hour!  Most social activists think that a minimum around $15 is the minimum needed to support a working family.  The federal minimum wage did keep pace with productivity in the 30 years before 1968.  The decline of union membership and with it the eroding of collective bargaining also contributes to wage suppression.  Global integration with low-wage countries, accelerated by particular trade policies, has adversely affected wages of non–college educated workers.  It is no mystery where all the surplus value has gone when you consider that CEO compensation has skyrocketed to the point where they now earn 296 times what a typical worker earns.  At the turn of this century that figure was a sickening 383 times.  You do not need to be a Marxist to understand what such extreme social inequality does to a society. Lincoln summed it up:  a house divided cannot stand.*

*One of US Person's preferred economists, Michael Hudson, writes at Counterpoint,  "A century ago there was an almost universal belief in mixed economies. Governments were expected to tax away land rent and natural resource rent, regulate monopolies to bring prices in line with actual cost value, and create basic infrastructure with money created by their own treasury or central bank. Socializing land rent was the core of Physiocracy and the economics of Adam Smith, whose logic was refined by Alfred Marshall, Simon Patten and other bourgeois economists of the late 19thcentury. That was the path that European and American capitalism seemed to be following in the decades leading up to World War I. That logic sought to use the government to support industry instead of the landlord and financial classes."  This approach failed under attacks from rentiers and allied theorists, who denied economic rents were unearned.  Milton Friedman's famous quip, "there is no such thing as a free lunch" epitomizes the reaction of the Fredrick Hayek, the Austrian School, the Chicago School and others against the Ricardian idea of interest as a predatory charge levied by hereditary wealth and the privatized monopoly right to create bank credit. Instead, these theorists touted an essentially ascetic proposition that interest represents a form of self-denial--the abstention of spending to provide lending to others."  The overhead of economic rents growing exponentially emphasized by Marx is ... "subjecting today’s Western finance-capitalist economies to austerity, shrinking living standards and capital investment while increasing their cost of living and doing business. That is the main reason why they are losing their export markets and becoming de-industrialized."  The rejection of "bourgeois socialism" and subsequent descent into bankruptcy, foreclosure and the transfer of property from debtors to creditors is the dynamic of Western finance capitalism. By 2008 this inevitability surprised even Alan Greenspan, one of finance capitalism's chief archetects.