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January 27, 2014


The economist Jeff Madrick reports in the current edition of Harper’s Magazine that “A mainstay of capitalist economic theory. . . . is that wages and productivity – that is, economic output per worker – should rise together, but that average wages for workers have risen only 3 percent since 1979, while labor productivity has risen 90 percent.” Thus improved labor efficiency of 90 percent has been divvied up between investors and laborers in shops and factories over the past 35 years on a ratio of 30 to one in favor of those who own the factories over those who work in them. This very unfair disparity in relative reward of new wealth created by improved labor efficiency is what I refer to in my many posts that condemn Wall Street’s “hogging” of new wealth, but such “hogging” is only part of the problem. Wall Street – owned corporations have negotiated cuts in wage scales with their workers under threat of layoff and/or outsourcing to Mexico, China and other such venues. They have also required their workers to make bigger contributions to pension and insurance plans or suffer total cancellation of any such plans. They are as well working their help to exhaustion rather than hiring additional employees in an attempt to further improve economic output per worker and add dollars to their bottom lines.

In view of how the investor class is currently running roughshod over the laboring class in the pursuit of profit, it is not surprising that family median wages have been either stagnant or declining for over a decade.  Results of such practiced greed are not surprising, either. One of such results is that without money in their pockets, aggregate demand has tanked, further resulting in a near-recession status for our economy, even as Wall Street and its outsourcing corporate culture are wallowing in historic profits. We live in two different economies, ours and theirs. We are not all in this together – not even close.

We have known of wage inequality and how median family income has stagnated for years, especially during the 90s when Wall Street (per Jeff Madrick) “was remarkably corrupt. The 1990s saw countless accounting scandals, broker-banker conflicts of interest, under-the-table payments for new issues, and tax loopholes galore.” Madrick could well have expanded his timeline to 2000 and beyond. The big Wall Street banks since the repeal of Glass-Steagall and Chinese membership in the WTO have shown those people in the last century how to do it by taking the world to the edge of depression but for our bailout. They are now bigger than ever and are still involved in daily illegalities leading to billions in fines (with no banksters in jail fines are “mere costs of doing business”). Curiously, real public outrage is still amiss.

So what does all the foregoing have to do with Janet Yellen’s ascension to the throne? Just this. Yellen is a summa cum laude graduate of Brown and holds a doctorate from Yale where she studied with James Tobin, the great Keynesian economist and later Nobel laureate. She was also a student of Joseph Stiglitz, a Keynesian who shared the Nobel Prize in economics with Yellen’s husband, George Akerlof. She is not the usual chair picked from Wall Street banks; she is a product of academia. She has a professional passion for researching labor markets and strategies for driving down the rate of unemployment. She has developed what has become known as the efficiency wage hypothesis, which helps explain why free markets cannot solve the problem of unemployment. I have reason to believe that she is a Keynesian, and though she cannot make fiscal policy as Fed Chair, she will be in a powerful position to align monetary policy with fiscal policy with an eye to restoring labor’s balance with the corporate class and,   I fervently hope, thereby move our economy from the doldrums to robust expansion. (!)  GERALD  E

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