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June 26, 2014

In Part I we saw samplings of what economists viewed as root causes of our chronic wage inequality and failure of our current economic performance as against a background contrast with the progressive sharing of productivity increases in the first 30 years or so after World War II leading to an economic performance that worked for all of us with corporate sharing of such increases with labor. I ended that part with a promise to discuss the doubtful application of the phrase “adjusted for inflation” in Part II.
“Inflation” is a number the government arrives at when considering a bundle of goods and services that average Americans use and pay for over a given period – usually a year. There may be prices as among such items considered that go up or down, but the weighted average arrived at from the prices of all such items in the bundle gives us a number which tells us whether inflation is up or down, and by how much. Or does it? That depends on the items selected for inclusion in the bundle.
What if heavily used items to be considered (a political choice) are left out of such calculations leading to the weighted average in our equation which result in inflation or deflation, as the case may be? I say that such a failure of inclusion, especially of food and energy, and their removal from calculations of rates of inflation as commandeered by Reagan on grounds that these two items’ pricings were “too mercurial in pricing to include”, means that the final number is more than suspect; I say that it is wrong and deliberately so, as we shall see.
I can’t think of a more representative item for inclusion in this “bundle” than food, nor can I think of an item in more general use by everyone than that of energy. Even those without cars and gas mowers are driven here and there in busses, other cars, taxis and by air or rail and yet other forms of transportation. The food and furniture such carless consumers buy and a myriad of other delivery services they pay for are brought to them by gasoline-powered trucks, trucks also used by the farmers who raised the food and the furniture makers who manufactured the furniture and all the others in the chain of production leading to the final delivery to the consumer.
Everyone in America uses food, and everyone in America, directly or indirectly, uses energy. Were these two items (ostensibly) removed from the bundle by Reagan because their up and down pricing over the course of a year made the final number too difficult to compute? Such nonsense! Computer programs solve such a problem in seconds, and even then, statisticians could easily compute such pricing variations and assign them their weighted role in the calculation of the rate of inflation. Then why did Reagan strip the heart and soul of universally used items out of any honest computation of the “rate of inflation?” I have a darker suspicion. He did so as yet another favor for the corporate culture. How?
In Part I I suggested that Reagan’s move was designed to keep and make the poor poorer by reducing their social security payments (which are tied to the rate of inflation), but it is far more than that. While there are any number of pensions and other such investments and private contractural payouts tied to “the rate of inflation,” consider this (though without access to corporate boardrooms and emails and congressional back offices, I can’t prove it): That corporate America wanted politicians to reduce the potential for a real inflation rate to be found because they would be under pressure to pay higher salaries and provide more benefits to their workforce if the true rate of inflation were known, thus reducing their bottom line profit.
If so, and considering that this happened circa 30 years ago, imagine the billions if not trillions of dollars that have been denied to not only older Americans but to our economy and Americans generally of whatever age. Consider also what such a phony and continuing calculation has done and is doing to aggregate demand now and over the years, such a policy’s effect on employment, new business start-ups, depressed sales by merchants, bankruptcies etc. We of all ages and stations in this economy have been forced to take cuts in our purchasing power via the political chicanery of those beholden to the corporate culture, politicians who “solved” the problem of increasing inflation by simply removing “incendiary” items from the bundle that gave rise to our economic malaise in the form of continuing pay cuts each new year – and who pocketed the “savings?” The corporate world, our captors, the same people who now oppose a minimum wage increase, health care, and other indicia of First rather than Third World status in this modern world, a world which is leaving us behind to our profiteers and ideologues, a world aware of bottom lines but not enslaved to them in making policy for all.
The foregoing is only one of several weapons the rich and corporate class has employed in keeping wage inequality intact. They have used and are using other such weapons with the connivance of politicians in the back rooms, but time and space require that I leave those to future treatment.
So, will coming up with money to fund education and a higher minimum wage restore good earnings for the working and middle class? Kuttner thinks not. It is going to take more than a wage raise and more education to set us on the road to recovery. He thinks our experience in World War II and the some 30 years following demonstrated that a different structure of a capitalist economy, rooted in public investment and full employment, is possible, and that the current failure to spread productivity gains has little to do with technology, skills, or even globalization – and everything to do with our failure to constrain great private wealth, empower labor, and creatively use democratic government for national purposes.
Such a critique and implied solution sound Keynesian and straight out of New Deal precepts and principles and I agree with the learned professor in his identification of the problems we have and how to solve them. However, a time element is involved. Assuming we can and will follow his instructions with a progressive Congress and White House that comes up with the necessary legislation, we still have to survive during the interim, and survival must include such matters as increases in minimum wages, honest and real world cost of living calculations which include food and energy, whatever we can do with the ACA prior to adoption of single payer health care, an end to wage inequality and corporate refusal to share in vastly increased productivity increases – the list of corrective measures go on and on because of all the corporate atrocities visited upon us since 1974 waiting in line to be corrected.
We need a more equal and secure society than the one we have today, but it won’t just happen. We have to struggle for it, but while daunting, it is attainable with right on our side and the energy and perseverance we can muster to put America back on track again. We know what we have to do and we know that you start from where you are in the here and now, so let’s get on with it. GERALD E


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